If you are an entrepreneur interested in doing business in Panama, you have probably wondered how the Transfer Tax on Movable Goods and Services (ITBMS, by its acronym in Spanish), the equivalent of VAT, affects companies that operate in free trade zones. Panamanian legislation contemplates special regimes for these areas, which makes it important to know the particularities and tax obligations they imply. This article details how ITBMS in Panama applies in this category, what exemptions exist, and what requirements must be met to benefit from them.
Understanding ITBMS in Panama
ITBMS in Panama is a tax on the sale of products, the provision of services, and the importation of goods. It is applied in order to increase collection in the country and maintain control over transactions carried out in the domestic market. The current rate is 7%, although there are cases with different tariffs, such as alcoholic beverages or tobacco products.
Anyone who trades or does business must understand how this levy works to fully comply and avoid penalties, as well as to maintain a clean record before the fiscal authority, the General Directorate of Revenue (DGI). The scope of ITBMS in Panama is not limited only to local commerce; it also affects activities with international impact when operations are registered within the territory.
The system works as follows: the taxpayer acts as a “withholding agent.”This means that he must charge the tax to consumers and then transfer it to the State to guarantee the correct collection. All companies, regardless of size, must file periodic returns to demonstrate that they are complying with this obligation.
What is exporter VAT?
The exporter VAT is a modality within ITBMS in Panama that prevents double taxation on products leaving the country. The law establishes that goods destined for exportation are subject to a 0% rate, which means they are not charged the tax at the time of sale. In the same way, companies have the right to a tax credit for supplies purchased locally to manufacture those products.
In simple terms, a tax credit is a balance in favor that a business can use to reduce the tax it must pay. The exporter VAT provides more liquidity and grants greater margin in international negotiations. To benefit, exporters must submit the required documentation to the DGI and prove that the goods indeed left the country.
VAT rates and classification
ITBMS in Panama is classified in different ways depending on the activity. Understanding the categories of this type of VAT is decisive to correctly calculate the amount to declare. In short, companies need to know whether they are subject to a specific tariff or whether they are exempt from the tax.
| Category | ITBMS in Panama rate |
|---|---|
| Sale of consumer products and provision of services | 7% |
| Alcoholic beverages | 10% |
| Tobacco products | 15% |
| Exporter VAT | 0% |
| Medicines, education, life insurance, international passenger transport | N/A – Exempt |
Panama Free Trade Zones Regime
The Panama Free trade zone and others classified as special economic zones have become centers of investment interest thanks to laws that promote competitiveness. In these places, it is possible to import, store, transform, and reexport goods with tax incentives.
ITBMS in Panama is managed differently in these sectors. Generally, activities carried out in a free trade zone are exempt from this tax if the products are destined for exportation or reexportation.
To operate, each company must request an operational license granted by the corresponding administration. That authorization allows them to carry out transactions under special conditions and enjoy the benefits. In addition, other areas such as the special economic zone known as Ciudad del Saber or the one linked to the SEM regime in Panama also offer similar advantages.
TBMS Exemptions in Free Zones
The legal system establishes that companies in tax-free areas do not have to pay ITBMS in Panama on most of their transactions. Among the most important exceptions are foreign sales, reexportation of products, and services rendered abroad.
Likewise, supplies that enter through importation to be processed within these Panama Free trade zones are tax-free, as long as they are used for products that will later be sold in external markets. These measures encourage the establishment of factories, warehouses, and distribution centers that generate jobs and stimulate economic activity.
It is important to remember that, although exemptions are a great advantage, tax obligations do not disappear; they simply change. The administration grants the exemption benefit on the condition of complying with strict rules. Periodic reports must be filed, every movement must be justified with documents, and records must be kept up to date.
Tax Obligations
Although the Panama Free trade zone offers many fiscal incentives, companies operating there still have tax obligations, as mentioned earlier. One of the main ones is obtaining and renewing the operational license, since without it they cannot carry out legal transactions.
They must also submit accounting reports that clearly reflect the application of ITBMS in Panama and the use of the exporter VAT when applicable. These fiscal responsibilities include keeping detailed purchase and sales records, issuing valid invoices, and declaring on time the amounts that may correspond to the treasury.
Another relevant aspect is interaction with the tributary authority. Companies must be ready for audits, respond to its requests, and prove compliance with all rules. In this way, tax obligations guarantee transparency in business management and help avoid fines or cancellation of permits.
Establish Your Company in a Panama Free Trade Zone
In summary, if a company wants to continue enjoying the benefits of this special system, it must comply with its tax obligations. The relationship between exemptions and compliance with ITBMS in Panama creates a balance that allows the State to control the correct use of incentives.
If you are ready to take advantage of the fiscal benefits of free trade zones, we can help you. Contact us today for advice on how to establish your company, manage the required procedures, and guarantee the proper application of ITBMS in Panama. We offer expert support in consulting, regulatory compliance, and more.
