Panama

Basic taxes (briefly)

Personal tax 0-25%
Corporate tax (in detail) The corporate income tax rate is 25%. If the taxable profit of the company exceeds $ 1.5 million, then it pays income tax or 4.67% of gross taxable income, if the latter amount is greater.
Capital gains tax. Details Gains from the sale of assets are taxed at a rate of 10%.
VAT. Details The tax is similar to VAT. The standard tax rate is 7%. Some goods and services are subject to rates of 10% and 15%.
Other taxes Social contributions, Operations Notice tax, Real estate tax
Government fee
Stamp duty 0,1%

International tax agreement

Tax treaties entered Barbados, Czech Republic, France, Ireland, Israel, Italy, Korea (Republic of), Luxembourg, Mexico, Netherlands, Portugal, Qatar, Singapore, Spain, United Arab Emirates, United Kingdom, Viet nam
   
Tax Exchange Information Agreement (TEIA) United States


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TAXES

General Info

Panamian taxation is based on territorial principle.
Panamanian corporations, which function exclusively abroad, are not subject to the payment of any Income or other taxes in the Republic of Panama.
Tax authorities include Ministry of Economy and Finance, Revenue General Office, Cadastral General Office, Customs General Office.

Personal tax

In Panama both residents and non-residents are taxed on their Panama-source income. Individuals are taxed on wages and salaries, income from the carrying on a commercial or an agricultural business and investment income.
Personal tax is levied at progressive rates, varying according to the amount of income:
Income, USD Tax rate
First 11,000 – 50,000 0%
More than 50,000 25%

Non-resident individuals hired or otherwise rendering services to Panamian residents for periods of less than 183 days in a calendar year are subject to withholding tax at source at a rate of 12.5% of their gross income.
Individuals are entitled to a basic deduction, various deductions for mortgage interest, donation to a nonprofit organization and political contributions, etc.
Tax year conforms to a calendar year. Employment income is taxed by withholding. Those individuals who are required to file a return must do so by 15 March following the end of the tax year, but this deadline may be extended by one month upon request. Interest and surcharges are charged on late filing and late payment of tax.

Corporate tax

Panama income tax is levied only upon net income obtained from operation within Panama; income obtained from offshore operations is not considered as income obtained from "sources within Panama" and therefore is not subject to taxation. Panamanian corporations, which function exclusively abroad, are not subject to the payment of any Income or other taxes in the Republic of Panama.
Tax liability is assessed on the greater of a flat rate of 25% on net income or 1.17% of gross taxable income, the latter being the alternative minimum tax regime or the alternative minimum tax (CAIR).
A special rate of 27.5% applies to companies whose principal activity is the generation and distribution of power, the provision of telecommunications services; insurance, reinsurance, and financial regulated services; banking; mining; and gaming and gambling.

Tax year

The calendar year is generally used, although taxpayer can request a special 12-month fiscal year in certain cases.

Capital gains tax

Capital gains derived form the sale of securities and negotiable instruments are subject to a 10% tax. The purchaser must withhold 5% of the sales price as an advance payment of income tax and remit that amount to the tax authorities.

Losses

Losses may be carried forward for 5 years at a minimum rate of 20% per year. The deduction of losses may not exceed 50% of taxable income of any year. Losses that are not deducted within the five-year period may not be deducted in a subsequent period.

Dividends

Companies holding a notice of operations or otherwise carrying out business in Panama must withhold tax at a rate of 10% on dividends distributed out of domestic profits (20% in the case of bearer shares) and 5% on dividends on foreign-source profits on export profits.
The subsequent distribution of dividends will not be taxed if tax already has been withheld at the 10% or 5% rate.
If a corporation does not declare dividends in a particular year, it must pay a “retained earnings tax”, which is a deemed dividend tax, amounting to 10% (20% in the case of bearer shares) of 40% of its after-tax income.
The 10% dividend tax is imposed on all loans or advances granted by a company to its shareholders, regardless of the income source (20% in the case of bearer shares).

VAT

Vat is levied on the invoice value of the sale, lease or transfer of goods or services except for intangibles.
The standards rate is 7%, with special rates of 10% for accommodations and alcohol and 15% for tobacco. An exemption applies for food, medicine, medical services and crude oil.

VAT Registration

Registration is compulsory for businesses with monthly turnover exceeding USD 3,000 or annual turnover of USD 36,000.

VAT tax period and returns

VAT returns must be filed monthly, except for professionals who may file quarterly returns.

