Taxation under the new rules in Panama
Taxation under the new rules in Panama on March 16, 2023, affected the filing of documents for the benefits that were received by companies under international agreements on avoidance of double taxation.
What the new regulation states
In order to receive benefits under Panama's tax treaties, the taxpayer must file an application with the General Directorate of Revenue one month in advance of the transaction. The regulator reviews the request for 2 months, and if everything is OK, grants the exemption. If not, the applicant is given 2 months to correct errors. The applicant has a total of 3 attempts, each with a period of 2 months. If they do not correct the mistakes, they will be rejected.
It is important to note that Panama has signed double taxation treaties with 17 countries, including the UK, Singapore, France, Italy, the Czech Republic. The treaties mainly affect tax reduction for certain types of income - royalties, interest, dividends, services.
Why this is profitable can be seen in the examples of Panama, the Netherlands and Luxembourg:
- Dividends: Panama 10.5%, Netherlands 0.15%, Luxembourg 5.15%.
- Royalty: 12.5% - 5% - 5%.
Thus, international double taxation treaties allow for significant savings if all the requirements of the regulator are met.
What else do you need to know about taxes in Panama
Panama is not offshore in the full sense of the word, because there are taxes here.
VAT
The standard VAT rate is 7%, except for hotel business and sale of alcoholic beverages (10%), tobacco products (15%).
Certain goods and services are exempt from VAT, which makes it attractive to open a business in Panama in 2023:
- export goods;
- medical and pharmaceutical products;
- school equipment;
- supplies of agricultural producers;
- unprocessed fish, meat and game supplied by private fishermen and hunters;
- delivery of goods within the free zone;
- delivery of movable goods (e.g. cars) to the customs warehouse;
- oil and related products (except for motor oil);
- hand tools;
- fertilizers: insecticides, fungicides and similar products used in agriculture.
There are nuances in each of the above cases to obtain benefits, so we recommend that you consult with our specialist.
Dividends
Companies that have withheld their dividends are taxed on retained earnings at a rate of 10% to 40% of their income. This rate can be reduced to 2% for companies registered in the free zone, subject to certain conditions.
If dividend information is open, the rates are:
- 5% on profits from a foreign source or export income;
- 10% - on profits earned domestically;
- 20% - bearer shares.
Corporate tax
General corporate tax is 25% on income earned in Panama. If profits are made only abroad, the tax may not be paid.
For companies whose turnover is less than $ 500,000 there is a progressive rate:
- Up to $11,000 - 7.5%;
- From $11,000 to $36,000 - 10.0%;
- From $36,000 to $90,000 - 12.5%;
- From $90k to $150k - 15.0%;
- $150k to $350k - 20.0%;
- From 350k to $500k - 22.5%.
For a company whose turnover is above $1.5 million, an alternative minimum tax may apply, where the rate is 4.6%. A corporation may require that the AMT not apply if there is a net operating loss or this rate is higher than the regular rate (25%).
Capital Gains Tax
Capital gains from the sale of securities and negotiable securities are taxed at 10%. To pay it, the purchaser must withhold 5% of the sale price.
Capital gains in real estate are taxed at the normal corporate tax rate for real estate companies. Otherwise, a reduced rate of 10% applies. However, the buyer must deduct 3% of the sale price or the appraised value of the property (whichever is higher) and pay that amount as a tax advance.
Contact IT-OFFSHORE advisors to learn more about taxes in Panama in 2023.