Panama

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how to get tax residency in panama - Novasigma law

ABOUT PANAMA

Panama at a Glance

Panama is a country on the isthmus linking Central and South America. The Panama Canal, a famous feat of human engineering, cuts through its center, linking the Atlantic and Pacific oceans to create an essential shipping route. In the capital, Panama City, modern skyscrapers, casinos and nightclubs contrast with colonial buildings in the Casco Viejo district and the rainforest of Natural Metropolitan Park. Panama is considered a “Tax Haven” because it does not tax income generated outside of Panama.  For income generated inside Panama, all of the normal business deductions are available (rent, utilities, wages, equipment & supplies, business entertainment, etc.) while income tax rates are low.

 

Population: 4 034 119
Form of government: Unitary presidential constitutional republic
Official & spoken languages: Spanish
Currency: Balboa(PAB) United States dollar(USD)
Time zone: EST (UTC-5)
GDP (PPP): $63 683 billion
GDP (PPP)/per capita: $15 313
Average salary: 1146 PAB
Unemployment: 6,1 %
Major trading partners: United States, Canada, EU, Costa Rica, Netherlands, Hong Kong

 

 

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Doing Business in Panama

Advantages of doing business in Panama

Setting up a company in Panama is easy: 

  • A Panamanian corporation can be registered in 2 weeks, with a minimum of 1 shareholder and 3 directors, who can be of any nationality.
  • The minimum paid up share capital required will be only US$1.
  • Panama’s company law does not require a resident corporation to publicly disclose details of its shareholders and directors, thereby allowing the investors greater privacy.
  • Foreign entrepreneurs can hold their company’s capital in US dollars.

Panamanian companies will enjoy certain business incentives in the country including:

  • Companies, investing US$50 000 in the tourism industry, will receive certain benefits. Like 20-year exemption from import taxes payable on materials, equipment and vehicles, 20-year exemption from real estate taxes and annual accelerated depreciation of 10% for all real estate.
  • Investment in real estate enjoys certain incentives as such: 10-year corporate tax exemption on income from the sale/rental of the property, 100% deduction of renovation costs from the income tax and 100% exemption from import duties to be paid on the renovation material.
  • Income from forestry business will be totally exempt of corporate taxes up to 2018, if the business property has been registered with the National Environmental Authority.
  • Panamanian law only levies tax on income earned within the territorial boundaries of the country. Resident companies will not pay corporate tax on foreign investments and operations.
  • Companies registered in Panama can write of 10% of accounts receivable at the end of the year as bad dept under local accounting standards.
  • There are no foreign exchange controls in Panama to hinder the transfer of funds to and from the country.
  • Panama has signed Free Trade Agreements with 11 countries and Double Taxation Agreements with 10 countries to reduce wit holding taxes on foreign payments.

 

 Disadvantages of doing business in Panama

  • Corruption and inefficient bureaucracy plague the Panamanian government. As a result, working with the authorities can cost a lot of time and money when dealing with bureaucracy and requests for bribes
  • The judicial system in Panama is highly inefficient. A favorable decision in a court hearing depends on your political connections, rather than the facts of the case. Consequently, our clients will not be able to depend on the law to resolve disputes;
  • Professionalism is lacking among local business-people. Our Clients will find it difficult to work with local individuals, be it Clients, partners or suppliers;
  • Only 8% of the local population speaks English, with the majority of the population speaking only Spanish.
  • It will be hard for Panamanian companies to find qualified labour in the country;
  • Panamanian law makes it harder to find employees. Consequently, employers will find it difficult to get rid of non-performing employees;
  • Although union activity has historically been peaceful, in the recent years there has been an uptick in the number of strikes in the country;
  • Resident companies cannot hire more than 10% foreign employees.
  • In 2015, Panama implemented an agreement with the US allowing US Government a transparent view of the Panamanian bank accounts of its citizens. As a result, US citizens will lose any semblance of privacy in regards to their Panamanian accounts.

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The World Bank “Ease of doing Business -ranking”

Overall rank 2018: rank 79
– Starting a business: rank 39
– Dealing with construction permits: rank 88
– Getting electricity: rank 18
– Registering property: rank 83
– Getting credit: rank 29
– Protecting minority investors: rank 96
– Paying taxes: rank 180
– Trading across borders rank 54
– Enforcing contract: rank 148
– Resolving Insolvency: rank 107

READ MORE: PANAMA COMPANY FORMATION SERVICES & FEES

Residency and Moving to Panama

Tax Resident in Panama

TAX RESIDENCY – INDIVIDUALS:

  • Tax Resident of Panama is individual who’s permanent place of residence during the tax period is in Panama.
  • Tax Resident of Panama is individual who is present in Panama for at least 183 days during the tax period.

