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Taxes in Panama

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Panama Commercial Permit Tax
(Aviso de Operacion)

All persons and entities doing business within the Republic of Panama must get Panama Commercial Operation Permit issued by the Ministry of Commerce and Industry. The annual tax for this permit is 2% of the company's net worth with a maximum payment amount of $60,000 USD.
Companies located in special economic or development zones or within free trade zones pay at a rate of 1% with  maximum amount of $50,000 USD.

Panama Sales Tax
(ITBMS)
The Panama Sales Tax applies to the imported goods, products or services sold inside of Panama. The importer, seller, or service provider pays this tax. The ITBMS is 7%.
Higher rates are levied for the sale of alcoholic drinks (10%), tobacco products (15%), and specific services, such as housing services (10%).
Exceptions to paying this tax include free trade zone transactions, power generation & distribution services, cargo and passenger transportation by sea, air, or land.
Most businesses pay this tax monthly.

Importing Products into Panama

Products imported into Panama which are not exempt by the law or international trade agreements are subject to import tariffs and the ITBMS tax. The import tariffs differ by products and are set forth in a tariff line system.

Panama Individual Income Tax

Here are the Panama Income Tax Rates:

  • Individuals who earn less than $11,000 per year pay no income tax.

  • Those earning between $11,000 and $50,000 pay a 15% Panama tax rate and

  • Those earning $50,000 or more pay a 25% rate.


Various Panama Income Tax Deductions Include:

  • Married couples are $800 with their joint tax return.

  • Mortgage interest paid on the primary home can be deducted up to $15,000 yearly.

  • Student loans interest payments for the taxpayer's or dependents' education in Panama is fully deductible.

  • Health insurance premiums are deductible.

  • Contributions to private pension plans not exceeding 10% of the individual's gross yearly income to a maximum of $15,000 yearly are deductible.

Foreign Residents: Foreigners who reside in Panama for more than 183 days per year and earn income in Panama will be taxed at the same rate as nationals.

Annual Returns: Individuals must file their annual income tax return before March 15th.
Individuals whose only source of income is single salary are exempt of income tax because the employer withholds the share of each salaries payment for taxes.

Panama Corporate Income Tax

  • The only income which is taxed is the one derived from within Panama. The sale of products or services to people, entities, or companies in Panama are considered as Panama source income and taxed.

  • The sales of products or services to persons, entities, or companies located outside of Panama are not taxed.

  • Income derived from the leasing or sale of Panama real estate is taxed.

  • Commissions and interest earned from the loans financing business in Panama is taxed.

  • Call centers enjoy a special law exempting their earnings from income tax.

  • Trading companies which invoice products which never enter Panama are not taxed.

  • Companies in Panama who facilitate business activities conducted outside of Panama are not taxed.

  • Interest from savings and CD bank accounts from licensed Panama banks and Panama Credit Unions are tax exempt.

  • Interest from debt securities registered with the Panama National Securities Commission and listed on the stock exchange are tax exempt.

  • Non-resident financial institutions and lenders who receive interest and commissions paid by Panama banks or for the construction of public housing are also tax exempt in Panama.


Income Tax: Taxable income is derived from subtracting foreign source income and tax exempt income from the gross income.

Deductions: Business expenses used to generate taxable income or to preserve the business are considered as deductible from the income taxes and must be documented and are only allowed in the same year they occurred.


Income Tax Rates:

  • Corporate tax rate is 25%.

  • Companies involved in telecommunications, banking, power generation, manufacturing cement, casino and gambling activities, and insurance or reinsurance pay 25% tax.

  • If the government share in company's capital is 40% or more than the company will pay the 30% rate. Companies involved in agriculture and small businesses have a special lower income tax rates.


Calculation: The traditional calculation of income taxes is to simply multiply the net taxable income by the tax rate. Panama corporations with taxable income exceeding $1.5 Million use a different tax scale. Their rate is the higher between the traditional calculation and multiplying the taxable income by 4.67%.

