Panama income taxes are a burden to many individuals and businesses alike. So, why pay more than you have too, right? There are many ways for you to lower your Panama income tax, and of course all our recommendations are legal. We’ve put together a list of 7 ways to lower corporate income tax in Panama. Enjoy!
1. Earn Income Outside Panama
Since Panama is a territorial based tax system which means that all income earned outside its borders are tax free; conduct all of your Panama corporation’s business outside of Panama. This can include offering products and services on the internet to anyone not living in Panama. Conduct international trade of goods between different countries other than in Panama. Panama corporations can also engage in different types of stock market trades along with Forex, commodities, securities, government bonds from companies not located in Panama.
2. Dividends Tax
Corporations conducting commercial and industrial businesses inside Panama must withhold 10% of the dividends paid out on their Panama profits as a withholding tax. Corporations located inside the Panama Free Zones (except for the Special Economic Area of Panama Pacifico) along with registered Multinational Regional Headquarters, companies must only withhold 5% on dividends distributed. Distributions of interest paid or credited on cumulative preferred shares are not subject to dividends tax if they meet certain requirements.
3. Capital Gains
Normally, net gains from the sale (within the territory of Panama) of Panamanian negotiable instruments, Panamanian securities, and Panamanian real property are considered capital gains. If the capital gains are a result of the Panama corporation’s normal business, the capital gains will be taxed at the corporation tax rate which is at a maximum rate of 25%. However, if the capital gains are not a result of the corporation’s ordinary business activities, the capital gains will be subject to a reduced 10% rate.
4. Transfer Tax
Panamanian real property title transfers are required to pay a transfer tax of 2% of the greater value stated in the deed or the cadastral (Panama real property tax office) value on the transfer date. Panama corporations can sell the corporate shares and avoid the 2 % title transfer tax as the corporation maintains legal title to the real property. However, the sales of corporate shares are a capital gain subject to a 10% tax. The purchaser is required to withhold 5% as an advance payment and submit it to the Panama tax authorities.
5. Commercial License
Every Panama corporation conducting industrial or commercial business in Panama must register a Notice of Operations (Commercial or Business License), unless specifically exempt. There is an annual license tax at a rate of 2% of the corporation’s net worth up to a maximum of $60,000 USD. However, corporations located in the Colon Free Trade Zone and registered Multinational Regional Headquarters do not have to register a Notice of Operations. But, corporations operating in the Free Zones must pay an annual 1% Operations Tax on the corporation’s capital (minimum of $100 USD to a maximum of $50,000 USD).
6. Life Insurance
Corporations can purchase “Key Man” life insurance policies through Panamanian insurance companies on the key individuals that make decisions for the corporation (such as directors, officers, managers, or shareholders), and the premiums are fully tax deductible.
7. Business Deductions
Panama corporations can deduct all typical business expenses as a tax deduction. This includes purchasing equipment, supplies, and vehicles used in the business operations. Rental of leased business premises are also deductible.
We have provided you with 7 ways to lower corporate income tax in Panama. Contact Us for consultations on Panama taxes in order to minimize income tax in Panama, as well as forming a Panama Corporation whether conducting business in Panama or outside of its borders.