When deciding to expand your business overseas, taxes are an important consideration. Each country has its own taxation system, and it may differ from the system you’re used to in ways you can’t predict.
It’s vital to compare the ways taxation varies between countries to make sure your business operates legally, no matter where it’s based. This article will examine the three most important aspects of tax law in Panama: personal taxes, corporate taxes, and VAT.
SERVIAP can help with your global expansion needs. Contact us today to learn how you can expand your business with PEO in Panama.
Panama Personal Taxes
Here is everything you need to know about personal taxes in Panama:
Who is Taxed?
In Panama, residents, and non-residents alike, are taxed on income earned in Panamanian territory. Any foreigners who live in Panama over 183 days a year and earn income in Panama will be taxed in the same way as Panamanian nationals.
There is, however, a special program known as the Pensionado Program, which allows eligible ex-pats to retire in Panama. Among other benefits, the program offers certain tax exemptions for specific goods and services.
What is the Tax Rate?
Tax rates in the Panama tax system differ based on income levels. Residents who earn between $11,000 and $50,000 pay a 15% tax rate. Those who earn more than $50,000 pay a 25% tax rate on income above $50,000. Any individuals who earn less than $11,000 per year are not required to pay income taxes.
Certain individuals can apply for income tax deductions, including:
- An $800 deduction for married couples filing joint tax returns
- Deductions for up to $15,000 in mortgage interest paid
- Health insurance premium deductions
- Student loan interest payment deductions
If you are filing personal taxes, make sure to secure as many deductions as possible.
National vs. International Income
There is no additional tax applied to any income generated outside of Panamanian territory. Any income derived from overseas sources should be included in those tax documents and is not subject to any taxes in Panama.
Capital Gains, Exemptions & Other Considerations
Capital gains tax in Panama is a flat fee of 10% of gross sale profit. The exception to this rule applies if you buy and sell real estate for a living. If more than one property is sold in a year, you must include any profits from the sale in your income tax return. Income tax, not capital gains tax, would be paid on real estate profits.
Panama Corporate Taxes
Here’s everything you need to know about corporate taxes in Panama:
Who is Taxed?
All corporations generating income in Panamanian territory are subject to tax withholding.
What is the Tax Rate?
Corporations pay a fixed income tax rate of 25%. The tax base of any company whose income is more than USD 1.5 million is the greater of the following options. Either:
- Net taxable income calculated as normal, or
- 4.67% of the gross taxable income
Keep in mind that this gross taxable income excludes any exempt, non-taxable, and foreign source income.
What is Taxable Income?
Any income generated within the Panamanian territory is considered taxable income.
Tax Incentives & Deductions
Certain areas offer tax incentives if businesses operate within specific zones. The following is a list of qualifying tax incentives:
- Any company operating in a “Free Zone”
- Any company operating in Ciudad del Saber
- “Small business” companies
- Oil-free trade zone
These incentives range from lower dividend taxes to total tax deductions for your business.
Panama VAT Taxes
Value-added taxes, better known as VAT taxes, are a common form of consumption tax. The value-added portion is the difference between a business’ sales and its cost of purchasing services or goods from another business.
Here’s what you need to know about VAT taxes in Panama:
Who is Taxed?
Any companies with revenue of $36,000 or more annually, or $3000 monthly, must have VAT tax collected.
What is the Tax Rate?
Panama’s general VAT rate is 7%. This territory has special VAT tax rates on certain products; alcohol and hotels have a 10% VAT rate, while cigarettes have a 15% VAT rate.
Is Panama Right for Your Business?
SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization. Contact us today to learn more about how you can expand your business in Panama.
