Follow and Get to Know Company Tax Requirements in Panama for Your Business
One of the most attractive countries is Panama for its efforts towards taxation. It is due to Panama’s approach for commercial activities, it has become a world headquarter for many of the biggest corporations such as BMW and Heineken. The company’s tax requirements have been genuinely looked by Panama.
Panama has made a holistic way to taxation and thus it is influencing many corporations to grow in Panama. Panama has taken many steps in reducing the company’s tax to a greater extent where the company has to pay only $300. Panamas has signed DTAs and PTAs with 11 and 10 countries respectively enabling them to progress in Panama.
Although there are many advantages of operating from Panama, there are some categories of taxation which makes the company’s tax requirements and accounting’s totally complicated. There are many types of taxes in Panama such as:
INCOME TAX
Income tax as known to everyone, is the tax paid by any organization to the government based on the income generated annually. Panama has a progressive tax system where the amount of income tax is divided into three parts which is based upon your income:
- Income generated up to $11,000 are income tax free
- Income tax of 15% levied upon $11,000-50,000
- Income earned more than $50,000 a year generates income over 25%
Companies having an income less than USD 1.5 million need to pay a tax of 25%. While, other companies pay about 28%. The companies generating income in the local territory must pay taxes while the branches have to pay an additional tax of 10%.
An added advantage of company’s tax requirement in Panama is the territory-based tax payment. The profit generated in the territory of Panama will only be taxed while the profits being made out of this territory will be untaxed. It is because of this magic tax policy that many big corporate are turning to Panama for investment.
Other tax benefits in Panama are:
- Small scale business of agricultural sector can apply for lower income tax policy.
- A phenomenal policy for the married couple who can jointly reduce $800 on their tax return
- 20% of the losses of the resident companies can be forwarded upto a period of 5 years.
MITA is Monthly Income Tax Advances which should be paid by every 15th of the month.
COMMERCIAL AND IMPORT TAX
Commercial and Income tax are necessary for international investors as these taxes are concerned with imports and exports. Panama has a good geographical structure, which has access to the markets of North America and South America and also it is connected to two oceans.
Panama Commercial Operation Permit must be taken before investing or starting a business in Panama. This permit allows a tax of 2% on a payment of $60,000. Companies operating within the Free trade zones where the tax rate of 1% is levied of $50,000.
Panama has the lowest VAT in the world. 7% of VAT is added in retail goods, while for products such as alcohol and tobacco products, VAT is around 10 and 15% respectively. These lower tax rates of Panama have attracted a lot of tourist to purchase electronics, garments and many more. It has one of the biggest malls in America, named Albrook Mall. The local companies of Panama need to pay a total tax of around 7% on an income of USD 36,000. The companies need to file a VAT return on a monthly basis.
Accounting
Panama only promotes the universal accounting standards as laid down by IFRS foundation (International Financial Reporting Standards). Although, this territory has great tax benefits, it is important to understand the ethical standards of the accounting system also. Panama is a registered affiliate member of the IFRS foundation to wipe of any unfair trade practices so that there is trust and worthy businesses establish themselves in this region.
With fair and judicial structure of Panama accounting along with added advantage of plenty of tax benefits, one must not give a second thought before setting up a business in Panama. Panama has been known worldwide for its huge benefits that it possess for company’s taxation based on the territory.
