| Panama Income Tax Panama income tax rates for 2009 set out below are applicable to any individual's net income earned:
Taxable Income (US$)
Column 1 / Column 2 / Income Tax for Column 1 / Income Tax over Column 1
$0 - $9,500: $0 0%
$9,500 - $12,000: $0 20.5%
$12,000 - $15,000: $512.50 21.5%
$15,000 - $20,000: $1,557.50 23%
$20,000 - $30,000: $2,307.50 24%
$30,000 Over: $4,707.50 27%
Alternative Minimum Income Tax: Individuals with a gross taxable income over US$ 60,000 will calculate an alternative income tax of 6% of the total taxable income.
The larger amount arising from the current calculation method and the alternative method will be the income tax to be paid. In the case of individuals who are merchants, they will apply the alternative calculation established for corporations.
If after applying the alternative method, the individual incurs in losses due to the payment of the tax, he (she) can request the Tax Department not to apply the alternative calculation.
Panama Corporate Tax RatePanama corporate income tax rate for 2009 is 30%.
Panama's income tax law affects aggregate and annual revenue from business activities conducted in Panama or from assets situated in the country, when any of the causes of such revenue occur within the national territory.
Alternative Minimum Income Tax: A tax rate of 30% is applied to the net taxable income on whichever is larger between:
- The amount of the net taxable income (Traditional calculation of deducting costs and expenses from gross taxable income), and
- The net taxable income that arises after deducting a 95.33% from gross taxable income.
If, after applying the second alternative, the company incurs losses due to the payment of the tax, or if the effective rate of the income tax exceeds 30%, it can request the Tax Department not to apply the alternative calculation.
Small companies that invoices up to US$ 150,000 in the fiscal year are exempt from applying the alternative calculation.
The fiscal year of companies normally corresponds to the calendar year but it is allowable to have fiscal years ending on other dates if a request is made to the Tax Department authorities.
Generally, a corporation is required to prepay its estimated tax liability in three installments, based on the income tax of the previous fiscal year. Corporate tax returns and payments are due by the end of the third month following the end of the fiscal year. An extension of two months may be granted if requested. Extensions to file a return, however, do not affect the time for payment of tax.
Capital Gains Tax: On sales of real estate there are two taxes involved. One is a 2% transfer tax and the other is a 10% income tax on the net profit.
The 2% transfer tax rate is applied on the higher of the sales price or the registered value of the property in the Public Registry plus a 5% surcharge for each complete calendar year for which the property is held.
The 10% income tax is calculated on the net profit of the transaction. Net profit is calculated by deducting the cost of the property plus any related expenses from the sales price.
Income from the sale of securities is taxable as follows: The buyer will withhold 5% of the sale price and remit it to the Tax Department. The seller will calculate a 10% tax on the profit. If the 10% of the profit is higher than the 5% withheld by the buyer, the seller can opt to consider the 5% as the definite tax. If the 10% of the profit is lower than the 5% withheld by the buyer, the seller can request a reimbursement for the difference.
Income from the sale of government securities and those issued by companies registered with the National Securities Commission is not taxable.
Branch Profits Tax: Branches of foreign companies are subject to the same tax rates as Panamanian companies.
Franchise Tax: Foreign and domestic corporations registered in the Public Registry are subject to an annual tax of US$ 300, regardless of whether they are doing business in Panama. There is a penalty of US$ 50 for late payment and after two years of non-payment of the franchise tax there is a restoration fee of US$ 300.
Annual License Tax: All industrial or commercial business, except those exempted by specific laws, are required to have a license to operate. This tax is 2% of a company's net worth, including amounts owed to the foreign home office or affiliated companies. The tax is payable annually up to a maximum of US $40,000.
Social Security Tax: These are payments that are made monthly by employers and employees on the payroll of companies for the purpose of guaranteeing the functioning of the worker social security system and retirement benefits at the national level.
Annual Banking Institutions Tax: Banking institutions are subject to an annual tax as follows:
Tax Amount for Banks with General License:
Assets up to US$100 millions: US$50,000.00
Assets between US$100 and US$200 millions: US$75,000.00
Assets between US$200 and US$300 millions: US$100,000.00
Assets between US$300 and US$400 millions: US$175,000.00
Assets between US$400 and US$500 millions: US$250,000.00
Assets between US$500 and US$750 millions: US$300,000.00
Assets between US$750 and US$1,000 millions: US$325,000.00
Assets above US$1,000 millions: US$350,000.00
Tax Amount for Banks with International License: US$50,000.00
Withholding Tax
Services and fees paid or accrued to individuals and to resident corporations are not subject to income tax, except payments on dividends distributed from retained earnings arising from Panamanian-source income.
Services and fees paid or accrued to foreign corporations for work done in Panama are subject to income tax withholdings at corporate tax rates. Services and fees paid or accrued to non-resident individuals for work done in Panama are subject to income tax withholdings at a 15% flat rate.
Interests, commissions, royalties or technical assistance fees paid to foreign recipients are subject to withholding tax. The income tax withholding is at the regular rates for individuals or corporations but only on 50% of the amount of income received by the recipient.
Sales Tax / Value Added Tax (VAT)The standard rate of VAT in Panama is 5%.
Many consumer services and goods are subject to a 5% value added tax. Alcoholic beverages have a 10% tax rate and cigarettes have a 15% tax rate.
The following items are exempt from VAT: Food (except restaurants that serve alcohol beverages which are taxed), medicine and medical services, and house rentals.
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