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Corporate and Personal Tax in Panama

Corporate taxation has to be paid in Panama unless all your earnings are made outside the country in which case your business is Tax Free.

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Every Panamanian corporation has to pay annual taxation, imposed by law. The law requires corporations to pay this in order to remain registered at the Public Registry of Panama. All annual fees and taxes must be paid promptly every year to maintain the company in good standing. Late payment will produce high penalties and strike off from the Register. An additional penalty caused by non-payment is that documents subject to registration will not be recorded nor will any certification of good standing or others be issued, except when requested by a competent authority.

Farming

It is interesting to note that should you decide to have a farm in Panama you are not taxed (and no tax-return necessary) if you earn less than $150,000 pa. Also, there is no property taxation on farms below $150,000 in value. When you sell the farm though there is 5% capital gains to be paid at that point.

Tourism

If you are thinking of going into the tourism sector - hotels, bars, restaurants, ecotourism etc. - there is a 20 year exemption on land and any improvements you make to it as well as 15 years exemption for all income from the business as well as a host of other benefits. Cool!

For more information all kinds of government incentives for investing in tourism in Panama go to Incentive Law Real Estate

If you are planning on going into the property business in Casco Viejo it is good to note that there is a ten year exemption from income tax on the sale or rental of property here. You also pay no real estate taxation here currently. Anyone renting in this area can also deduct the cost of their rent from their income return for 5 years after moving in.

How Much Tax in Panama?

The income tax of Panama is levied only upon net income derived from operations within the territory of the country. Income obtained from operations outside Panama is not income obtained from “sources within the jurisdiction” and, therefore, is not taxable under local law.

Every year every corporation has to pay a basic $300 tax to the treasury plus any due income tax. Regardless of whether it trades or not. If this is not paid for 10 years the company is dissolved.

The normal fiscal year for companies declaring taxes in Panama goes from January 1 to December 31 of each year; filings can usually be made until the end of March of the following year. A different fiscal year can be authorized for companies that are fully owned or related to foreign entities that have a different term in their countries of registration.

Taxation for individuals in Panama

There is no income tax for individuals earning less than $9,000 per year and no income tax on employees earning less than $10,400 as long as the average monthly income is not more than $800. Between $10,400 and $15,000 it is 16.5%, between $15,000 and $20,000 it is 19%, between $20, 00 and $30,000 it is 22% and 27% over $30,000. Over $60,000 per year there is an option to pay 6% on total income.

Benefits to employees which are personally taxable include:

• Food and fuel allowances.• Club memberships and subscriptions to publications.• Car for personal use.• School tuition and educational allowances.• Housing and utilities allowances.• Personal debt payments.• Insurance premiums.• Non-business mobile phone.• Clothing allowances.• Reimbursements of taxes.• International service premiums.

Individual tax payers are entitled to the following deductions from taxable income:

• Each single person, $800 annually.

• Each married couple filing jointly, $1,600 annually.

• $250 for each of the taxpayer’s dependents.

• All medical expenses incurred in Panama, such as medical insurance premiums and the sums paid for hospital and medical expenses not covered by insurance.

Interest paid on mortgage loans for acquiring, constructing, or improving the principal dwelling of the taxpayer in the Republic of Panama, up to a maximum of $15,000 per year.

• Interest on loans for the education of the taxpayer or her/his dependents within the Republic of Panama, or on loans granted by the Institute for Education and Improvement of Human Resources (IFARHU), a governmental entity.

• Educational taxes paid or withheld.

• Donations to qualified institutions (according to legal amount limits).

• Dues paid to non-profit organizations, associations, or societies.

• A deduction of one percent of the total sum received by the worker as the result of the termination of the labor relationship, for each complete period of 12 months,worked with the same employer. Plus a basic deduction on the first US$5,000 of the balance resulting. The sums received by this means must not be added to the salary or any other kind of income of the taxpayer for tax purposes.

In the case of employees they must present her/his employer with a declaration of personal deductions in order to claim more than the basic $800 tax exemption.