Withholding tax

Withholding tax is levied on certain types of income paid to companies in Panama. Tax rate varies depending on the type of income:
Type of Income Rate
Dividends paid to a nonresident on nominal shares 5% or 10% depending on the source of the dividends
Dividends paid on bearer shares 20%
Interest paid to a nonresident 12.5%
Royalties 12.5%
Technical service fee 12.5%
Branch remittance tax 10%

Other taxes and duties

Real property tax levied on Panamanian-situs real property at rates ranging from 1.75% to 2.1%.
Transfer tax transfer of real property a subject to tax at rate of 2% of the greater of the value in the deed of transfer or the cadastral value on the date of transfer.
Payroll tax employer must pay educational insurance tax at a rate of 1.5% of an employee’s enumeration. The employer also pays workers’ compensation insurance premiums at rates ranging form 0.56% to 5.67% of the remuneration.
Social security contribution employer pays 13.5% of the total enumeration of the employee and must withhold 9.75% on the employee’s behalf and remit it to the authorities.

Stamp duty

Stamp duty is 0.001 per PAB or fraction thereof, and is applicable to the issuance of certain documents.

Government fee

There is an annual franchise tax levied by the government to maintain a company in good standing, amounting to US$250.00 for the first year and US$300.00 every year thereafter. Late payment is subject to a US$50.00 surcharge. After a second consecutive overdue payment is missed, a fine of US$300.00 is imposed. Payment of the tax will be due on June 30th if the date of anniversary of incorporation falls in the first half of the year, and on December 31st if the date of anniversary of incorporation falls in the second half of the year.

Foreign exchange control

There are no currency restrictions in Panama. The U.S. Dollar is of current use in normal commercial activities.

Tax Agreements

Panama has tax agreements 28 urisdictions:
18 DTCs: Barbados, Colombia, Czech Republic, France, Ireland, Israel, Italy, Korea (Republic of), Luxembourg, Mexico, Netherlands, Portugal, Qatar, Singapore, Spain, United Arab Emirates, United Kingdom, Viet nam.
10 TIEAs: Canada, Denmark, Faroe Islands, Finland, Greenland, Iceland, Japan, Norway, Sweden, United States

Anti-avoidance rules

Transfer pricing: transactions between related companies must be valued according to the arm’s length principle, applying the standards in the OECD guidelines. A transfer pricing study must include a comparative analysis of transactions carried out by independent parties, taking into account the operations, significant economic functions or activities, contractual terms, market characteristics and risks, and commercial and business strategies. After making the comparative analysis, one of the 5 transfer pricing methods stated in Panamanian law must be selected. An annual disclosure statement of related party transactions must be submitted to the tax authorities within 6 months after the end of the fiscal year. The tax authorities can make adjustments if the arm’s length principle is not followed.
Thin capitalization: no
Controlled foreign companies: no
Disclosure requirements: no

Incentives

Various investment incentives provide lower tax rates or exemptions. The Howard (Panama-Pacific) Special Economic Area regime provides for tax exemptions for offshore services; gains from the sale or transfer of shares of companies established within the area; income from the transfer of goods and services between companies within the area and other free zones, etc.
In-bond manufacturing companies may import equipment and raw materials on a duty-free basis and subsequently export 100% of production, receiving a tax-free benefit. Such companies do not have to pay VAT on imports.
Incentives are also available in the Petroleum Free Trade zones, Colon Free Trade Zone, etc.

ACCOUNTS

Financial statements

There are no statutory requirements of accounting and audit for Panama offshore companies. It's totally up to the corporate directors, what kind of records they would like to keep. If a Panama company does not operate locally (having an office in Panama through which international operations are directed, which does not constitute "doing business in Panama" under Panamanian income tax law), such company can maintain its books of accounts in any manner desired and anywhere in the world.

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.

In Panama companies are not obliged to prepare or file Annual Return.

Tax returns

Companies must file a tax return within 90 days after the end of the fiscal year, although a one-month extension may be obtained upon request. Three advance payments of tax are required in June, September and December, with a final payment of tax due at the time the annual return is filed. With the exception of companies operating in free zones, corporation with no Panamanian-source income are not required to file an income tax return.

    Taxes of Panama

    Min. rate for corporate tax 25%
    Capital gains tax 10%
    VAT 7%
    Withholding tax 10%(5%,20%)/12,5%/12,5%
    Exchange control No
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