On
this Page:
- PANAMA
FORMS OF OFFSHORE OPERATION
- PANAMA TAX TREATMENT
OF OFFSHORE OPERATIONS
- PANAMA TAXATION
OF FOREIGN EMPLOYEES OF OFFSHORE OPERATIONS
- PANAMA EXCHANGE
CONTROLS
- PANAMA OFFSHORE
ACTIVITIES
- PANAMA SHIPPING
REGISTRY FEES
- PANAMA
EMPLOYMENT AND RESIDENCE
The
term 'offshore' is not used in Panama legislation;
since taxation is on a 'territorial' basis, ie
only Panama-sourced income is taxed, an entity
which has its activities or assets outside Panama
will automatically escape taxation. There are
more than 120,000 corporate entities in Panama,
of which the majority are 'offshore'.
In
June 2000, Panama was identified by the FATF as
a non-cooperative tax haven in the global fight
against money-laundering. The result of this was
that Panama was one of fifteen tax jurisdictions
placed on an FATF blacklist. Each offending tax
haven had a year in which to correct its regulations
and legislation
The
FATF released an annual report in June 2001, in
which the organisation revised its list of countries
and territories deemed non-cooperative. Only four
were removed from the list, including Panama (the
other three being the Cayman Islands, Liechtenstein
and the Bahamas). Panama was praised by the FATF
for its substantial efforts to conform to forty
recommendations set out by the FATF in a code
of good practice governing money laundering.
In
April 2009, following that month's landmark G20
summit in London, Panama was placed on the OECD's
'grey list' of territories which have committed
to, but not yet substantially implemented, the
internationally agreed standard in tax transparency
and information exchange. Later that month, the
government of Panama announced the conclusion
of the first round of negotiations towards a double
tax agreement with the Netherlands, including
tax information exchange provisions in line with
the OECD standard. Panama’s deputy Economy
Minister, Frank De Lima explained at the time
that these negotiations "marks progress towards
the removal of Panama from the Organization for
Economic Cooperation and Development’s ‘grey
list.’"
Territories
on the 'grey list' must have signed at least 12
Tax Information Exchange Agreements to be elevated
to the OECD 'white list' and presumably avoid
some form of future sanctions. As of June 2010,
Panama remains on the grey list.
Panama
Forms of Offshore Operation
Offshore
entities may take the following forms:
Licenses
are required only for financial institutions (see
Offshore Business Sectors).
Corporations do not have to disclose beneficial
ownership, and Trusts and Foundations need not
disclose the names of their beneficiaries. Limited
Partnerships do however need to disclose the names
of their members. See Forms
of Companies for more information.
In
2007 Panama inaugurated a headquarters company
regime (sedes de empresas multinacionales, or
SEM) which offers tax breaks to encourage multinational
companies to set up various types of service companies.
SEM companies are exempt from VAT on services
rendered to non-Panamanian taxpayers, and are
exempt from income tax on profits from such services.
Expatriate employees of SEM companies also receive
tax privileges.
In
order to achieve SEM status, group assets must
be worth at least $200 million. A minimum initial
capital of $2 million is required if the group's
main office is to be in Panama.
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Panama
Tax Treatment of Offshore Operations
See Domestic
Corporate Taxes for the general principles
of Panama corporate taxation, which also apply
to offshore entities.
Income
tax is levied only on income derived from operations
within Panama. A Panama business entity can direct
its offshore activities from Panama without becoming
liable for tax. The Fiscal Code (Article 694)
excludes the following types of income from the
tax net:
- the
profits of re-invoicing external goods or
services;
- the
profits of operations that are directed from
Panama but carried out externally;
- the
distribution of dividends derived from external
income, including the above types of income.
Interest
on deposits with Panamanian banks is exempt from
taxation whatever the source of the cash.
An
entity with both external and Panamanian business
activities is taxed only on the Panama-derived
income, and is subject to withholding tax only
on that income (see Direct
Corporate Taxes).
Panama
business entities with only external operations
are exempt from the Dividends (Withholding) Tax,
the Undistributed Profits Tax, the Business Tax,
and from Stamp Duty on contracts executed in Panama
to be performed elsewhere.
Companies
in the Colon Free Zone, or in Export Processing
Zones, are treated in the same way as companies
with external operations, as described above.
