Panama has few tax treaties with countries that have close economic ties with it, further protecting the financial privacy of offshore bank customers who are citizens of other countries. Panama also has the advantage of not having exchange control laws. This means that there are no restrictions or reporting requirements for individual Panama Offshore Banking customers, as well as for offshore companies incorporated in Panama, on money transfers within or outside the country. There are other taxes that are applicable in their different forms. These include: Prepaid dividend tax: Local companies must pay an additional 4% tax on the net profit of each tax year on behalf of their shareholders if dividends are not declared. This 4% is applied to dividend tax when dividends are declared. The rate for companies based in a free trade zone is 2%. Franchise tax: Foreign and domestic companies registered in the public registry are subject to an annual fee of $300 whether or not they do business in Panama. There is a $50 penalty for late payment and after two years of non-payment of the franchise tax, there is a $300 recovery fee. Annual License Fee: All industrial or commercial enterprises, except those exempted by specific laws, must hold an operating license.
The annual license fee is 2% of the net assets of the company, including amounts due to the Foreign Ministry of Interior or affiliated companies. The tax is payable annually up to a maximum of $60,000. For companies based in a free trade zone, this tax is 1% of the company`s net assets, including amounts due to the foreign Ministry of Interior or affiliated companies. The tax is payable annually up to a maximum of $50,000. Annual Bank Tax: Banking institutions are subject to an annual tax as follows: In Panama, the legal and regulatory framework that defines the tax system is the Political Constitution of the Republic of Panama, the Tax Code and its reforms, as well as complementary laws, decrees and resolutions. Panama and its provinces operate according to a civil legal system and a unitary, republican, democratic and representative government. The President is elected for a non-renewable term of five years. All industrial or commercial enterprises, except those exempted by specific laws, must register to obtain an operating license.
The operating licence automatically grants applicants a unique tax registration number (RUC) to submit bids to the General Revenue Office of the Ministry of Economy and Finance. A new business is also automatically registered as a municipal taxpayer, but has not yet completed the proper registration process related to the use of the RUC as well as registration with the municipality where the company operates. Panama has extensive laws to protect the financial privacy of businesses and individuals. Documentation from offshore companies, trusts and foundations is subject to strict privacy laws and regulations, with severe civil and criminal penalties for breach of confidentiality. The names of the company`s shareholders do not need to be publicly registered. Panama also has very strict banking secrecy laws. Panamanian banks are prohibited from sharing information about offshore bank accounts or account holders. The only exception is a specific order of the Panamanian court in conjunction with a criminal investigation.
The company declaring the dividend must withhold a 10% tax on all dividends declared from income earned in the Republic of Panama. Dividends declared by domestic subsidiaries on Panama`s income are also subject to a 10% tax. However, dividends on bearer shares are subject to a dividend tax of 20%. Companies that need a business license must withhold a 5% tax on declared dividends from export income or foreign sources. Companies based in a free trade zone must withhold a 5% tax on dividends, regardless of the source of income. A tax rate of 30% is applied to net taxable income, whichever is greater: SA are companies whose ownership is represented by shares. There is a minimum requirement of one shareholder and no limit on the number of shareholders. There are no thin capitalization rules for taking control of additional shares. If, after applying the second alternative, the company suffers losses due to the payment of tax or if the effective rate of income tax exceeds 30%, it may request the tax office not to apply the alternative calculation. Small businesses that charge up to $150,000 in the fiscal year are exempt from using the alternative calculation. The tax year of companies generally corresponds to the calendar year, but it is allowed that the tax years end on the other days when a request is made to the tax authorities. Generally, a business is required to prepay its estimated tax payable in three instalments based on the previous year`s income tax.
Corporate income tax returns and payments must be made by the end of the third month following the end of the taxation year. Upon request, a two-month extension may be granted. However, extensions to file a tax return do not affect the time it takes to pay the tax. The judiciary is vested in the Supreme Court, composed of nine judges, all appointed by the President (subject to approval by the National Assembly) for a 10-year term. The National Assembly (AsambleaNacional) is a unicameral body composed of 71 members elected by universal suffrage for a five-year term and eligible for re-election. The National Assembly initiates laws, regulates international treaties, approves the budget and establishes political divisions.
