Managing Corporate Taxation in Latin American Countries - Panama

Overview

1. Income Tax

   1.1. Corporation Income Tax

   Companies will pay the Income Tax at a rate of 27.5% (year 2010) – 25 % (year 2011 ).

1. Net taxable income calculated by the method established in this title. The first step is to reduce from the gross income from Panamanian source the deductible costs and expenses, what gives the taxable income. Then, on the taxable income is deducted tax incentives and carry over losses, that gives the net taxable income (traditional method)

2. CAIR is eliminated, however, remains an estimate calculation for corporations whose taxable income exceeded US$ 1.5 million annual.

   These corporations will pay the higher amount between:

1. The taxable net income calculated by the traditional method, and

2. The taxable net income resulting from applying 4.67% to the total taxable income.

   The total taxable income for tax purposes is the amount resulting from subtracting form the total income of the taxpayer's the exempt income and / or non-taxable income and the income of foreign source.

   Loss Carry-forward.

   Losses of the tax payer will be able to be deduced in the 5 following fiscal years at the rate of 20% of the loss per year.

   1.3. Foreign Gains and Losses

   Panama applies the principle of territorial source, in such a way that only the income generated within the Republic of Panama is taxable. (Article 694 of the Fiscal Code).

   The same Article 694 of the Fiscal Code had a modification by means of which it will be considered produced in Panama (Panamanian source income), the income received by individuals or corporations domiciled outside Panama, derived from any service or act that benefit persons within the Republic of Panama. Income includes among others, fees and incomes for copyrights, commercial and trade names, patents of invention, know-how, technology and scientific knowledge, commercial or industrial secrets, in the way that these services affect the production of income of Panamanian source and its value has been considered deductible expenses by the person in Panama who received them.

   As a consequence, individual and corporations in Panama who benefits of the service, will have to apply the rates settled in Articles 699 (27.5% - 25%) and 700 (progressive tariff) of the Fiscal Code on the fifty percent (50%) of the amount to be transferred to the beneficiary outside.

   Individuals or corporations that, because of their activities of international businesses, performs activities outside Panama that are required...