PANAMA CORPORATE TAX INCENTIVES

About Panama Corporate Tax Incentives

The following incentives are available to these qualifying industries and corporations:

  • Companies operating in the Colon Free Zone, or any other Free Zone in the country, are tax-exempt on profit derived from sales from Free Zone to foreign countries.
  • Companies operating in “Ciudad del Saber” (City of Knowledge), are exempt from income tax, import duties and ITBMS. Dividend tax of 10% or 5% applies when dividends are declared. The City of Knowledge is a special gated area targeting innovation, communication and information technologies (IT). Companies based in the City of Knowledge that produce, assemble or process hi-tech goods or provide services of equal vocation destined for sale in the local or international market will enjoy some incentives. The most common tax breaks granted for corporations established in the City of Knowledge are as follows:
    • The exemption of import duties on machinery, equipment, furniture, vehicles, appliances and supplies
    • The exemption of ITBMS on machinery, equipment, vehicles, appliances and supplies
    • Exemption from any tax, duty or tax levied on the remittance of money abroad when such remittance or transfer of funds is carried out for the purposes of Technopark; and an exemption on income tax for businesses, and Busienss License Tax.
  • “Small business” companies, except those requiring a commercial operating license, are exempt from dividend and complementary taxes. Income tax is calculated over a combination of the personal tax rate and corporate tax rate.
    Companies would be considered small as long as they:
    • Are not related or affiliated to other companies.
    • Are not a result of the fractionalization of other corporations.
    • Aave an annual gross income of less than US$200,000, and
    • Its shareholders are individual persons.
  • Multinational Headquarters Regime, for regional companies headquartered in Panama. At a corporate level, the tax incentives are reduced rates on income taxes and exemption from Busienss License Tax, dividend and complementary taxes, and sales tax for services rendered to related corporations abroad or corporations that do not declare taxes in Panama. At the staff level, foreign executives with a Permanent Executive Visa for a Multinational Headquarters Company will not trigger a remuneration-related tax burden, as long as payment is recorded in the accounting records in the local payroll.
  • Panama Pacific Special Economic Area, for the trade of goods between related parties, logistics services, hi-tech production, call centers and other services. Tax exemptions granted under this regime include import duties (unless goods are sold within Panama), income tax exemption for specific business activities carried outside Panama, ITBMS (sales tax) and dividend tax exemption for specific business activities, and no withholding tax on interest income for companies in the area, and on payments made to foreign creditors, among others.
  • Oil free trade zone: the introduction, exportation or re-exportation of crude oil or any of its derivatives, natural gas and biofuels, among others, are tax exempted if said products are introduced within the zone.

However, incorporated businesses might be subject to eventual taxes, depending on the activities undertaken and the tax regime applicable, as follows:

  • Import duties: all imports are subject to import duties, unless specifically excluded by law. Import duties must be paid within three working days of the day the import documents are filed with the custom authorities. Rates vary according to the harmonised codes.
  • Export duties: exports are not subject to taxes, except for some goods such as silver, gold and platinum; iron, copper, bronze and metal scraps; natural resources; and raw sugar. The export of those products requires a special license from the Ministry of Commerce and Industries.
  • Municipal taxes: incorporated businesses producing income within the jurisdiction of a district are subject to municipality taxes, calculated over the annual gross income on a progressive rate and depending on the activity performed by the corporation. Trade signs of establishments will be affected by such tax, according to the size of the commercial sign.
  • Social security contributions: corporations acting as employers shall withhold the corresponding contributions from the remuneration of employees and pay their own contributions over the salaries paid. Employers shall pay 12.25% for Social Security, 0.56% to 7% for Professional Risk, and 1.50% for Educational Tax.
  • Real estate taxes: all land and real estate improvements in Panama are subject to real estate taxes over the total cadastral value, applying the progressive rates. Improvements are exempt or can obtain exemption. All real estate is exempt for the first USD30,000.
  • Tax on the transfer of real estate: this is applied at a rate of 2% over the value fixed in the transfer deed or the current cadastral value, whichever is higher.
  • Donations between relatives are exempt, subject to a prior request being made to the tax authority.

The Kraemer and Kraemer team has the knowledge and experience to answer your tax questions. Send us a note to info@kraemerlaw.com to learn more about corporate taxes.