However, a fiscal package introduced in 2005 aimed
at reducing Panama's indebtedness included a 1%
turnover tax to apply to all operations in the
Free Zone, and a 1.4% turnover tax which may apply
to some other types of companies
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Panama
Taxation of Foreign Employees of Offshore Operations
This section refers to the taxation of foreign
employees of offshore operations, see Domestic
Personal Taxes for the general principles
of individual taxation in Panama, which also apply
to the resident employees of offshore entities.
There are no statutory residence rules as such,
but an individual is considered resident if he
is present in Panama for more than 180 days in
any one tax year. Residence has to be officicially
recognised by the Government.
There
is no distinction between foreign and Panamanian
employees, whether or not the business is 'offshore'.
The territorial basis of taxation applies to individuals
as it does to business entities, so that individuals
pay income tax on Panama-source income. 'Panamanian-source'
means, that the services rendered are deemed to
be provided within Panama - if a Panamanian entity
pays an employee for services rendered abroad,
tax will not be due.
The
fiscal reform package introduced in 2005 included
a rule (Paragraph 1-B of article 694 of the Fiscal
Code) that all payments remitted abroad to beneficiaries
not resident in the Republic of Panama shall be
subject to withholding if the payments are related
to the generation of income within Panamanian
territory or the conservation of a source of income
located within Panamanian territory, and are considered
to be deductible expenses by the payer operating
from Panama. As examples, a non-exhaustive list
of payments subject to the new rule includes fees
and income relating to intellectual property rights,
royalties, know-how, technological or scientific
knowledge and the like.
The
taxable base for application of the withholding
tax (at income tax rates) is 50% of the payment
involved.
Individuals
or legal entities engaged in “international
business activities” and carrying out operations
outside Panamanian territory are however exempted
from the tax, ie payments caught by the law are
not considered to be Panamanian source income,
although the definition of 'international business
activities' was not made clear.
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Panama
Exchange Control
There are no exchange controls in Panama, which
in effect uses the US dollar as its currency other
than for very small transactions in the Balboa,
which is at parity with the dollar. There is no
Central Bank.
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Panama
Offshore Activities
'Offshore' entities are not prohibited from carrying
on business activities in Panama, other than banks
with International or Representation Licenses
(see Offshore Business
Sectors) but will be taxed on income arising
from domestic trading, and will need to segregate
such trading in their accounts.
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Panama
Shipping Registry Fees
See Law of Offshore
for details of the legal regime applying to ship
registration.
Provisional
registration for 6 months costs $500, and $50
for renewal; the renewable provisional 3-month
radio licence costs $150 per quarter.
Under
Law no. 4 of 1983 (as amended) ongoing annual
registration fees and duties (Consular Tasa) are
based on tonnage as follows:
| Tonnage,
GRT |
Registration
Fee, $ |
| Up
to 2,000 |
500 |
| Over
2,000 up to 5,000 |
2,000 |
| Over
5,000 up to 15,000 |
3,000 |
| Over
15,000 |
plus
$0.10 per GRT to a maximum of $6,500 |
| Tonnage,
GRT |
Consular
Tasa, $ |
| Up
to 1,000 |
1,200 |
| Over
1,000 up to 3,000 |
1,800 |
| Over
3,000 up to 5,000 |
2,000 |
| Over
5,000 up to 15,000 |
2,700 |
| Over
15,000 |
3,000 |
There
are also annual Tasa charges dependent on tonnage
covering inspection and regulatory costs.
There
is a separate scale of duties for barges, pontoons
and vessels operated other than for profit.
There
is also a separate regime for pleasure vessels
under which registration is on a renewable 2-year
basis; a single fee of $1,500 ($1,000 for a Panamanian
individual or corporation) is payable every two
years. Pleasure vessels are exempt from duties
and other Tasa charges.
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Panama
Employment and Residence
The
employment market is quite closely regulated:
the law sets maximum percentages for the employment
of foreigners in a business according to its sector.
However, foreign companies are allowed to fill
senior and/or sensitive positions with expatriates.
Long-stay
working residents are issued with Immigrant visas
if their employment is permitted. Short-stay visas
are issued freely. The Tourist-Pensioner visa
is given to those who can demonstrate a monthly
designated level of income from interest on time-deposits
in a Panamanian bank; the Investor's visa is for
those who invest their own capital into local
business activity.
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LOWTAX.NET
13/07 
