Panama: Domestic Corporate Taxation
Calculation of Taxable Base
Taxable income is Panama-source income less allowable deductions. Transportation sector companies have been able to choose to calculate their taxable income as 3% of gross revenue; telecommunications companies have been able to pay tax on only 50% of their normally taxable income.
Dividends are not included in taxable income (either because, if Panama-sourced they will have been subject to withholding tax at 10%, or because, if they are foreign, they are exempt). Expenses associated with receipt of dividends are not deductible. Interest received from time-deposits in Panama banks or from Government securities is exempt.
Stocks are valued at cost, with several different bases being allowed, including FIFO and average cost. 'Cost' means purchase price including import duties, or the cost of manufacturing including direct overhead.
Allowable deductions include:
- Expenses paid or incurred for the production of income or the maintenance of a source of income;
- Depreciation of capital assets is mandatory, usually by the straight-line method. The life of assets is at the tax-payer's discretion, subject to a minimum of 3 years (30 years for immovable property).
- Interest on loans employed for the production of income, but not if they are made on the security of a term deposit;
- Bad debt provisions are allowable up to 1% of sales, with a maximum reserve of 10% of receivables;
Losses can be employed over 5 years forward at 20% per year, but only to offset up to 50% of taxable income; any losses not so employed are lost. There is no group or consortium relief, although it is sometimes possible to assign tax credits between companies.
NB: This brief summary of some of the more important aspects of Panama income tax law is given for general information only; it should not be relied upon in actual situations, for which professional tax advice is necessary.