More Info on New Tax Law Panama 10/7/2009

Panama Tax | Income, Capital Gains Tax & Property Tax in Panama
Outlook on Panama’s taxation

Good news for foreigners. The income that you are earning only in Panamanian territories is subject for income tax. This is due to the Panama’s tax law that states the concept of territorial income. This means that funds generated abroad could not be taxed here.
Just like any other progressive countries, Panama also relies on taxes to fuel the operations of the government. Therefore, you should be familiar with what taxes you need to pay once you have comfortably settled yourself here in Panama.

1. Panama Income Tax
Also called as Impuesto sobre la renta a Personals Naturales, incomes (rental) earned by individuals are taxed at increasing rates and are usually withheld on the tenant’s end.
Here’s a table to show the marginal tax rate:

$9,000 – below: 0 percent
$9,000 – $10,000: 73 percent
$10,000 – $15,000: 16.5 percent
$15,000 – $20,000: 19 percent
$20,000 – $30,000: 22 percent
Beyond $30,000: 27 percent

2. Panama Value Added Tax (VAT)
VAT is also called as Impuesto a la transferencia de bienes corporales muebles con crédito fiscal in local language. You should be informed that leasing of immovable property here in Panama is subject to this tax. However, exemptions are given to those who earn average monthly income of $3,000 and below. If it is beyond the aforementioned figure, the tax is set at 5 percent of the gross rent.

3. Panama Capital Gains Tax
This is levied from sales of properties (real estate) in Panama. The taxpayer has two ways to settle this particular tax. The first one is five percent of the overall total of property’s cadastral value and improvement costs or ten percent of the property’s cadastral value each year.
The transfer tax of 2 percent is now waived once the taxpayer opts to settle the required capital gains tax plus capital gains tax that will be levied in case of the sale won’t be shouldered by the taxpayer anymore.
The second option is two percent of the bigger value on sales price and sum of the cadastral value of the property. By availing of this, taxpayers will have to settle addition capital gains tax in future.
It is advisable to refer with a tax specialist regarding these matters before you make a choice between the two options. Both the first and second options each have their own advantages and disadvantages depending on the circumstances.
Meanwhile, a two percent initial tax rate on the selling property price can be accrued as the transfer tax for real estate. This means that this tax can be deducted on top of the selling price. This is done to shoulder costs on ownership transfer (in the event of the sale).

4. Property Tax in Panama
The Property Tax or Impuesto de Inmuebles is imposed on real estate properties in Panama. This is regardless of the urban or rural location of the real estate, it is still levied for property tax. The property tax depends on the overall real estate’s value plus other conditions as imposed by the Land Commission.
If the price transactions on real estate are made beyond the appraisal value, it automatically increases the value of the property and is subject for adjustment in tax rates. If the registered value of the real estate is $30,000 and below that it is no longer liable for property taxes. However, if it goes beyond the aforementioned value then it will be levied for taxes. Here’s a table that can show what needs to be settled:

Tax base of $30,000 and below: zero percent (exempted)
Tax base of $30,000 – $50,000: 0.70 percent
Tax base of $50,000 – $75,000: 0.90 percent
Tax base of over $75,000: one percent

Remember, always consult with a qualified tax official or a lawyer to avoid confusion as to how much you should settle when it comes to property taxes.
There are exemptions imposed by the government on property taxes. This includes non profit organizations and other government agencies. According to latest data, homes or apartment units that will start construction before July of next year are exempted from paying property tax for the next two decades (20 years). The exemption is said to be transferrable in case of a sale within the time period. However, the land is not exempt from property tax if it happens to have a value exceeding $20,000.

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