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Business Taxation in Panama
 
 
 

General

Panama's income tax law affects aggregate and annual revenue from business activities conducted in Panama or from assets situated in the country, when any of the causes of such revenue occur within the national territory.

A tax rate of 30% is applied to the net taxable income on whichever is larger between:

• the amount of the net taxable income (traditional calculation of deducting costs and expenses from gross taxable income), and
• the net taxable income that arises after deducting 95.33% from gross taxable income.

If, after applying the second alternative, the company incurs losses due to the payment of the tax, or if the effective rate of the income tax exceeds 30%, it can request the Tax Department not to apply the alternative calculation. Small companies that invoice up to $150,000 in the fiscal year are exempt from applying the alternative calculation.

The fiscal year of companies normally corresponds to the calendar year but it is allowable to have fiscal years ending on other dates if a request is made to the Tax Department authorities. Generally, a corporation is required to prepay its estimated tax liability in three instalments, based on the income tax of the previous fiscal year.

Corporate tax returns and payments are due by the end of the third month following the end of the fiscal year. An extension of two months may be granted if requested. Extensions to file a return, however, do not affect the time for payment of tax.

Capital Gains

On sales of real estate there are two taxes involved. One is a 2% transfer tax and the other is a 10% income tax on the net profit. The 2% transfer tax rate is applied on the higher of the sales price or the registered value of the property in the Public Registry plus a 5% surcharge for each complete calendar year for which the property is held.

The 10% income tax is calculated on the net profit of the transaction. Net profit is calculated by deducting the cost of the property plus any related expenses from the sales price.

The buyer of the real estate will withhold 3% of the higher amount between sale price or the cadastre value and remit it to the Tax Department. The seller will calculate a 10% tax on the profit. If the 10% of the profit is higher than the 3% withheld by the buyer, the seller can opt to consider the 3% as the definite tax. If the 10% of the profit is lower than the 3% withheld by the buyer, the seller can request a reimbursement for the difference.

Income from the sale of securities is taxable as follows: The buyer will withhold 5% of the sale price and remit it to the Tax Department. The seller will calculate a 10% tax on the profit. If the 10% of the profit is higher than the 5% withheld by the buyer, the seller can opt to consider the 5% as the definite tax. If the 10% of the profit is lower than the 5% withheld by the buyer, the seller can request a reimbursement for the difference.

Income from the sale of government securities and those issued by companies registered with the National Securities Commission is not taxable.


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