TAX RESIDENCY – BUSINESS:

  • A company is resident if it is incorporated under Panamanian law and if the company’s central management and control is exercised in Panama.
  • A legal entity is resident in Panama if meetings of the board of directors, in which decisions that affect the direction or management of the company are made, are carried out in Panama.
  • A legal entity is resident in Panama if business activities or activities to support other companies are carried out from a headquarters located in Panama, regardless of the source of income.

 

Taxation in Panama

Taxes in Panama

Residence: Tax Residents of Panama is business that is incorporated under Panamanian law and if the company’s central management and control is exercised in Panama.

Basis: Panama operates a territorial tax system, under which residents and nonresidents are taxed only on Panama-source income. Income that does not arise in Panama or is not derived from Panama is not subject to tax in Panama.

Taxable income: Taxable income includes all income derived from business activities in Panama, less expenses incurred wholly and exclusively in the production of assessable income or the conservation of its source.

Taxation of dividends: Dividends received by a Panamanian resident company from another Panamanian company are exempt from corporate tax.

Capital gains: Capital gains derived from the sale of securities and negotiable instruments are subject to a 10% tax. The purchaser must withhold 5% of the sales price as an advance payment of income tax and remit that amount to the tax authorities. Gains from the sale or transfer of real property are considered capital gains. If the transaction giving rise to the gain is part of the taxpayer’s ordinary business activities, the gain is subject to the corporate tax rate; if the transaction is not part of the taxpayer’s ordinary business activities, the gain is tax at a reduced rate of 10%. However, in the latter case, the purchaser must withhold 3% of the higher of the purchase price or the relatable value of the property as an advance payment of tax.

Losses: Losses may be carried forward for five years, with a maximum of 20% of losses deducted per year. However, the deduction of losses may not exceed 50% of taxable income in any year. The carryback of losses is not permitted.

Foreign tax credit: Since Panama operates a territorial system of taxation, there is no unilateral foreign tax credit. A foreign tax credit may be granted, however, under Panama’s tax treaties.

Participation exemption: No

 

Taxable income: 25%
Taxation of dividends: 10%
VAT registration:
Registration is mandatory for businesses with monthly turnover exceeding USD 3,000 or annual turnover of USD 36,000.
– VAT Rates:
Tax is assessed at the greater of a 25% flat rate on net taxable income or a 1.17% rate on gross taxable income; the latter is the alternative minimum tax
Surtax: No
Alternative minimum tax:
The CAIR is assessed at a general rate of 1.17% on gross taxable income. A taxpayer can request the CAIR not to be applied when it has net operating losses or where the effective tax rate is higher than the standard 25% rate.
Withholding tax (general): 10%
– From Dividends 15%
– From Royalties 12,5%
– From Interests
12.5%
Transfer tax:
Transfers of real property are subject to tax at a rate of 2% of the greater of the value in the deed of transfer or the cadastral value on the date of transfer.
Capital gains tax:
Capital gains derived from the sale of securities and negotiable instruments are subject to a 10% tax.
Real property tax:
Gains from the sale or transfer of real property are considered capital gains. If the transaction giving rise to the gain is part of the taxpayer’s ordinary business activities, the gain is subject to the corporate tax rate; if the transaction is not part of the taxpayer’s ordinary business activities, the gain is taxed at a reduced rate of 10%. However, in the latter case, the purchaser must withhold 3% of the higher of the purchase price or the relatable value of the property as an advance payment of tax.
Social security:
The employer must make social security contributions in an amount equal to 13.5% of the total remuneration of the employee and withhold 9.75% on the employee’s behalf and remit it to the authorities.
Payroll tax: In addition to social security contributions, the employer must pay educational insurance tax at a rate of 1.5% of an employee’s remuneration. The employer also pays workers’ compensation insurance premiums at rates ranging from 0.56% to 5.67% of the remuneration.
Stamp duty:
Stamp duty generally is 0.001 per PAB or fraction thereof, and is applicable to the issuance of certain documents.
Capital duty: No
Tax treaties:
Panama has 17 tax treaties and nine tax information exchange agreements.
Anti-avoidance rules:
– Transfer pricing
Transactions between related companies must be valued according to the arm’s length principle, applying the standards in the OECD guidelines.  A transfer pricing study must include a comparative analysis of transactions carried out by independent parties, taking into account the operations, significant economic functions or activities, contractual terms, market characteristics, and risks and commercial and business strategies. After making the comparative analysis, one of the five transfer pricing methods stated in Panamanian law must be selected.
– Thin capitalization rule
No
– Disclosure requirements An annual disclosure statement of related party transactions must be submitted to the tax authorities within six months after the end of the fiscal year. The tax authorities can make adjustments if the arm’s length principle is not followed.

