Tax amnesty program in Panama for 2018
Contributed by Lombardi Aguilar Group
20 December, 2018
The new tax amnesty plan provides savings to taxpayers when paid before the end of 2018
The Panamanian administration is facing the challenges of decreasing tax revenue and increases in government spending by enacting a tax amnesty program (in Spanish: moratoria) meant to entice taxpayers to pay their obligations before this year is over. Government spending has increased 30% (10% in payroll) from last year, while tax revenue has decreased 2%: 9% for income tax on individuals and 3.5% for indirect taxes on consumption. Under Law 49 of 2018, the following taxes may be paid to the Directorate General of Revenue without interest and fines:
- Property tax on real estate located in Panama,
- Flat Annual Tax on corporations and private interest foundations formed in Panama,
- Social Security obligations due by independent contractors and employees.
Taxpayers must pay the taxes due in full by December 31, 2018. Increases in property tax due from property value increases may be paid without interest if an agreement is signed by said date to pay said taxes in installments during a 6 month period.
Such a tax amnesty would benefit owners of corporations and private interest foundations formed in Panama who must pay a US$300 annual tax called 'Tasa Unica' ($400 for private foundations). While Panama corporations and private interest foundations doing business outside of Panama do not have to pay Panama income tax, they still have to pay the US$300 annual tax. Article 318A of the Tax Code also imposes a US$50 fine for every annual tax paid late and a US$300 surcharge after 2 years of delay in payments. Article 3 of the 2001 Supreme Court of Justice Schedule for Legal Services and Resolution No.5 of 2016 of the National Bar Association further provide every year for a US$250 Resident Agent Fee, and - if the client requests - a US$300 nominee director fee, and $1000 Legal Representative Fee.
Abogados Panama Lombardi Aguilar Group partner Alvaro Aguilar-Alfu pointed out that 'Even if the names of corporate shareholders and private foundation beneficiaries are disclosed to their resident agents under privacy rules, changes in the charter and board of directors must be registered with the public registry. Local laws require that all annual tax payments be up to date when filing said changes, so the moratorium would allow owners of these entities to save on the fines and surcharges,' said Aguilar.
Local media reported long lines during previous tax amnesties. Aguilar said 'the experience of taxpayers waiting until the last weeks before the deadline has been that information kept by tax authority may be outdated or incorrect so time would be insufficient to correct the amounts due and save under the amnesty.'
Increasing automatization of tax collection benefits only those taxpayers who have updated their information through their Resident Agents or an accountant onsite. 'Unlike other countries, Panama authorities do not mail or deliver tax statements so property taxes - along with surcharges, fines and interest - may be accumulating without the owner knowing,' Aguilar points out. 'Many foreign buyers have purchased real estate in Panama, either directly or by purchasing shares of landholding companies or foundations, so this is a good time to ask the local Panama tax office for a statement to pay taxes due without fines and ask counsel in their country of origin about other tax compliance and filing requirements'.
Other changes under Law 49 are:
- Increasing the property tax exclusion for real estate certified as used for agriculture valued up to $350,000 for a 5-year period,
- Abrogating the requirement of a good standing certification by the outgoing resident agent in corporations and private foundations changing agents,
- An additional tax amnesty for 6 months on Social Security contributions due by employers.
About Lombardi Aguilar Group
Lombardi Aguilar Group was created as an alternative for clients worldwide who seek fast, innovative and effective solutions to their legal problems. The firm currently provides services to individual and corporate clients in Panama as well in the Americas, Europe and Asia. Its partners maintain a commitment with professional ethics and social responsibility by participating in the board of directors of groups such as the Panama Bar Association, the German and the American Chambers of Commerce (Amcham Panama ) of Panama, and the Association of Chinese-Panamanian Professionals (AsociaciÃ³n de Profesionales Chino PanameÃ±a (APROCHIPA) , as well as members of the the Society of Trust & Estate Practitioners ( STEP ). The firm is member of the PraeLegal Technical Team global network of 242 independently-owned law firms in 141 countries
The firm centers its law practice in private client services and asset protection (Private Interest Foundations, Trusts), business structures (Offshore Corporations), tax planning, real estate and e-commerce. It also advices in areas of Law such as Corporate, Commercial, Intellectual Property, Maritime, Tax, and Immigration Law as well as related litigation that may arise.
This release has been prepared for information purposes only. It is not intended to be nor do they constitute legal advice, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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