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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 officially recognised by the Government.
As
regards taxation, there is no distinction between
foreign and Panamanian individuals. 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.
A
fiscal reform package introduced in 2005 and
which took effect from 2006 in most respects
has changed the rules in some ways:
According
to the newly introduced Paragraph 1-A of article
694 of the Fiscal Code, income derived from
personal services such as wages, salaries and
other personal remunerations will be treated
as originating from a source located within
Panamanian territory – even though such
personal services may be physically and actually
rendered both within and outside Panamanian
territory – if the individual taxpayer
resides in the Republic of Panama for at least
70% of the calendar days of any given year.
Other income (dividends, pension payments and
interest, for example) is not covered by the
new rule.
See
Direct Corporate
Taxation for details of new withholding
tax rules introduced under the package.
Income is defined as the aggregate of income from
Panamanian sources after deduction of allowable
expenses and losses and ignoring exempt income.
Income includes income from employment and from
rendering independent personal services, income
from business activities, and investment income.
Employment
income in respect of work done in Panama is taxable
regardless of where the payment is made or received.
Dividends are not included in income (they will
have been subject to the final withholding tax
of 10%.)
Capital
gains are included in taxable income. The taxpayer
has a choice of methods in computing the taxable
gain on sales of real estate; gains on sales of
securities issued by Panamanian companies and
other personal property are taxable without adjustment;
however, gains on the sale of securities listed
with the National Securities Commission are exempt
from tax.
Individuals
have a personal allowance of PAB800 (1,600 for
a married couple filing together), plus PAB250
for each dependent. Mortgage interest is deductible
up to PAB15,000 per year; medical expenses incurred
in Panama are deductible, as are health insurance
premiums and some charitable donations.
As
of February 2005, employees who are paid what
is known as Gastos de Representación (or
expense-allowance) are subject to the Income Tax
withholding applicable in general terms to salaries
and wages. The main difference is that the Income
Tax to be withheld from this kind of remuneration
will be a fixed rate of 10%. This rule will apply
to employees from both the public and private
sectors.
Individuals
will continue to file an Income Tax return including
this specific type of remuneration and assessing
the tax due at the progressive Income Tax rates
provided for in article 700 of the Fiscal Code.
Moreover,
fringe benefits such as housing for company executives
or the use of cars, recreation or vacation packages,
educational costs and others are now included
in the text of article 696 (a) of the Fiscal Code,
as specific types of gross income for Income Tax
purposes. The only exclusion provided in the Law
refers to medical insurance provided by employers
to their employees.
The
rates of tax on taxable income in 2009 were
as follows:
Band
of Income, PAB
Rate
of Tax, %
Up
to 9,500
nil
9,501
to 12,000
20.5
12,001
to 15,000
21.5
15,001
to 20,000
23.0
20,001
to 30,000
24
above
30,000
27
There
is an alternative minimum tax of 6% of income
for individuals earning more than PAB60,000,
although this does not apply to employees
without outside income. Entrepreneurs are
subject to an alternative minimum tax of 1.4%
of business income.
Employers and employees make social security contributions
in Panama: the employer pays 11.5% of salaries
and wages, plus a 0.75% 'special rate for a total
contribution of 11.75% (2010); the employee pays
8% (2010). The employer deducts the social security
contribution along with income tax. The self-employed
also make contributions. An educational insurance
tax is also assessed at the rate of 1.25% on salaries
and wages.
A
2005 law increased the retirement age to 65 years
from 62 years for men, to 60 years from 57 years
for women, and extended the minimum time required
to pay into the fund in order to draw from it
when retired to 25 years from 15 years. The changes
also required the self-employed and small business
owners to contribute 13% of their gross income
to the social security fund.
Most
official and public documents in Panama require
stamping, including sales invoices, receipts,
legal submissions and contracts. Fiscal stamps
are on sale in various denominations; pre-stamped
paper can be bought at PAB 4 the sheet.
There
are annual taxes on the value of real estate,
plus capital gains tax on profits from the sale
of real estate, and a transfer tax arising on
sale.
The
annual tax, under Article 766 of the Fiscal
Code, is based on official valuations, and is
levied on a sliding scale:
1.75%
from $30,000 (lowered to $20,000 in 2005)
to $50,000; plus
1.95%
from $50,000 to $75,000; and
2.10%
on values above $75,000
Valuations
under the 'cadastral' system were updated in
2005, and as from 2006 the tax is based on the
new values at the following rates:
0.70%
on any value exceeding US$30,000 up to US$50,000;
0.90%
on any value exceeding US$50,000 up to US$75,000;
and
1.00
% on any value in excess of US$75,000.
The
real estate tax was extended to certain properties
not previously covered as a result of a fiscal
reform package approved in 2009.
The
2009 package also changed the way in which Capital
Gains Tax is levied on real estate gains under
Article 701 of the Fiscal Code and Articles
89 and 90 of the Income Tax Regulations. The
rate of tax was 30% on the taxable gain after
deductions, but the calculation basis was quite
complex, at least for persons not otherwise
paying much tax. Under Law 49 of 2009, a 3%
tax must be withheld as an advance payment towards
capital gains tax, either on the sale price
or the property's value, whichever is higher.
The
tax on the transfer of real estate (not new
homes) is 2%, payable by the seller, which is
credited against capital gains tax (see Income
Tax, above).
Incentives
introduced in 2004 to encourage development
gave savings on a $200,000 home over 20 years
of $69,250 – or about one-third of the purchase
price of a high-quality home. But they were
finally withdrawn on August 31, 2005, with existing
projects needing to be completed within a year.
Not
all was lost after September, however. Residences
with construction permits issued after September
1, 2005 benefit from the following exemptions:
Value
up to $100,000: 15 years
Value from $100,000 to $250,000: 10 years
Value
over $250,000: 5 years
Land
is not exempt and property tax would continue
to be paid on it if its value is above $30,000.
These
incentives were continued with some changes
by 2008 legislation: improvements to real property
authorized by construction permits issued after
July 1, 2009, are exempt from real estate taxes
for a period of 10 to 15 years.
VAT (impuesto a la transferencia de bienes corporales
muebles) is a tax on consumers imposed on transfers
of personal property by sale or otherwise, and
also applies to imports. The taxable value is
the price paid plus ancillary charges, or in
the case of imports, the customs value plus
customs charges. The rate is generally 5%, but
a higher rate of 10% applies to alcoholic beverages,
and a 15% rate applies to tobacco-related products.
The general rate will increase to 7% in July
2010.
Exports
are zero-rated. Exemptions include food, medicine,
agricultural raw materials, fuel and books.
Panama
also imposes excise taxes on several products
and services at 5%. Items covered by the excise
tax include cars, motorcycles, cable television,
pre-paid cellular phones, insurance premiums
and airfares.
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