INCOME TAXES ON CORPORATIONS
1. RatesNet taxable income for corporations is levied at a 30% rate.
National industries registered under the law no. 3/86 or with government contracts entitled to tax benefits are subject to the following tax rates, as long as their registration is valid or until they resign their benefits:
Taxable Income
Tax on Percentage
Over Not Over Lower Amount on Excess
US$ 0 US$500,000 US$ 0 30.0%
500,000 150,000 34.0
Free-Zone Companies. Companies operating in the Colon Free Zone and in other authorized free zones are subject to a special system by which their operations are categorized as either local, exterior, or foreign with the following fiscal treatment:
q Local operations. Profits from sales to customers located in the Republic of Panama are taxed at a 30% income tax rate;
q Free-zone or export operations. Profits from export operations are 100% tax-exempt. Export operations refers to sales of local or imported merchandise from a free-zone to customers located outside Panama; sales from one free-zone company to another free-zone company (transfers), and commissions related to export operations;
q Foreign or offshore?operations. The following activities are not considered local operations and, therefore, are not taxable in Panama:
?Invoicing from an office established in Panama of sales of
merchandise or products amounts greater than billed cost; as long as the merchandise or products move solely outside Panama;
?Directing from an office established in Panama transactions that are perfected, completed, or effected outside Panama;
?Distributing dividends or participations derived from the
activities mentioned above;?Services rendered outside of Panama.
Micro-, Small-, and Medium-Size Corporations. Micro-, small-, and medium-size corporations are taxed as follows:
q A percentage of the taxable income of total income should be obtained;
q The percentage should be applied over the first US$100,000 to obtain the taxable income attributable to the first US$100,000 income;
q The taxable income obtained above is taxed at income tax rates for individuals;
q The remaining income resulting from deducting the income tax over the first US$100,000 (see above) to the total taxable income is taxed at normal corporation tax rates over the amount exceeding US$30,000, less than that, at 20%.
To be considered a micro-, small-, or medium-size corporation, all of the following conditions should be met:
q The companies should not be the result of the division of the operations of a corporation and should not be affiliated, subsidiary, or controlled by another corporation;
q Total gross income should not exceed US$200,000 per year; andq Shares should be nominative and issued to individuals.All micro-, small-, and medium-size corporations are exempt from tax on dividends from earnings.
2. Local Income Taxes
There are no state or provincial income taxes in the Republic of Panama, but municipal taxes are in force for corporations operating in Panama. These taxes are based on the volume of sales.
3. Capital Gains Taxes
Capital gains on the sale of stock and other securities are exempt from tax if the securities are issued by companies registered with the National Securities Commission or issued by the government; otherwise, gains are taxed at normal rates.
Capital gains on the sale of real estate are subject to special treatment. A 2% tax is levied to all transferences of real estate upon sale or transference registration. This 2% tax is computed over the highest of:
q Sale price agreed upon in the public deed;
q The registered value of the land plus improvements and buildings according to the Public Registration Office records, plus an amount equivalent to 5% over the registered value for each complete year from acquisition date to the sale or transference date.The
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