Friday, January 10, 2014

Publication of Law 1 of 2014 reestablishes local-source taxation

The territorial taxation system whereby only local-source income is subject to taxation was reinstated under Law 1 of 1984 upon publication of Official Gazette of Friday, January 10, 2014.   Approval Law 1 came after vocal opposition to previous Law 120 of 2013 from the Panama Bar Association, the Panama Association of Enterpreneurs (APEDE), and other groups of logistics and financial employers - including the pro-bearer share immobilization Panama Banking Association.

Law 1 abrogated Law 120 of 2013 which had been valid for 12 days and reinstated the validity of Article 694 of the Tax Code.  Under Article 694, income from the several activities abroad is considered foreign‑source and, therefore, is not taxable, such as:
•Invoicing from an office in Panama for sale of merchandise that does not enter Panama;
•Managing from Panama transactions that are executed abroad;
•Distributing dividends from non‑taxable income or income from activities conducted abroad;
•Passive income from loans or other financial transactions with foreign borrowers, even if the reimbursement is conducted in Panama;
•Settling of foreign assets under a Panamanian trust;
•Bank deposits of foreigners in Panama; and
•Securities of any kind issued by Panamanian corporations of fully foreign‑source income.

Taxable income is the difference resulting from subtracting deductible expenses from gross income. Deductible expenses are those incurred for the maintenance and production of the income (eg, office expenses and promotion), as well as others authorised by law. The taxpayer must allocate expenses to exempt, taxable, or foreign source income, maintaining separate accounting for each type of income to ensure approval in case of an audit. Taxpayers with both Panama  and foreign source income must prove to taxation authorities that expenses were indeed used for Panama source income in order to allow their deductibility. Under the "rule of proportionality", expenses made for both types of income may be deducted only in the proportion that they maintain to total income.

As in previous years, individuals and entities which have commercial activities in Panama with other Panama taxpayers or applied for Aviso de Operacion business licenses have to file their income tax returns before each March 31.

See also:
Law 1 of 2014
Panama Administration will continue local-source taxation
Panama Cabinet votes to revoke Law 120 of 1973 and reaffirm territorial taxation
Panama Chapter of International Taxation of Low-Tax Transactions amazon_com
Panama taxation news
Renta 2013 tax return filing freeware


“It is subject to tax, the taxable income that occurs, from any source, within the territory of the Republic of Panama, whatever the place where it is perceptible.” 


"We are a country that has historically substantiated its criterion of income tax by applying the principle of territoriality," said the Minister in Charge of the Ministry of Economy and Finance (MEF), Gladys Cedeño Urrutia, after submitting to the National Assembly of Deputies, the abrogation of articles No. 2 and No. 3 of Act No. 120 of 2013. 

The income will be territorial, as set forth in article No. 694 of the Tax Code. "It is subject to tax, the taxable income that occurs, from any source, within the territory of the Republic of Panama, whatever the place where it is perceptible," reiterated the Minister in Charge, Cedeño. 

This action corrects any errors logged at the time of writing the articles 2 and 3 of the Act 120, and comes to restore the validity of article 694 of the Tax Code. This Law has retroactive effect from December 30th, 2013.

Sunday, January 05, 2014

Panama Cabinet votes to revoke Law 120 of 1973 and reaffirm territorial taxation

The Legislature must now approve the bill, followed by its publication in the Official Gazette.
The Panama Cabinet approved a bill to revoke Law 120 of 2013 which had eliminated tax benefits to Panama companies and individuals performing transactions which take affect outside of the country.

The Presidency issued 2 press release which we transcribe verbatim.

See also  
Panama Administration will continue local-source taxation

Government reiterates compromise with tax territoriality

Thursday, January 02, 2014
The National Government, through Cabinet Council held on January 2nd, 2014, approved a Cabinet Resolution authorizing the Secretary of Economy and Finances to present to the National Assembly a Bill that revokes articles 2 and 3 of Law 120 from 2013 and restitutes article 694 of the Tax Code.  This Law will be of public order and has retroactive effects to December 30th, 2013.
The project will be presented on Monday, January 6th when the National Assembly retakes their regular period of sessions.
With this step the National Government reiterates their historic compromise to keep the principle of territoriality at the source, for purposes of calculating Income Tax applicable to natural and legal people that operate inside the Republic of Panama´s territory.

The Cabinet Council revokes law establishing taxable income outside Panamanian territory

Thursday, January 02, 2014
  • The disposition has retroactive effects since December 30th, 2013.
The Cabinet Council approved a resolution that revokes articles 2 and 3 of Law 120 from December 30th, 2013, establishing that all natural or legal people that received a taxable income outside Panamanian territory would pay taxes.
Through the aforementioned resolution, approved in an Extraordinary Cabinet Session, article 694 of the Tax Code is completely reestablished stating that: “it is object of this tax the taxable income produced, in any way, inside the territory of the Republic of Panama, regardless of the place received”.
This disposition highlights that this Law is of public order and is retroactive to December 30th, 2013 and will take effect once it is enacted.
According to the explanation of motives, this measure was taken “once the National Government is aware that the implementation of the world tax regimen in regards to Income Tax requires more discussion and debate, and that such modification changes completely the tax outlook of the country”.


Thursday, January 02, 2014

Panama Administration will continue local-source taxation

The Panama Administration accepted its mistake in trying to impose worldwide taxation instead of the local-source taxation system in place under Article 694 of the Tax Code of 1957.

