Income tax in Panama
Taxation Researcher | November 11, 2020
Panamá 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.
Resident individuals are taxed on their total income received from Panamá sources, including (1) income from employment and from rendering personal services, (2) income from business activities, (3) income from agricultural activities, and (4) 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.
|TAXABLE INCOME, (US$)||TAX RATE|
|Up to US$11,000||0%|
|US$11,000 - US$50,000||15% on band over US$11,000|
|Over US$50,000||25% on all income over US$50,000|
|Source: Global Property Guide|
Resident individuals are allowed to deduct the following personal allowances and deductions from their taxable income:
- Annual deduction of US$800 for married couples filing a joint tax return
- Interest paid on mortgage loans for home improvements on residences located in Panama, up to US$15,000 annually
- Interest paid on loans for education
- Medical expenses of the taxpayer and his dependents, subject to certain conditions
- Donations to local educational and charitable institutions, up to US$50,000 annually
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.
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.
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 7% 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$36,000 are exempted from VAT.
Property Tax (Impuesto de Inmuebles)
Real estate located in Panamá, whether urban or rural, is subject to property taxes. The tax base depends on the total value of the land, plus all improvements, as appraised by Land Commission (Oficina de Catastro). Real estate transactions at prices above the appraisal value automatically increase their value for tax purposes.
The property tax is imposed at progressive rates.
The property tax rate ranges from 0% to 0.70% for real property subject to family wealth or main residence benefits. The property tax rate is 0% to 1% for commercial and industrial real estate, land, other residences and other properties.
PROPERTY TAX FOR PRIMARY RESIDENCE
|TAAXABLE INCOME, US$||TAX RATE|
|Up to US$120,000||0%|
|US$120,000 – US$700,000||0.50% on band over US$120,000|
|ver US$700,000||0.70% on all income over US$700,000|
PROPERTY TAX FOR OTHER PROPERTY
|TAAXABLE INCOME, US$||TAX RATE|
|Up to US$30,000||0%|
|US$30,000 – US$250,000||0.60% on band over US$30,000|
|US$250,000 – US$500,000||0.80% on band over US$250,000|
|Over US$500,000||1.00% on all income over US$500,00|
Income earned by companies is taxed at a flat corporate tax rate of 25%. Income-generating expenses are deductible when calculating taxable income.
CAPITAL GAINS TAX
Capital gains realized by companies from transactions that are part of ordinary business activities are taxed at the standard progressive income tax rates.
Capital gains realized by companies from transactions not part of ordinary business activities are taxed at a special flat rate of 10%. A 5% withholding tax is levied on the transaction, which will then be credited against the taxpayer´s capital gains tax liability.