Taxation for Corporations in Panama

Taxable income of corporations is the balance of gross income less deductible expenses. Expenses and cost of doing business necessary to generate taxable income in Panama is deductible if based in proper evidence. Expenses are only deductible in the tax year in which they are actually paid.

Salaries are of course deductible as is up to 10% of the value of a salary paid into a private pension fund. Employees can also be given up to $100 food vouchers per month and this is deductible but the employee does not get taxed on it. Profit bonuses to employees are also deductible. Note that tax on any type of income paid to employees must be withheld by the employer and paid to the National Treasury.

As for depreciation, the minimum is 3 years for movable goods and 30 years for non-movable goods.

As a general rule, income tax for companies is a flat rate of 30%.

On paying share dividends 10% tax is payable by the company (within 10 days) to the National Treasury. Undistributed profits, in any given fiscal year, may be capitalized in any subsequent fiscal period without being subject to income tax on dividends. However corporations carrying out this capitalization cannot acquire their own shares.

Net operating losses for a given fiscal year can be carried forward to each of the next five taxable years, deducting a maximum of 20% of the loss per year. The deduction cannot reduce the net taxable income for that year, by more than 50%.

Capital gains derived from the sale of either tangible property or securities are taxed at a fixed 10% rate.

Gross income from rental activities includes rents received in either cash or in kind,including the value of any improvements made by the tenant to the property, and left for the benefit of the landlord. Apartment building owners bear the burden of proof to show that empty apartments were not rented throughout the entire taxable year. Not sure how you do that but …..

There is a 2% transfer tax on the sale of real estate. This is deductible from income tax if it is paid at the normal 30% rate.

ITBMS (VAT) in Panama

There is a 5% VAT (Value Added Tax) payable on all services and products except for medicine and food as well as books and newspapers which have none, alcohol is 10% with 15% on cigars and tobacco.

Taxpayers, class one, with an average monthly gross income over $5,000 are required to file their ITBMS tax returns on a monthly basis. Taxpayers class two, with an average monthly gross income over US$3,000 but under $5,000 must file their ITBMS tax returns on a quarterly basis.

An individual offering professional services does not have to charge and pay VAT if their average monthly income in the previous year was less than US$36,000.

There is no VAT on rental of homes.

Other Taxes in Panama

Selective Tax or Luxury Goods Tax

In 2005 a selective consumption tax came into being (ISC as per its abbreviation in Spanish) which is an excise tax on the importation of specific goods (such as luxury vehicles, motorcycles, jewelry, and firearms), alcoholic beverages/liquors and all tobacco derivative goods (cigarettes and cigars) or on the first transfer or sale by local manufacturers of these products (such as sodas, wines, and beers).

License Tax

This is an annual license tax of 2% of the net assets of a company and ranges from a minimum amount of $100 up to a maximum of $40,000.

Education Tax

Both employees and employers must pay a tax assigned for educational purposes. Employers must deduct 1.25 percent from their employees' salaries, and pay for their own account an additional 1.50 percent.

Self-employed individuals must pay the total 2.75 percent of their annual income subject to income tax.

Real Estate Tax

All land and real estate improvements thereon located in Panama are subject to real estate tax unless of course on certain properties and improvements which are exempt or can obtain exemption according to special incentive tax laws.

The tax base depends on the total value of the land plus all improvements. Real estate transactions at prices above the appraisal value automatically increase the value of such properties for tax purposes. The real estate is appraised by an agency of the Ministry of Economy and Finances.

Real estate properties with assessed value of less than US$30,000 are exempt from this tax. Between $30,000 and $50,000 it is 1.75%, between $50,000 and $75,000 it is 1.95% and over $75,000 it is 2.1%.

Real estate tax has priority over all encumbrances on the property, and can be paid in three installments, by April 30, August 31, and December 31.

A tax clearance certificate must be obtained before any real estate transaction can be completed

Forget Tax! Earn Money With Your Own Business

Are you interested in running your own company from anywhere in the world? Would you like to earn a 6 figure income and still have time for life? If so then get in contact.

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