The following incentives are available to these qualifying industries and corporations:

  • Companies operating in the Colon Free Zone, or any other Free Zone in the country, are tax-exempt on profit derived from sales from Free Zone to foreign countries.
  • Companies operating in “Ciudad del Saber” (City of Knowledge), are exempt from income tax, import duties and ITBMS. Dividend tax of 10% or 5% applies when dividends are declared. The City of Knowledge is a special gated area targeting innovation, communication and information technologies (IT). Companies based in the City of Knowledge that produce, assemble or process hi-tech goods or provide services of equal vocation destined for sale in the local or international market will enjoy some incentives. The most common tax breaks granted for corporations established in the City of Knowledge are as follows:
    • The exemption of import duties on machinery, equipment, furniture, vehicles, appliances and supplies
    • The exemption of ITBMS on machinery, equipment, vehicles, appliances and supplies
    • Exemption from any tax, duty or tax levied on the remittance of money abroad when such remittance or transfer of funds is carried out for the purposes of Technopark; and an exemption on income tax for businesses, and Busienss License Tax.
  • “Small business” companies, except those requiring a commercial operating license, are exempt from dividend and complementary taxes. Income tax is calculated over a combination of the personal tax rate and corporate tax rate.
    Companies would be considered small as long as they:
    • Are not related or affiliated to other companies.
    • Are not a result of the fractionalization of other corporations.
    • Aave an annual gross income of less than US$200,000, and
    • Its shareholders are individual persons.
  • Multinational Headquarters Regime, for regional companies headquartered in Panama. At a corporate level, the tax incentives are reduced rates on income taxes and exemption from Busienss License Tax, dividend and complementary taxes, and sales tax for services rendered to related corporations abroad or corporations that do not declare taxes in Panama. At the staff level, foreign executives with a Permanent Executive Visa for a Multinational Headquarters Company will not trigger a remuneration-related tax burden, as long as payment is recorded in the accounting records in the local payroll.
  • Panama Pacific Special Economic Area, for the trade of goods between related parties, logistics services, hi-tech production, call centers and other services. Tax exemptions granted under this regime include import duties (unless goods are sold within Panama), income tax exemption for specific business activities carried outside Panama, ITBMS (sales tax) and dividend tax exemption for specific business activities, and no withholding tax on interest income for companies in the area, and on payments made to foreign creditors, among others.
  • Oil free trade zone: the introduction, exportation or re-exportation of crude oil or any of its derivatives, natural gas and biofuels, among others, are tax exempted if said products are introduced within the zone.

However, incorporated businesses might be subject to eventual taxes, depending on the activities undertaken and the tax regime applicable, as follows:

  • Import duties: all imports are subject to import duties, unless specifically excluded by law. Import duties must be paid within three working days of the day the import documents are filed with the custom authorities. Rates vary according to the harmonised codes.
  • Export duties: exports are not subject to taxes, except for some goods such as silver, gold and platinum; iron, copper, bronze and metal scraps; natural resources; and raw sugar. The export of those products requires a special license from the Ministry of Commerce and Industries.
  • Municipal taxes: incorporated businesses producing income within the jurisdiction of a district are subject to municipality taxes, calculated over the annual gross income on a progressive rate and depending on the activity performed by the corporation. Trade signs of establishments will be affected by such tax, according to the size of the commercial sign.
  • Social security contributions: corporations acting as employers shall withhold the corresponding contributions from the remuneration of employees and pay their own contributions over the salaries paid. Employers shall pay 12.25% for Social Security, 0.56% to 7% for Professional Risk, and 1.50% for Educational Tax.
  • Real estate taxes: all land and real estate improvements in Panama are subject to real estate taxes over the total cadastral value, applying the progressive rates. Improvements are exempt or can obtain exemption. All real estate is exempt for the first USD30,000.
  • Tax on the transfer of real estate: this is applied at a rate of 2% over the value fixed in the transfer deed or the current cadastral value, whichever is higher.
  • Donations between relatives are exempt, subject to a prior request being made to the tax authority.

The Kraemer and Kraemer team has the knowledge and experience to answer your tax questions. Send us a note to info@kraemerlaw.com to learn more about corporate taxes.

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