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Panama: Living There - Tax Issues

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INDIVIDUL TAXATION

Panama has a territorial taxation system and residents are taxed only on their Panamian-sourced income. Married couples are generally taxed separately but they may opt for joint taxation.

INCOME TAX

Resident individuals are taxed on their total income received from Panamá sources, including income from employment, from rendering personal services, from business activities, and investment income.

All individuals, with the exception of employees earning a single salary, are required to file an income tax return. Income tax is levied at progressive rates, depending on the taxable income.

Individuals with taxable income exceeding US$60,000, have two options for taxation:

• Net income is taxed at progressive rates
• Gross income is taxed at a flat rate of 6% (alternative calculation of taxable income or calculo alterno del impuesto de la renta, CAIR)

Taxpayers are entitled to the following tax allowances:

• US$800 annually for each single taxpayer
• US$1,600 annually for a married couple filing jointly
• US$250 for each of the taxpayers’ dependents as legally defined

Taxpayers are also entitled to the following personal deductions from taxable income:

• All medical expenses incurred in Panamá if duly substantiated and not covered by insurance
• All interest paid on mortgage loans for acquiring or improving the taxpayer’s principal private residence in Panamá , subject to a maximum deduction of US$15,000 annually
• All interest paid on loans used to cover educational expenses in Panamá, if properly documented. Including interest paid on state sponsored loans to cover educational expenses in or outside Panamá
• 25% of representation expenses not reimbursed by the employer, up to US$6,000 annually
• Educational taxes paid or withheld
• Political contributions up to a maximum of US$10,000 annually
• Dues paid to non-profit organizations or societies
• Specified charitable donations and health insurance premiums

Income tax is generally payable in advance. Taxpayers must file with their income tax return for the previous year, a declaration showing an estimate of the current year’s income. Individuals are required to deduct and withhold every month their amount of tax liability.

RENTAL INCOME
Rental income is taxed at progressive rates. Income-generating expenses are deductible from the gross rent: municipal and national taxes, maintenance and repairs, administrative expenses, and depreciation of the property.

CAPITAL GAINS
Taxable capital gains are calculated by deducting the following from the property value at the time of disposal (selling price or market value): acquisition costs, improvement costs, and transaction costs.

Capital gains realized from transactions that are part of ordinary business activities are taxed at the standard progressive income tax rates.

Capital gains realized from transactions not part of ordinary business activities are taxed at a special flat rate of 10%.

A reduced tax rate of 5% is applicable for capital gains realized from properties dedicated to farming or properties for accommodation located in rural areas, provided that the property’s registered value is less than US$10,000.

VALUE ADDED TAX (Impuesto a la
transferencia de bienes corporales muebles con crédito fiscal)

Leasing immovable property in Panamá is subject to VAT, levied at a flat rate of 5% on the gross rent.

Entities with an average monthly turnover less than US$3,000 (during the previous tax year) and an average yearly turnover of US$36,000 are exempted from VAT.

PROPERTY TAX

Property Tax (Impuesto de Inmuebles)

Real estate located in Panamá , whether urban or rural, is subject to property taxes. The tax base depends on the total value of the land, plus all improvements, as appraised by Land Commission (Oficina de Catastro). Real estate transactions at prices above the appraisal value automatically increase their value for tax purposes.

The property tax is imposed at progressive rates.

Alternative progressive tax rates are available in case of voluntary property value declarations, provided that the property value is accepted by the tax authorities following certain requirements.

Panama - more data and information

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posted by My Panama Lawyer | 2008-07-06

Attorney-at-law, Panama

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