The President Ricardo Martinelli blamed current Revenue Authority (ANIP) administrator Luis Cucalon for the passage of Law 120 of 2013, while Vice-Minister Luis E. Camacho assumed responsibility and current Minister of Economy Frank De Lima (author of restrictions to bearer shares on behalf of the OECD) said more consultations were necessary.   The fact remains that several dozen legislators of the government Cambio Democratico party approved the law in its 3rd reading and failed to predict the onslaught of public opinion opposing this change to the Tax Code.

Article 694 of the Tax Code states that the obligation to pay the income tax will be for the "taxpayers" and defines it as:
"Taxpayer, as the term is used in this Title, is the individual or legal entity, national or foreign, who receives taxable income subject to the tax."

However, Law 120 replaced Paragraph 2 which stated since 1964 that "The income arising from the following activities are not deemed as earned within the territory of the Republic of Panama:
(a) To invoice, from an office established in Panama, the sale of merchandises or products for an amount higher than that for which such merchandises or products have been invoiced against the office established in Panama, provided such merchandises or products only move outside of Panamanian territory.
(b) To manage, from an office established in Panama, transactions that are performed, executed or have effects abroad.
(c) To distribute dividends or participation quotas of entities which do not require an Operations Notice or which do not generate taxable income in Panama, when such dividends or participations are earned from revenues not produced within the territory of the Republic of Panama, including those revenues earned from the activities mentioned in literals a and b of this paragraph."

Even if Law 120 still would have allowed banks and free zone companies not to pay income tax on foreign-source income, thousands of foreign individuals who had relocated as expatriates to Panama would have to pay Panama incme tax on foreign income or pensions.  Double taxation treaties would have provided some tax relief for citizens of a few countries.

The Panama Presidency issued a press release over the holidays.

See also:

Articles 2 and 3 of Law 120 will be revoked

Tuesday, December 31, 2013
The Director of the National Authority of Income (Autoridad Nacional de Ingresos, in Spanish), Luis Cucalón accepted mistakenly including articles 2 and 3 of Law 120 from 2013 to Congress, which deals with territoriality of the incomes received outside Panama by national and legal Panamanians.  “Even though wrong things have been said about the scope of the law, I recognize that I made a mistake thinking Panama was ready to take that step”, he said.
Cucalón requested the President of the Republic to revoke article 2 and 3 of the aforementioned Law.  The request was accepted.
“I have asked the Director of the National Authority of Income to be more careful in the future.  I have accepted his recommendation to present a law that revokes articles 2 and 3 of Law 120 and reestablishes the ones revoked or modified by them, just like I accepted his request to sanction the Law with the incorporation of the articles proposed by him. I did it because I trust completely in Cucalón´s professionalism, hence the position.  The State´s unprecedented revenue are his best job reference”, said the President.

Panama: Expanding insurance uptake

Panama: Expanding insurance uptake
Latin America | 17 May 2013

Home to 3.5m people, Panama has one of the largest and most competitive insurance markets in Central America, with 30 companies vying for annual insurance premiums of around $1bn. Moreover, the sector continues to expand alongside broader economic growth.

According to the Insurance and Reinsurance Superintendent of Panama (SSRP), insurance premiums rose by 8.2% in 2012. Drivers of growth included the automotive segment, which expanded by 8.4% to $199.2m, giving it a 17.5% market share. Health coverage, which increased 14.9%, had the second-highest market share of 15.9% ($181.3m). It was followed by collective life insurance ($135.3m, 11.9% market share) and individual life insurance ($119.8m, 10.5% market share), which grew by 5.6% and 12.4%, respectively. Meanwhile, home fire insurance experienced one of the larger percentage increases, at 19.1% growth ($96.9m, 8.5% market share).

Despite market expansion in recent years, insurance coverage is still considered expensive and unnecessary by many people. While further educating uninsured segments of the population on the benefits of insurance coverage could stimulate growth in some middle- and lower-income communities in the short term, market penetration is expected to continue to rise alongside growth in per capita income and consumer purchasing power.

Nevertheless, even today, Panama is doing well compared to its neighbours, ranking third in Latin America in terms of insurance spending per capita. According to the Association of Insurance Supervisors of Latin America, in 2011 its per capita spending on premiums of $290.61 was topped only by Chile ($524.34) and Brazil ($329.29).

Panama has also attracted some of the biggest global names in insurance, including Mapfre, HSBC Insurance, ACE Group and Generali. The market is highly competitive, with no one firm holding a share greater than 20%, and only three accounting for more than 10% of premiums.

According to the SSRP, in 2012 the five largest providers in terms of revenue were Compañia Internacional de Seguros (17.6%, $200.4m), ASSA Compañia de Seguros (16.3%, $185.9m), Mapfre Panama (13.2%, $150.1m), Assicurazione Generali (8.3%, $94.2m) and Asegudora Ancon (6%, $68.7m).

In April 2012 insurance reform was passed through the approval of Law No 12 of 2012. The legislation addresses multiple aspects of the insurance sector, starting from the top, with a strengthening of the regulator. The SSRP was formerly an extension of the Ministry of Commerce and Industry but is now a fully autonomous agency with the ability to enforce regulations regarding financial viability as well as consumer protection.

Under the new framework, capital requirements for insurance companies have increased to $2.5m. This may make it more difficult for new firms to enter the market, although it will help ensure that investments will come from providers with a long-term commitment to the country, according to the Panama Insurance Association. The new law also provides for consumer protection in the insurance segment for the first time, allowing the SSRP to investigate customer complaints.

With a strengthened, modern regulatory framework, the SSRP is now trying to take the sector beyond Panama’s borders. Indeed, transforming the country into a centre for insurance and reinsurance companies in Central America has now become one of the main objectives of the SSRP. It may have already had some success, with Mapfre reportedly considering a consolidation of its Central American reinsurance operations to Panama.

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