Panama legal and accounting and tax considerations in 2023
Since 2003, Healy Consultants Group PLC assists our Clients with timely compliance of their annual legal, accounting and tax obligations in Panama.
Corporate Income Tax
- Panamanian corporate income tax is levied on a territoriality principle. All Panama-sourced income is subject to tax whether it is received by a resident or non-resident entity.
- Corporations are subject to income tax at a fixed rate of 25%.
- Panama corporations with taxable income exceeding $1.5 million use a different calculation. Their tax base is the greater of net taxable income calculated on the normal basis or 4.67% of the gross taxable income (CAIR).
- If the entity’s tax year results in a loss due to the alternative calculation, our Clients may request Dirección General de Ingresos not to be subject to CAIR.
- Our Clients may also request not to apply CAIR if the company’s effective income tax rate is higher than the applicable income tax rate (i e 25%).
- Losses can be carried forward five years if they do not exceed 20% of the total loss in any year.
Withholding taxes/capital gains tax
- Royalties and commissions on services paid to foreign entities are taxed at an effective rate of 12.5%.
- Interest payments are also subject to tax on 50% of the interest paid to a beneficiary abroad on loans invested in Panama.
- If the beneficiary is registered as a taxpayer in Panama by the tax administration, no withholding taxes are imposed.
- The sale of fixed assets is subject to 10% tax on the capital gain. There are no withholding taxes.
- The transfer of securities is subject to a 5% withholding tax, and the tax rate on capital gain is 10%.
Social security & payroll tax
- Social security tax is assessed at 9.75% on wages and other compensation for employees, and 12.25% for employers.
- Educational insurance tax is assessed at 1.25% for employees and 1.50% for employers on salaries and wages paid.
- There is no maximum limit on the taxable amount on the above taxes.
- Professional risk tax is applied to employers at 0.33% to 6.25%, depending on the type of industry.
Value Added Tax (VAT)
- The Panama equivalent of VAT is ITBMS (Impuesto de Transferencia de Bienes Muebles y Prestación de Servicios) and is levied at 7%. Alcoholic beverages and hotel accommodation suffer 10% ITBMS. Tobacco and tobacco-derived products are taxed at 15%.
- The sale of goods such as medicines, foods, and certain baby products are not taxed and may produce ITBMS credit for exporters if certain criteria are met. Medical services and transportation are also exempt from ITBMS, but do not generate ITBMS credit for the supplier.
- ITBMS is calculated on the value-added through a method of tax credits paid on transactions and tax debits collected on transactions.
- Legal entities operating in Panama, including professional services, or trading companies, including state-owned industrial and commercial enterprises, must register for ITBMS if their gross income exceeds US$36,000 per year at the Registro Único de Contribuyentes.
- Exports are not taxed. ITBMS paid to generate exports may be refunded.
Filing due dates
- Annual income tax returns must be filed no later than 12 months after the end of the accounting period.
- The tax year is the calendar year for most companies. However, companies can request their own fiscal year-end.
- Three advance tax payments are required in June, September and December, with a final payment due when the annual return is filed.
- The due date for filing is three months after the end of the fiscal year, with the possibility for an extension of up to one additional month.
- ITBMS (VAT) returns must be filed monthly.
Consequences of late / non-filing of tax returns
- Monthly interest is charged for late payments of annual tax. Interest charges are calculated based on rates established periodically by the tax authorities.
- In addition to late payment interest, late tax payments are subject to a surcharge of 10% of the tax bill.
- For late VAT/ITBMS filing, the penalty is i) 10% of the amount due plus ii) 12% annual interest rate. There is also a US$500 charge for filing amendment return three months after the original form was filed. A late return (over 60 days) with no liability attracts a US$10 fine.
- A company failing to obtain a Tax ID number while using invoices or irregular documentation, or not fulfilling their formal obligations, may be fined between US$100 and US$500 for the first offence, and between US$500 and US$5,000 for any offence thereafter.
Tax reporting, accounting and auditing considerations
- The Panama tax administration may audit the income tax returns filed within the last three years from the last day of the year on which the tax return was filed.
- The tax administration can charge ITBMS within five years of the last day of the following month in which the tax was payable.
- Resident companies with operations in Panama, or offshore entities, must maintain accounting records and supporting documentation for at least five years from i) the last day of the calendar for the transactions covered in the accounting records ii) the last day of the calendar year in which the legal entity ceases operations.
- Accounting records and documentation must be retained in the office of the resident agent of the offshore entity, or in any other place determined by the entity’s management, subject to certain notification requirements.
- If the accounting records and supporting documentation are held outside Panama, the legal entity will be required to provide the necessary documentation to its resident agent within 15 business days of a request from the Panamanian tax authorities.
Healy Consultants Group PLC fees for accounting and tax support
Panama accounting & tax task US$ VAT registration 950 Annual tax and accounting fees (active trading company) 2,300 Annual tax and accounting fees (dormant company) 950
These accounting and tax fees are an estimate of Healy Consultants Group PLC fees to efficiently discharge your annual company accounting and tax obligations. Following receipt of a set of draft accounting numbers from your company, Healy Consultants Group PLC will more accurately advise accounting and tax fees.
Monthly bookkeeping service
Healy Consultants Group PLC will be happy to provide a monthly book-keeping service for your Panama company. Typically, our Accounting & Tax Department (ATD) team will receive a Dropbox of data from our Client and will immediately thereafter timely supply our Client with i) a general ledger ii) trial balance iii) monthly and quarterly management accounts and iv) monthly and quarterly government reporting, including sales tax and payroll.
For further details of our book-keeping service and our fees, visit this page.
Clients should be aware of their personal and corporate tax obligations in their country of residence and domicile. They must fulfil these obligations annually. Let us know if you need Healy Consultants Group PLC’s help to clarify your annual reporting obligations.
Legal and compliance
Healy Consultants Compliance Department assists our Clients efficiently and completely discharge their Panama legal and tax obligations.
- A Panamanian Corporation and LLC will be setup with at least 3 directors and 1 shareholder. Please note that while corporate entities can act as shareholders, they cannot be appointed as company directors;
- Panamanian law mandates the minimum initial share capital for incorporating a corporation and LLC to be only US$1. However, foreign entrepreneurs can only be granted an investor visa if they deposit an initial capital of at least US$160,000;
- All resident companies must register with the tax agency in order to obtain a Tax Identification Number (RUC). Also, it is mandatory to register with the district tax authorities for the payment of local taxes;
- Foreign entrepreneurs are not permitted to pursue retail businesses in Panama;
- Employees can work for a maximum of 8 hours a day and 48 hours a week. Any overtime must be compensated with an extra 25% of regular salary per hour;
- Resident companies will be required to submit annual audited financial statements if the i) initial capital exceeds US$100,000 or ii) annual gross income exceeds US$50,000;
- All employers are required to contribute 12% of their employee’s salary to the latter’s social security account;
- All companies will provide their employees paid vacation of 30 days after continuous work of 11 months;
- Foreign employees cannot comprise more than 10% of the company’s total work force. Furthermore, monthly payroll of the foreign employees cannot be higher than 10% of the total;
- Panamanian banks can request affidavits if a transaction worth US$10,000 has been concluded by a Client. This is done to disrupt potential money laundering operations.