Monthly Payments: Since 2011, all companies and entities pay their estimated income tax by the 15th of every month equal to 1% of the total taxable income accumulated the prior month. This is called Monthly Income Tax Advance or MITA.
Companies engaged in gasoline, oil products, pharmaceuticals, food, and medical products pay a different MITA.
At the end of the tax year, the company determines its total income tax and deducts the total MITA paid. If the total MITA paid is larger than the actual tax owed, the company can obtain a tax credit to be used towards future MITA's.

Losses: Losses can be carried forward 5 years as long as the loss doesn't exceed 20% of the total loss in any year. Certain regulated industries such as mining have special loss schedules.

Annual Returns: Income tax returns must be filed by companies within 3 months after the end of fiscal year. While most company tax year is the calendar year, companies can petition for approval of a different fiscal year.

Panama Employees Taxes

Panama Social Security Tax

Employers and employees pay social security taxes when the employee is paid. Currently, employers pay 12.25% and the employee pays 9.75%.

Employers are required to withhold a percentage from each employee's pay for income tax and for social security tax. Failure to withhold and make payments to the Social Security Office will result in surcharges, fines, and even criminal prosecution. There is also a professional risk premium paid to the Social Security Office corresponding to a perceived risk the work entails which is withheld from an employee's salary.

Educational Tax: An additional 1.25% of an employee's wages are withheld as an educational tax while the employer pays 1.5%.

Non-Residents: Employers are required to withhold income taxes from non-residents who earn Panama source income. The Panama Income Tax rate for individuals is used without deductions. However, if the non-resident earns income outside of Panama, but the Panama employer wants to deduct these wages from his income tax, the non-resident will only have 50% of the total amount paid subject to the withholding tax.
The employer is required to pay the withheld amounts within 10 days following the payment to the Panama tax authorities.

Panama Capital Gains Tax

The Panama Capital Gains Tax rate differs by the type of property being transferred. Only properties located in Panama are subject to the capital gains tax. The standard rate is 10% of the realized gain from the sale.

Transferring of Panama Corporation Shares

Transfer of shares of Panama corporation which obtains Panama source income requires the buyer to withhold 5% of the purchase price for the tax office within 10 days. This is considered an advance of the seller's capital gains tax. The seller can declare the 5% to be the total Panama capital gains tax or if the amount exceeds the normal 10% rate of the actual gain, the seller can claim a tax credit for the excess amount when the annual tax return is filed.
A Panamanian entity whose exclusive income is obtained from non-Panama sources (outside of Panama) is exempt from the capital gains tax.

Transferring Shares of Panama Corporation via Stock Exchange

Transfer of shares from Panama corporation that are registered with the Panama National Securities Commission through a licensed stock exchange are exempt from paying the Panama capital gains tax even if the Panama corporation obtains Panama source income.
Therefore, selling shares through the stock exchange is exempt from the Panama capital gains tax.
Mergers and reorganization of Panama corporations registered with the Panama National Securities Commission and listed on the stock exchange involving transfer of shares are also exempt from the Panama capital gains tax if they meet specific requirements. Tender offers as defined by the securities regulations are not exempt and the purchaser must withhold 5% of the total purchase price as the Panama capital gains tax.

Panama Dividends Tax

There is 10% Panama dividends tax imposed upon entities that have commercial operations permit and have Panama source income.
The Panama dividends tax is only 5% if the earnings come from foreign sources, is export related, or other specific laws exempting the income.
Companies located in the free trade zones pay a 5% dividend tax for all income. The entity providing the dividend withholds the tax and pays the tax authorities. There is no income tax on those receiving dividends. Panama dividends paid to holders of bearer shares must pay a 20% Panama dividends tax.

Panama Retained Earnings Tax

If no Panama dividends are paid or paid Panama dividends are less than 40% of the current Panama sources after tax earnings; there is a 10% tax on the difference between the 40% and what was paid. If no Panama dividends are paid or paid dividends are less than 20% of foreign source income or specific exempt income, there is a 10% tax on the difference between the 20% and what was actually paid.

This tax is known as the complimentary tax (impuesto complementario) is credited towards future Panama dividends and can be seen as an advance of the Panama dividends tax in relation to the 40% or 20% of the current earnings. Registered subsidiaries of foreign corporations pay this tax on their total current earnings without regard if any distribution was made.


 


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