Taxation in Panama
The tax system in Panama is a complex structure that plays a fundamental role in the country’s economic approach, striking a balance between generating revenue and promoting growth and investment. This system includes various taxes, each subject to aDetailed array of regulations and rates. It is crucial for businesses, investors, and individuals to have a thorough understanding of this environment for effective financial management and adherence to regulations.
Taxation system
Panama’s taxation system aims to harmonize domestic fiscal policies with international commitments, providing a systematic yet flexible method of taxation. It may include a mix of flat rates, progressive tax scales, and specific exemptions that emphasize the nation’s economic goals and social aims. Grasping the complexities of these tax structures is essential for maximizing financial results, maintaining compliance, and taking advantage of opportunities within the legal framework.
Capital gains tax
In Panama, the capital gains tax differs depending on the type of asset. For real estate transactions, the typical tax rate is 10% of the profit earned from the sale. Nonetheless, certain factors, including how the property is used and when it was constructed, may affect the precise tax computation and any available tax advantages. When securities are sold, a 5% withholding tax is charged at the time of the sale, which can be deducted from the final 10% capital gains tax obligation.
Corporate taxation
Panama utilizes a territorial system for corporate income tax. Businesses operating within Panama face a set tax rate of 25% on their net taxable income. When a company’s taxable income surpasses USD 1.5 million, the tax base will be either the net taxable income or 4.67% of the gross taxable income, whichever is greater. Additionally, Panama permits companies to offset losses for as long as five years.
Personal income taxation
Panama’s personal income tax operates under a progressive rate structure grounded in the principle of territoriality. Individuals, whether residents or non-residents, are taxed solely on income generated within Panama. The tax rates are 0% for income up to USD 11,000, 15% for income ranging from USD 11,000 to USD 50,000, and 25% for income that exceeds USD 50,000.
Dividend taxation
Panama imposes a dividend withholding tax on both domestic and foreign-source dividends. The tax rate for companies conducting business in Panama is 10% on dividends paid from domestic profits, increasing to 20% when bearer shares are involved, and 5% on dividends paid from foreign-source profits or export profits. Additionally, if no dividends are declared, a supplementary tax of 4% is levied on after-tax profits.
Property tax
In Panama, property tax is structured progressively, with rates determined by the property’s registered value. Homes designated as primary residences that are valued at $120,000 or less are not subject to tax. For properties exceeding this value, the tax rates vary between 0.5% and 1.0%, depending on the valuation. For secondary residences and commercial properties, the tax rates begin at 0.6% and can reach as high as 1.0%.
Inheritance taxation
Panama does not have any inheritance, estate, or gift taxes, which is applicable to both residents and non-residents. The laws regarding inheritance permit the testator to allocate their estate as they wish. Without any tax on wealth transfers due to inheritance, Panama is an appealing option for estate planning.
International taxation
Panama operates under a territorial tax system, meaning that only income generated within Panama is taxable. Earnings sourced from outside the country are not subject to taxation, positioning it as an attractive location for international companies. Corporations face a uniform tax rate of 25% on income earned from activities carried out in Panama. Transfer pricing regulations are applicable to transactions between related entities across borders.
Cryptocurrency taxation
Panama has a territorial taxation system. Income from cryptocurrency activities conducted within Panama is liable for corporate income tax at the standard rate of 25%. In contrast, income earned from cryptocurrency trading outside of Panama is not taxed, making Panama an attractive location for international cryptocurrency trading and investments.
VAT system
Panama’s value-added tax, referred to as ITBMS, is imposed on the transfer of movable goods and the delivery of services. The regular VAT rate stands at 7%. However, alcoholic beverages and hotel services incur a higher rate of 10%, and tobacco products are taxed at 15%. The calculation of VAT is based on value added, incorporating tax credits and debits.
Our taxation solutions
In an ever-changing tax landscape, expert advice is essential. Our firm provides a range of specialized tax solutions designed to address the varied requirements of individuals, corporations, and investors in Panama. Our services aim to effectively manage the intricacies of the tax code, reduce liabilities, and guarantee comprehensive regulatory compliance.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
In the intricate realm of taxation, seeking professional guidance can greatly impact your situation. Reach out to us today to arrange a consultation with our team of tax specialists. We will collaborate with you to create a customized tax strategy that meets your goals and guarantees full adherence to Panama’s regulatory framework.
Disclaimer
Tax laws and regulations are continually evolving and can differ depending on personal circumstances. The information presented here is intended for general guidance and may not represent the latest changes. It is strongly advised to seek assistance from a qualified tax professional for accurate and current advice tailored to your specific situation.