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 companies under international agreements on avoidance of double taxation received.
Things to know about the new regulation states
To receive benefits under Panama's tax treaties, the taxpayer must apply with the General Directorate of Revenue one month before 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 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, and the Czech Republic. The treaties mainly affect tax reduction for certain types of income - royalties, interest, dividends, and services.
Why this is profitable? It 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 regulator requirements are met.
What else do you need to know about taxes in Panama
Panama is not offshore in the complete sense of the word, because there are taxes here.
The standard VAT rate is 7%, except for hotel business and sale of alcoholic beverages (10%), and 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. If you want to obtain benefits, we recommend you consult our specialist.
Companies 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.
The 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 selling securities and negotiable securities are taxed at 10%. The purchaser must withhold 5% of the sale price to pay it.
Capital gains in real estate are taxed at the standard 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 property's appraised value (whichever is higher) and pay that amount as a tax advance.
Contact IT-OFFSHORE advisors to learn more about taxes in Panama in 2023.