CORPORATE TAXES
SIGNIFICANT DEVELOPMENTS
To promote and protect economic investments in the Republic of Panama, the government has enacted Law No. 54 of July 22, 1998 "whereby measures are taken for the legal stability of investments." The law, which became effective on July 24, 1998, basically makes it possible for qualified investors to maintain legal stability by locking in the legal regime in
force at the time of registry of the investment with the Panamanian Ministry of commerce and Industry.
For a company to benefit under the law, certain requirements must be met. They include the following.
1. The investment in Panama must be at least US$ 2 million.
2. The activity, to be developed over a period of up to two years, must be approved by the Cabinet Council, with the prior recommendation of the Ministry of Commerce and Industry. Approved areas of activity include electricity generation, irrigation and efficient management of hydroelectric resources.
3. An investment plan must be submitted to and certified by the appropriate regulatory agency.
Among the benefits granted for a period of ten years (or five; see item (3) ) are the following.
1. Legal stability: Except for legislation or regulations made in the public interest, any new legal provisions that may affect the investor's fights under this law will not be applicable.
2. National tax stability: The tax regime in force at the time of registration of the investment with the Ministry of Commerce and Industry will be maintained.
3. Municipal tax stability: The applicable municipal taxes at the time the investment was made will not be modified during the next five years.
4. Special customs treatment stability: Except for amendments to the import tariffs fixed by the Cabinet Council, any special customs regimes in force (granted by way of tax refunds, exemptions, temporary admission of goods, and the like) will remain unchanged.
5. Labor contract stability: Any provisions of legislation and international agreements affecting labor contracts will be in force for the ten-year term.
TAXES ON CORPORATE INCOME
A flat 30% rate is applicable to all companies doing business in Panama and to the net taxable income earned by Colon Free Zone companies on internal sales(i. e. , sales within Panama).
CORPORATE RESIDENCE
Corporate residence is determined by the articles of incorporation (statutory seat).
OTHER TAXES
Annual company tax/ Domestic and foreign companies registered in the Public Registry are subject to an annual tax of B/.150, regardless of whether they are doing business in Panama. The tax must be paid annually by the companies' legal representatives or resident agents within three months following the date that the articles of incorporation were recorded in the Public Registry.
Annual license tax/ All commercial and industrial enterprises doing business within the Republic of Panama, except those exempted by specific
laws, are required to have a license to do business. The tax, payable annually in advance , is 1% of a company's net worth, including amounts owed to the foreign home office or to the foreign parent company or affiliated companies. The tax is payable up to a maximum of B/. 20,000.
Value-added tax/ Many consumer goods and services, excluding food and medicine as well as certain services such as cable television, transportation of securities and money, and rental of safety deposit boxes, are subject to a 50% value-added tax. The rate for cigarettes and alcoholic beverages is 10%.
Complementary tax/ Local corporations must pay a 4% complementary tax each year on behalf of their shareholders if no dividends are declared. This 4% will be credited against the dividend tax when dividends are declared.
BRANCH INCOME
Branches of foreign corporations are subject to the same taxes and rates as Panamanian corporations.
INCOME DETERMINATION
Inventory valuation/ The tax regulations permit the use of the
specific-cost, LIFO, retail-inventory, or average-cost method, according to the normal course of operations. Other methods (including FIFO)are acceptable as long as the method is appropriate to the business, consiste
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