Panama is internationally recognized as a financial and commercial hub, in part due to its tax system. Although the country is considered a tax haven by many, residents and businesses operating within its territory are subject to various tax obligations. Below, we explore the main types of taxes in Panama, both for individuals and companies.
1. Income Tax (ISR)
The Income Tax in Panama applies to both individuals and corporations and is based on a territorial system, meaning only income generated within the country is taxed.
• Individuals: For Panama residents, income tax is progressive. The first $11,000 of income is exempt. After that, the tax rates are 15% for income between $11,000 and $50,000, and 25% for income above $50,000.
• Corporations: Companies also pay taxes based on their local income. The general corporate income tax rate is 25%, though smaller companies may be subject to lower rates. Publicly traded companies may also benefit from lower tax rates.
2. Tax on the Transfer of Movable Goods and the Provision of Services (ITBMS)
The ITBMS, similar to VAT in other countries, is a tax levied on the sale of goods and services in Panama. The general rate is 7%, although higher rates apply in certain cases, such as 10% for alcohol and 15% for tobacco products.
This tax is collected by suppliers of goods or services and then remitted to the government.
3. Dividend Tax
Companies incorporated in Panama that distribute dividends to their shareholders are subject to a dividend tax. The rate varies depending on whether the income comes from local or international operations:
• Dividends from local income: 10%.
• Dividends from foreign income or a Free Zone: 5%.
This tax applies to the dividends distributed to shareholders, whether the beneficiaries are residents or non-residents of Panama.
4. Real Estate Tax
The Real Estate Tax is levied on the ownership of real property in Panama. It is calculated based on the cadastral value of the property, which includes both the land and any improvements.
• For residential properties valued at less than $120,000, there is no obligation to pay this tax.
• For those valued above this threshold, rates range between 0.5% and 1%, depending on the property value.
There are exemptions for certain types of properties, such as primary residences built under specific social interest programs.
5. Capital Gains Tax
The Capital Gains Tax applies to the sale of movable and immovable assets in Panama. For real estate, the rate is 10% on the gain made from selling the property. The seller must withhold 3% of the sale price as an advance on the tax and remit it to the tax authorities.
6. Real Estate Transfer Tax (ITBI)
Whenever real estate is transferred in Panama, the buyer must pay the Real Estate Transfer Tax. This tax is 2% of the property value or the sale price, whichever is higher.
7. Other Taxes
• Vehicle Tax: All vehicle owners are required to pay this tax, which varies depending on the value and age of the vehicle.
• Selective Taxes: Panama also taxes certain specific goods, such as luxury products, alcohol, tobacco, and fuels with a Selective Consumption Tax. Rates vary depending on the product.
Conclusion
Understanding the types of taxes in Panama is essential for both individuals and companies operating or looking to operate in the country. Its tax system is efficient and attractive, but it is crucial to comply with tax obligations to avoid penalties. If you have any doubts or need advice on how taxes may affect your business or you as an individual, do not hesitate to contact us.