law 8 in Panama

PANAMA ENTITIES & INCOME TAX INFORMATION:

Panama has a “Territorial” Tax System. This means that it is considered taxable all income earned “inside” the country of Panama, weather received by a Panamanian or a foreigner, by a corporation, foundation or natural person.

Many people, whether as a Panamanian or a foreigner, as a corporation, foundation or a natural person receive income in Panama, for example: by owning a property “in Panama” and receiving periodical rental, but do not declare this income, what is an illegal activity.

Therefore all Corporations and/or Private Interest Foundation or any natural person (weather Panamanian or foreigner), that owns a property in Panama, and receives a periodical rental income, must declare it at the Government of Panama through the Ministry of Economics and Finances, every year.

The Government has approved Law number 8 of 2010 that establishes that the Annual Income Tax must be filed at the Ministry of Economics and Finances through a “monthly” filing with an “advance 1%” and also establishes a penalty for not filing.

Under the previous tax law Panama companies were required to estimate the next year’s income tax and make three advance payments of the estimated tax in equal installments. Any excess tax paid could be used as a credit towards the following year’s estimated tax.

Law 8 of 2010 requires Panama business entities as of January 2011 to file monthly reports to the Ministry of Economics and Finances, through a Licensed CPA (Public Authorized Accountant), and pay one percent (1%) of the monthly taxable “gross” income into the Tesoro Nacional (National Treasury).

Known as the AMIR (Adelanto Mensual del Impuesto Sobre la Renta) must be filed by the 15th day of the following month reporting all taxable Panama source income of the previous month.

Panama’s DGI (Direccion General de Ingresos – Revenue Agency) announced that every active Panamanian business entity must comply with this Law. Failure to do this results in monthly fines of US$1,000.

An active business is any entity (corporation, partnership, company) earning Panama based income. Once entities start filing tax declarations, must continue filing them, whether with operation or without operation, but cannot stop filing the tax declarations. Even if an active business had no revenue the previous month, it must file the AMIR form by the 15th or face a $1,000 fine. This fine is levied no matter what amount of tax is owed.

Entities which either never had Panama based income (income earned from Panamanian sources or derived from within Panama territory) or who had Panama taxable income but ceased operations, physically and formally at the Ministry of Economics and Finances by filing a final declaration and completing the required requirements at the DGI, before January 1, 2011 are exempt from filing Form 218. Likewise, entities whose only income is earned outside of Panama are also exempt, if these entities are registered at the Ministry of Economics and Finances as “offshore entity” in the R.U.C. (Registro Unico de Contribuyente) form.

Entities with mixed income partially derived outside of Panama and income from Panama sources or within its territory are obligated to file Form 218 disclosing all their income, but only will be taxed the local income, this means that the foreign income will be exempt.

Every Panama entity conducting an active business inside Panama must follow this Law. This Law applies even if the entity is losing money or has tax credits or loss carry over from previous years to offset this year’s taxes.

Expats having Panama corporations which own rental real estate properties in Panama, must comply with this Law. Foreign individuals owning rental properties in their own name are not subject to this monthly advance estimated tax Law, but they must file annual tax declarations because of earning local income.

This same Law also lowered corporate and individual income taxes and increased the ITBM sales tax (VAT) from five percent (5%) to seven percent (7%).

A tax advantage is that starting in 2010, corporate tax rates were lowered from 30% to 27.5% and further reduced in 2011 to 25%. Companies involved in telecommunications, banking, power generation, manufacturing cement, casino and gambling activities, and insurance or reinsurance will continue to pay the 30% rate until 2012 when the rate lowers to 27.5% and in 2014 is lowered to 25%. If the government owns 40% or more of a company’s capital the company will continue to pay the 30% rate. Companies involved in agriculture and small businesses have a special lower income tax rate.

The monthly and annual filings of tax declarations must be analyzed, verified, calculated, prepared and signed by a License Certified Public Accountant (CPA) in Panama.

In conclusion:

Panama Entities (Corporations or Private Interest Foundations) that do not hold assets in Panama, and do not receive local income inside the Republic of Panama, and that are registered in the Public Registry and at the Ministry of Economics and Finances as “Offshore Entities”, in their activities area of registration, do not have to file any annual income tax in the Republic of Panama.

Panama Entities (Corporations or Private Interest Foundations) that owns property in Panama, but do not receive rental income, should file “non operational” annual tax declarations.

Panama Entities (Corporations or Private Interest Foundations) that receives local income inside the Republic of Panama, must:

File annual tax declarations, once a year, in the next year’s filing fiscal period which begins on January 1 till March 31, and
File monthly advance tax declarations on the 15th of the following month and pay 1% advance of the gross income.
If you hold a Panama Corporation or Panama Private Interest Foundation, which hold assets in Panama, and you require a Licensed CPA to file tax declarations or if you have any question or require any information, please kindly contact update@pos-inc.com

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