Compliance for corporation:

Tax year: The calendar year generally is used, although the taxpayer can request a special 12-month fiscal year in certain cases.

Consolidated returns: Consolidated returns are not permitted; each company must file separate return.

Filling requirements:  Companies must file a tax return within 90 days after the end of the fiscal year, although a one-month extension may be obtained upon request.Three advance payments of tax are required in June, September and December, with a final payment of tax due at the time the annual return is filed. Except for companies operating in FTZ, corporations with no Panamanian-source income are not required to file an income tax return.

Penalties:  Interest and surcharges are levied on late payments. Penalties may be imposed for late filing of the annual income tax return.

Rulings:  No

Tax authorities:  Ministry of Economy and Finance, Revenue General Office, Cadastral General Office, Customs General Office

Personal Taxation in Panama 2018

Personal taxation basis: Residents and nonresidents are taxed on their Panama-source income.

Tax Residence:

An individual is resident in Panama if he/she is in the country for more than 183 days in a calendar year or has established permanent residence in Panama

 

Filling status:

Joint tax returns are permitted.

Income tax rates in Panama:

Individuals are taxed on wages and salaries, income from the carrying on of a commercial or an agricultural business and investment income.

 

Social security payments in Panama:

The employer must make social security contributions in an amount equal to 13.5% of the total remuneration of the employee and withhold 9.75% on the employee’s behalf and remit it to the authorities.

 

Inheritance/estate tax in Panama: No

Net wealth/net worth tax in Panama: No

Tax year:

Calendar year

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OUR OFFERS IN PANAMA

  • business planning, tax consulting by Novasigma
    BUSINESS CONSULTING FROM 125€/h
  • TAX PLANNING FOR PRIVATE PERSONS FROM 850€
  • TAX CONSULTING FOR CORPORATIONS FROM 2.490€

 

NOVASIGMA IN PANAMA

Consulting & Advisory services

Consulting & Advisory services | Ask for quotation

  • Due diligence process
  • Foreign Market entry & Supplier search
  • Business Plans & Descriptions
  • Development & Capital Advisory
  • International Tax Planning
  • Funding & Investor Search
  • Taxation in Panama
  • Business Restructuring via Offshore entities
  • Exit Strategy & IPO
  • Problem solving in Panama by Novasigma Accounting & Law partner offices

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Incorporation, Administration & Business services in Panama

Incorporation services in Panama

  • New company formations in Panama | from 1,790€
  • Company Closures and liquidations in Panama | Ask for quotation

Company administration in Panama

  • Legal registration address service for a Panama company
  • Company secretarial service
  • Nominee director services
  • Nominee shareholder/ technical UBO services

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Additional business services in Panama (by Novasigma Certified Partners)

Accounting and Bookkeeping services in Panama


Some of the common domestic Accounting and Bookkeeping services we provide in Panama include

  • Bookkeeping and Accounting Package | from 600€/ year + 59€/h
    • Invoicing and payments
    • Annual accounts
    • Monthly Reconciliation
    • Monthly financial statements (including balance sheet and income statement)
    • Payroll services
    • Income and tax return
  • Management accounts | Ask for quotation

Audit

  • Annual accounts in view of an annual audit and attend accounting audits | Ask for quotation

Legal services for Panama companies and business owners

Legal services in Panama for all Novasigma Clients including companies and their owners and directors

Novasigma has built in Panama team of lawyers, associates and legal advisers to assist our clients with a business and tax planning, overseas business operations, risk management and other legal matters. Primarily focused on business transactions, Novasigma Accounting & Law corporate attorneys are a great asset to a small and large businesses. With a background on corporate law, our corporate lawyers and legal advisers have an in depth knowledge on the transactions that may put your business at risk of litigation. These include contracts and negotiations, taxation laws, business structuring, buy/sell agreements, and intellectual property, among others.

Send us a Brief for Quotation

Banking, Financial and Insurance services in Panama

Banking services in Panama Ask for quotation

  • Business bank accounts
  • Personal bank account opening for business owners
  • Payment service providers
  • Investment solutions
  • Alternative banking solutions

Financial services in Panama


 

NEWS AND BUSINESS OPPORTUNITIES IN PANAMA

  • High Net Worth Individuals immigration soars 16%
  • Spanish speaking Sales Manager to Work at Costa del Sol Office
  • Use an Offshore Company for Cryptocurrency Tax Benefits

 


Interested in Panama? Please leave us a message and we will come back to you shortly.

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