Panama Corporate Taxes

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Panama Corporate Income Tax

The only income which is taxed is derived from within Panama.  The sale of products or services to people, entities, or companies in Panama are considered as “Panama source income” and taxed.  The sales of products or services to persons, entities, or companies located outside of Panama are not taxed.  Income derived from the leasing or sale of Panama real estate is taxed.  Commissions and interest earned from loans financing business in Panama is taxed.  Call centers a special law exempting their earnings from income tax.  Trading companies which invoice products which never enter Panama are not taxed.  Companies in Panama who facilitate business activities conducted outside of Panama are not taxed.

 

Interest Income Exempt: Interest from savings and CD bank accounts from licensed Panama banks and Panama Credit Unions are exempt.  Interest from debt securities registered with the Panama National Securities Commission and listed on the stock exchange are exempt.  Non-resident financial institutions and lenders who receive interest and commissions paid by Panama banks or for the construction of public housing are also exempt from taxes in Panama.

 

Income Tax: Taxable income is derived from subtracting foreign source income and exempt income from the gross income.

 

Deductions: Business expenses used to generate taxable income or to preserve the business are considered as deductible from income taxes and must be documented and are only allowed in the same year they occurred.

 

Income Tax Rates: Starting in 2010, corporate tax rates were lowered from 30% to 27.5% and further reduced in 2011 to 25%.  Companies involved in telecommunications, banking, power generation, manufacturing cement, casino and gambling activities, and insurance or reinsurance will continue to pay the 30% rate until 2012 when the rate was lowered to 27.5% and in 2014 will be lowered to 25%. If the government owns 40% or more of a company’s capital that company will continue to pay the 30% rate.  Companies involved in agriculture and small businesses have a special lower income tax rates.

Calculation: The traditional calculation of income taxes is to simply multiply the net taxable income by the tax rate.  Panama corporations with taxable income exceeding $1.5 Million use a different calculation.  Their rate is the higher between the traditional calculation and multiplying the taxable income by 4.67%.

 

Monthly Payments: Since 2011, all companies and entities pay their estimated income tax by the 15th of every month equal to 1% of the total taxable income accumulated the prior month.  This is called “Monthly Income Tax Advance” or “MITA”. Companies engaged in gasoline, oil products, pharmaceuticals, food, and medical products pay a different MITA.  At the end of the tax year, the company determines the total income tax and deducts the total MITA paid.  If the total MITA paid is larger than the actual tax owed, the company can obtain a tax credit to be used towards future MITA’s.

 

Losses: Losses can be carried forward 5 years as long as the loss doesn’t exceed 20% of the total loss in any year.   Certain regulated industries such as mining have special loss schedules.

Annual Returns: Income tax returns must be filed by companies within 3 months after the fiscal year ends.  While most company tax year is the calendar year, companies can petition for approval of a different fiscal year.

 

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