Form of government:Presidential Republic
Area:78 200 км2
Currency:Balboa (PAB); Dollar (USD)
Taxation in Panama
Corporate Income Tax
Corporate income tax in Panama is calculated on the basis of the total and annual income from the company’s commercial activities, which is carried out in Panama or from property that is in the country, when any reasons for such profits arise within the national territory. According to the general rule, the tax rate is 25%, but the tax rate for the companies in which the state share in the authorized capital is more than 40% is 30%. The fiscal year of the companies usually corresponds to the calendar year, but other dates are permissible, if the relevant request is made to the tax authorities (Tax Department). Submission of tax returns and payment of taxes must be made before the end of the third month after the end of the fiscal year. This period can be extended by one month upon request. The request to extend the deadline for filing tax returns does not exempt from the obligation to pay taxes on time. Corporations have an obligation to prepay corporate income tax in three stages, based on the indicators of the previous financial year.
Capital Gains Tax
Two types of real estate tax are levied in Panama: tax on conveyances of 2% and a net profit tax of 10%. A rate of 2% applies to the sale price or to the registered value of the property in the public register, depending on which sum is bigger, plus an additional fee of 5% is charged for each full year of withholding of the property on the balance. The income tax at the rate of 10% is calculated from the net income from the transaction. Net income from the transaction is calculated by deducting the value of the property and any additional costs from the sale price. The buyer of immovable property is obliged to pay 3% of the sale price or the value of the property specified in the state register to the Tax Department, depending on which sum is bigger. The seller of immovable property is obligated to pay 10% of the profit tax. The profits tax from the sale of shares is taxed according to the following scheme: the buyer withholds tax at a rate of 5% of the sale price and transfers it to the Tax Department. The seller must pay a 10% tax on profits. The income from the sale of government securities and securities issued by companies registered by the National Commission on Securities is not taxed.
Branch Profits Tax
The profits of branches of foreign companies in Panama are subject to the same taxes as resident companies.
Value Added Tax (VAT)
Most of the consumed goods and services are subject to value added tax at a rate of 7%. Alcoholic drinks and services on leasing hotel rooms are subject to VAT at a rate of 10%, and the sale of cigarettes and tobacco products - at a rate of 15%. The following goods and services are exempted from the value added tax:
- Food (except for restaurants where alcoholic beverages are served, which are subject to VAT);
- Medicines and medical services;
- Services for leasing houses for a period of more than 6 months. Lease of houses for a period of less than 6 months is subject to VAT.
There are no local taxes on profits.
Advance tax on dividends
All corporations in Panama are required to pay an additional income tax of 4% each fiscal year on behalf of their shareholders, provided that no dividends have been paid. These 4% will apply to dividends when they are paid. The rate of this tax for the companies established in the Free Zone is 2%.
Trade privilege tax
Foreign and local companies registered in the Panama State Register of Companies are required to pay an annual tax of $300, regardless of whether they are operating in Panama. A fine of $50 is collected, if the payment is made later than the established period, in the event if the tax has not been paid within 2 years, the company is obliged to pay a $300 compensation fee.
Annual license tax
Companies that conduct business in trade and industry, with the exception of the companies which activities are regulated by special regulations and to which special taxation applies, are required to obtain a license. The amount of tax for obtaining this license is 2% of the net worth of the company’s assets, including indicators that relate to the activities of foreign head offices or foreign subsidiaries. The tax is paid annually, the maximum allowable amount of tax is $60,000. The tax rate is 1% of the net worth of the company’s assets for the companies established in the Free Zone, including indicators related to the activities of foreign head offices or foreign subsidiaries. The tax is paid annually, the maximum allowable amount of tax is $50,000.
Social Security Tax
Tax on interest and dividends
Services and fees paid and accrued to natural persons and resident corporations are not subject to income tax, except for dividend payments from undistributed profits received from a source in Panama. Services and fees, interest, commissions, royalties and fees, payment for the provision of technical assistance, etc., paid or accrued to non-resident recipients are subject to this tax only if the resident payer will charge it as deductible expenses. The profit tax received from interest and dividends is collected at regular rates from both natural persons and resident legal entities, but only 50% of the income received by the recipient is taxed. The activities of companies in Panama are not subject to currency control.