Innovations in Global Mobility Vol. 1, No. 4

Expanding in Latin America? Consider Panama’s incentives for assigning your employees there.

By Sandra Huertas and Melissa Mata

Latin America gets worldwide recognition for its emerging markets and double-digit growth. This is good news on a macro level, but it puts pressure on both political leaders and employers on a micro level. Latin American companies are expected to contribute consistently to profitability, minimize market fluctuations, and pull other regions such as Europe and North America into stronger economic health.

Some of the challenges that Latin American companies face include: aligning business strategy with the special economics in emerging markets, responding quickly to sometimes-competing demands, managing significant currency fluctuations, and staffing despite a shortage of talent in some regions.

Latin America tends to attract significant foreign investment, which has given many companies the opportunity to expand into other Latin American countries, becoming “Multilatinas.”

As they consider which other countries to do business in, many Multilatinas are looking carefully at Panama because of some relatively recent economic incentives offered there. Panama is trying to become a worldwide service hub, and is promoting its attractive location, tropical climate, dollarized economy, business-friendly legal environment, and large banking center.

In 2007, Panama enacted a law granting special status to SEMs (Sede de Empresas Multinacionales – Multinational Headquarters). This law bundles tax and immigration incentives in one place to encourage multinational companies to form headquarters organisations in Panama. The SEM´s legal framework provides potential benefits including tax relief for companies and employees, the ability to hire an unlimited number of foreign personnel, expedited treatement for working visas, and pension relief for expatriates.

Panama’s population has been growing slowly and steadily, but currently numbers only about 3.5 million people. So the SEM law can be seen as a response to a perceived talent shortage and a way to increase the country’s base of managerial and professional employees.

As with any other decision to move employees outside their home country, a company considering whether to take advantage of Panama’s favorable SEM tax-and-visa regime will face a range of challenges. These include ensuring that the compensation and benefits package offered to expatriates is both equitable and attractive, recruiting and training the right employees, and managing their personal and business needs once they are in Panama.

In 2011, Mercer conducted a special survey regarding mobility policies and practices for international assignments and local expatriates based on a selected group of SEMs. Employers were asked whether they treat their expatriates as being assigned for long-term commitments or whether they instead “localize” expatriate compensation and benefits to match those offered in the host country. The survey showed that 58% use the long-term assignment model and the remaining 42% localize. In both cases, employers pay for visas for employees and their family members.

Other survey questions revealed significant differences in benefits granted, depending on the expatriates’ status as long-term or localized. For example, for long-term expatriates:

• 86% of the companies surveyed grant total coverage of housing cost and other related expenses;
• 88% provide medical insurance with emphasis on an international medical plan;
• 86% provide almost total coverage for children’s education cost (tuition, registration, meals and transportation); and
• the monthly allowance of for automobiles was USD 400 average for executives and directors.

The SEM's framework defines mandatory benefits to be granted to foreign personnel while working in Panama. A Multilatina or other multinational employer will definitely want to consider carefully the costs and benefits of moving personnel to Panama and ensure that they take advantage of the legal, tax, and immigration benefits the SEM law allows for. Doing business in Panama – or any other Latin American country, for that matter – needs to be part of a coherent mobility strategy that aims to put the right people in the right place for the right amount of time at the right cost. Such a strategy can contribute to a profitiable return on an employer’s investment in human capital.

About the authors

Sandra Huertas (sandra.huertas@mercer.com) is the leader of Mercer's Latin America Global Mobility Center of Excellence, with expertise in designing and developing executive and managerial expatriate strategies with a regional and global scope.

Melissa Mata (melissa.mata@mercer.com), based in Bogotá, leads Mercer's global mobility advisory for Colombia, Peru, Ecuador, and Central America.