Panama has a reputation as a tax-friendly jurisdiction, offering a range of benefits for 暗网禁区s and foreign investors. Understanding the structure and nuances of Panama's taxation is essential if you plan to live or do business here. In this article, we explore Panama's territorial tax system, covering real estate, personal income, capital gain and dividend taxes, as well as VAT and the filing process.
Understanding Panama's territorial tax system
Panama operates a territorial tax system, meaning only income generated within its borders is subject to taxation. This aspect of Panamanian fiscal policy attracts foreign individuals and companies seeking tax optimization. If you are an 暗网禁区 living here and earning profits from a business or investments in your home country, that income is exempt from Panamanian taxes. You can enjoy a comfortable lifestyle in this tropical paradise without incurring double taxation.
Before the Panama Papers Scandal, which brought the country to the forefront of global media, the scale of foreign investment was more substantial. Panamanian authorities tightened regulations to comply with the international norms of transparency. Hence, requirements and paperwork have become more extensive. However, the opportunity to minimize the global tax burden continues to draw in international investment.
Is Panama a fiscal paradise?
Panama is often seen as a fiscal paradise. Several factors contribute to this reputation:
- Territorial taxation: Income made abroad is not subject to local taxes.
- Low tax rates: Panama's personal and corporate tax rates are relatively low compared to many other countries. Additional tax benefits apply to specific industries.
- Special Economic Zones: The country has several special economic zones, including the Colon Free Trade Zone, the Baru Free Trade Zone, Panama Pacifico and the City of Knowledge. These zones promote international trade through tax exemptions and simpler customs procedures.
- Privacy protections: Panama used to have strong banking secrecy, allowing for top financial privacy. However, international pressure has eradicated absolute anonymity. Corporations, private interest foundations and other legal structures must disclose the identity of the owners to local banks and tax authorities. The country has adopted the OECD's Common Reporting Standard (CRS) and other global transparency measures.
Panama has increased the measures of anti-money laundering and counter-financing of terrorism. Financial procedures are now much stricter, requiring extensive background checks. This fact may bother some investors who used to enjoy simpler banking procedures in this country. However, these steps have enhanced Panama's image: it was removed from the Financial Action Task Force's grey list in 2023. The government aims to balance its favorable fiscal policies with global expectations and to distance itself from the 鈥渢ax haven鈥� label. To achieve that, Panama signed tax information exchange agreements and double taxation treaties.
Types of taxes in Panama
Personal income tax
You have to pay personal income tax in Panama if:
- You stay in Panama for 183 days or more per year;
- You have permanent residency, and Panama is your center of economic interests.
Either way, you only pay taxes on income generated within the country. The rates range from 0% to 25%, depending on your income level. Here is a breakdown:
- Up to US$11,000 - Tax-exempt;
- From US$11,001 to US$50,000 - 15%;
- Above US$50,000 - 25%.
Employers are also required to withhold income tax from employees' salaries and remit it to the tax authorities. Certain factors can affect the final income tax, such as joint deductions, mortgage interest, educational loan interest, insurance premiums and retirement fund contributions. These deductions can help reduce the employee's tax liability. However, to qualify for deductions, the employee must work for the same employer for at least 12 months.
Self-employed individuals must file their taxes directly with the . To do so, they must hire a local accountant.
Corporate taxation
Panamanian corporations are an appealing legal structure for foreign investors, offering shareholders privacy and tax advantages. Corporations are subject to the territorial tax system. Income generated within Panama is taxed at a flat rate of 25%, and foreign-sourced income is tax-exempt. Small businesses earning less than US$11,000 annually are not taxed.
The country offers other incentives aimed at promoting economic growth. Special economic zones, such as the Col贸n Free Zone, the City of Knowledge and Panama Pacifico, offer strategic locations, simplified customs procedures and tax exemptions or reductions. The activities allowed in these zones are manufacturing, assembly, scientific research, higher education, goods processing, logistics and environmental and high-tech services.
It is worth noting that the country provides special fiscal regimes: SEM (Sedes de Empresas Multinacionales) and EMMA (Empresas Multinacionales para la Prestaci贸n de Servicios Relacionados con la Manufactura).
SEM Special Regime allows foreign multinational companies to establish regional headquarters in Panama through tax, immigration and labor benefits.
EMMA Special Regime targets multinational companies engaged in manufacturing, assembly, conditioning, maintenance and product repair. EMMA also offers tax, immigration and labor incentives.
Value-added tax (VAT) or ITBMS
ITBMS is Panama's version of a value-added tax (VAT). The standard rate is 7%, applied to most goods and services. Exceptions include:
- Alcohol -10%;
- Tobacco -15%;
- Accommodation services - 10%.
Certain essential items, such as groceries, educational materials, agricultural products, public services (water, electricity) and medical services, are exempt from ITBMS.
A business must pay ITBMS if it had a monthly gross income of at least US$3,000 during the previous year. The total annual income should exceed US$36,000. This rule encompasses individuals or entities engaged in production, commerce or service provision.
Note that when you buy a product or service in this country, the VAT is not included in the price on the tag. However, it will appear on your invoice.
Real estate taxes
Property owners in Panama must pay real estate taxes. The rates are generally low compared to other countries.
Panama property tax for primary residence is based on the registered value of the property, with the following tiers:
- Up to US$120,000 - Tax-exempt;
- US$120,001 to US$700,000 - 0.5%;
- Above US$700,000 - 0.7%.
