Panama, Tax Reform, Act 8 of 2010 Part I
With the enactment of Law No.8 of 2010, new rates will take effect on income tax for both legal entities and for individuals. Note that the application of these rates is retroactive, so their entry into force is from January 1, 2010. In addition, it includes tariff changes regarding ITBMS (similar to the VAT), ISC and Stamps, which take effect from July 1, 2010.
Income Tax – Juridical Persons
For telecommunications companies established in the country, their net income arising from international telecommunication services are deemed local income.
Included as local income is income from freight, charges, fares, cargo and other services rendered by international shipping companies whose origin or final destination is Panama, except where such income results from freight, charges, fares and services for passengers or cargo that are transiting, and companies that operate cruise ships that have their base or home port in the Republic of Panama.
Excluded from the concept of local income is the distribution of dividends or interests in companies that do not require a Notice of Operations or those not generating taxable income in Panama.
New General Rates
For fiscal year 2010 (January to December) the income tax rate will be 27.5%. For subsequent years, the rate will be 25%.
New Special Rates
Companies engaging in the following activities shall pay income tax based on the 30% rate through 2011, 27.5% from 2012 to 2013 and 25% from 2014 onwards, to wit: power generation and distribution, telecommunication services in general, insurance and reinsurance activities, financing activities regulated under Act 42 of 2001, cement manufacture, the operation and management of games of chance and gambling, mining in general and the banking business in Panama.
As for juridical persons whose income exceeds one million five hundred thousand dollars (B/.1, 500,000.00), they shall calculate based on the method that is higher between the application of the respective rate to their taxable income or 4.67% applicable to their total taxable income.
Disposal/Sale of real estate: Regular Dispatch of Business
For the disposal of immovable property which is part of the ordinary course or dispatch of business, the income tax will be calculated at a definitive rate of 3.75%.
Logistics and other operations in the Colon Free Zone and other zones
In the case of businesses established in any free trade area, the disposal, sale or transfer of immovable property or the rendering of services are subject to the rates provided for in Articles 699 and 700 of the Fiscal Code. However, logistics, storage and wine cellar operations, as well as the internal movements of goods and cargo, billing services, repacking and similar activities that are directly related international, are considered to be foreign or export operations.
Interest and commissions remitted abroad by way of loans or financing will be taxed at the general rate set forth in Articles 699 and 700 of the Fiscal Code, over 50% of the amount paid or credited.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.