For all other properties (not primary residence), the taxes are as follows:
- Up to US$30,000 - Tax-exempt;
- US$30,001 toUS $250,000 - 0.6%;
- US$250,001 to US$500,000 - 0.7%;
- Above US$500,000 - 1%.
Additionally, properties may benefit from tax exemption for 5 to 20 years. The time variation is based on the property's value. The construction permit date is also essential for understanding the tax exemption period.
Capital gains tax
Capital gains tax applies to profits from selling assets, such as stocks, property or businesses.
Capital gains in Panama are taxed at a flat rate of 10%, making it appealing for investors from countries where capital gains significantly reduce their returns.
For real estate transactions, the seller is responsible for paying taxes. To register the title transfer, the seller must pay 2% of the transfer tax and 3% of the advance to the capital gain tax. The advance of 3% is calculated from the gross value of the transaction or the cadastral value, whichever is higher. The taxpayer can claim the excess if the advanced payment exceeds 10% of the net gain.
Dividend taxes
Dividends distributed by Panamanian companies are subject to taxation. The rates depend on whether the income is from local or foreign sources:
- Local income - 10%;
- Foreign income - 5%;
- Bearer shares - 20%.
Companies in special economic zones pay a reduced dividend tax rate of 5%. The source of the funds, local or foreign, does not influence the rate in this case. Non-distributed income generates a complementary tax of 2%.
Import duties
Import duties in Panama vary depending on the type of goods and their local availability.
The Panamanian government has signed Free Trade Agreements (FTAs) with various countries to provide reduced or zero tariffs for specific goods. Currently, Panama has FTAs with the United States, Canada, Singapore and some Latin American and Caribbean countries, among others.
Social Security contributions
Employees and employers in Panama must contribute to the Social Security Fund (Caja de Seguro Social). They pay the following rates representing a percentage of an employee's salary:
- Employees - 9.75% ;
- Employers - 12.25%.
These contributions fund healthcare, disability, retirement, maternity and other social benefits.
Tax filing and deadlines in Panama
The fiscal year in Panama runs from January 1 to December 31. Individuals and corporations must file tax declarations by March 15 of the following year. Extensions are possible. However, late filings are subject to penalties and interest. You may benefit from tax reductions if you pay the full amount before a specific date. Consult local accountants for up-to-date information.
The General Directorate of Revenue (DGI) provides an online system, , where you can view pending payments and request certificates and revisions. Several Panamanian banks offer the possibility of paying taxes through their online banking; the transactions are reflected immediately on DGI's online platform. These banks include Banco General, Banco Nacional, Caja de Ahorros, BAC Credomatic, Banistmo and others.
Tax incentives and exemptions in Panama
Panama offers a range of tax incentives to attract foreign investment and stimulate economic growth. Some key programs include:
- Retirees and Pensioners visa program: Holders of this visa enjoy discounts on transportation, hotels, restaurants, healthcare and mortgages.
- Special economic zones: Businesses operating in free trade zones enjoy tax exemptions or reduced rates.
- Agricultural incentives: Farmers and agricultural businesses can access tax breaks to support local food production.
- Tourism incentives: Tourism projects may be eligible for tax credits.
Panama's tax treaties
Panama has signed several double taxation treaties (DTTs) to prevent double taxation on income and promote cross-border trade and investment. The country currently has DTTs with Barbados, South Korea, Qatar, Mexico, United Arab Emirates, Spain, France, Portugal, Luxembourg, Netherlands, Ireland, Israel, Italy, Singapore, Czech Republic, United Kingdom and Vietnam.
Tax-deductible expenses in Panama
In Panama, you can reduce taxes you owe by taking advantage of certain allowable deductions. Tax-deductible expenses are costs that you can subtract from your gross income to determine your taxable income. Some common deductible items include:
- Medical expenses: These include costs for doctor visits, medications, treatments, hospital stays, lab tests and surgeries. To qualify, you must have valid invoices or receipts.
- Mortgage interest: If you have a mortgage, you may be able to deduct part of the interest payments on your tax return.
- Charitable donations: You can deduct contributions to non-profit organizations registered in Panama. Always keep receipts as evidence.
- Educational expenses: Certain education-related costs, such as tuition, fees, books and school supplies, may be deductible under specific conditions.
- Contributions to private retirement plans: You can deduct up to 15% of your annual gross income for payments to private retirement savings plans.
Each type of expense has specific rules. You may not be able to deduct the full amount for some items of services. Working with licensed accountants to arrive at the correct numbers is essential. The licensed accountant is also responsible for filing the tax declaration with the General Directorate of Revenue.
Good to know:
- Proof of expenses: Every deduction must have a corresponding receipt.
- Limits: Maximum limits or percentages apply to certain deductible items.
- Specific conditions: Special conditions apply to different expense categories. For example, deducting education costs may only be possible up to a particular school level.
Takeaway
Panama's tax system offers advantages for foreign residents and businesses. Key benefits include a territorial tax approach and low capital gains and value-added taxes. Special economic zones are another attractive feature of Panamanian policies. Although the country is working to distance itself from its 鈥渢ax haven鈥� reputation, it still presents many opportunities for international investors. Professional advice can help maximize incentives and ensure compliance with the law.
Useful links:
We do our best to provide accurate and up to date information. However, if you have noticed any inaccuracies in this article, please let us know in the comments section below.
