Corporate franchise tax in Panama

It may be a surprise to many but Panama is not a tax haven and even companies with no income earned locally must pay an annual tax known as Tasa Unica.  The tax and surcharges are described in Article 318-A in Wikisource and translated as draft as follows:

Article 318-A. ^[2] Corporations, limited liability companies and any other legal entities, national or foreign, will pay at the time of registration and in subsequent years a single annual fee of three hundred balboas (B / .300.00) to maintain full validity. Private interest foundations will pay at the time of registration a first single annual fee of three hundred and fifty Balboas (B / .350.00). In subsequent years, the payment for that concept will be four hundred balboas (B / .400.00) to maintain the full validity of the foundation. For legal purposes, full registration will be understood as valid in the Public Registry of Panama. The obligation to pay the annual single rate is not extended to non-profit organizations, cooperatives and civil societies.

     ^[3]The first annual single fee referred to in this article shall be paid at the time of registration of the legal entity together with the respective registration rights, as if it were part of the Registration Rights. Once the first single fee has been charged, the Public Registry of Panama will remit said amount to the General Directorate of Revenue on the first business day of the week following the date of its collection and will report the name and registration number of the respective company or foundation .

     The second and following annual single rates will be paid as follows:

to.	Until July 15 of each year, by the legal person whose date of registration of the social pact or constitutive document in the Public Registry of Panama corresponds to the months from January to June, inclusive.
b.	Until January 15 of each year, by the legal person whose date of registration of the social pact or constituent document in the Public Registry of Panama corresponds to the months from July to December, inclusive.

     These payments will be made through the legal representative or the registered agent or resident of the legal person.

     At the time of payment, the legal representative or registered or resident agent must declare the date on which the articles of incorporation or constitutive document has been registered in the Public Registry. This affidavit will be made in a form that, for this purpose, will be provided by the General Directorate of Revenue ^[4]

     Payment of this out-of-term fee will cause the single surcharge of fifty balboas (B / .50.00) per year or fraction of the year. For these purposes, the provisions of articles 1 and 2 of Law 60 of 1973 shall not apply .

     Taxpayers may pay this fee in advance, in which case such payment shall be deemed final for the periods covered.

Paragraph 1. ^[3] Failure to pay the fee in the period in which it is caused will have the effect of not registering any act, document or agreement and the non-issuance of certifications related to national and foreign legal persons, except ordered by competent authority or those requested by third parties for the specific purpose of enforcing their rights, in which case the certification will be issued exclusively in a different format for these purposes, indicating that it is in default.

Paragraph 2. ^[3] For the purposes of the suspension of registrations and the non-issuance of the certifications referred to in the preceding Paragraph, the General Directorate of the Public Registry of Panama will consult in each case the information made available to the Directorate General Income, on national and foreign legal persons who are up to date in the payment of the single rate.

Paragraph 3. ^[5] Each time the taxpayer incurrs in the non-payment of the annual single rate for two consecutive or alternate periods will have, in addition to the surcharge, the application of a fine of three hundred balboas (B / .300.00) and the annotation of a marginal indicating that it is in a state of delinquency. When the taxpayer pays the delinquent fees with their respective surcharges and the amount of the referred fine, the restoration of the services of the Public Registry of Panama and the lifting of the marginal entry will take place.

Paragraph 4. ^[3] Failure to pay the single rate for ten (10) consecutive periods will have the effect of definitive withdrawal of the legal entity from the Public Registry. As a consequence, it will be considered dissolved, with all the legal effects that this entails.

The natural or legal person, national or foreign, who has received from third money for the purpose of making the payments of this rate and does not enter them in favor of these to the National Treasury will be sanctioned with a fine not less than five (5) times nor greater than ten (10) times the amount not paid.

Paragraph 5. ^[3] Dissolved the legal person for non-payment of the annual fee for an uninterrupted period of ten (10) years, which will take effect from the entry into force of Law 6 of 2005, the period will begin of dissolution of three (3) years.

During that period any director, dignitary, member of the founding council, resident agent, partner or an interested creditor may carry out their rehabilitation, paying all amounts owed as a fee plus a fine of one thousand Balboas (B / .1,000.00). The rates of the expired years during the three-year dissolution period will be included in the payment.

Once rehabilitated, the legal entity will recover its existence and may resume its activities.

After the expiration of the three (3) year period indicated above without its rehabilitation having occurred, the Public Registry, after verifying that fact, will cancel the registration of the legal entity and its name may be used by any interested party.

The General Directorate of Revenue will prepare a list of legal persons with a delinquency of ten (10) years and promote their wide dissemination and publication, for the purpose of:

1. That the Public Registry write down the marginal dissolution for non-payment of a single rate.

2. That those interested can promote their rehabilitation.

Paragraph 6. ^[3] The annual single-rate payment obligations, declared until December 31, 1990, are declared prescribed, provided there is concurrence with the following facts:

to. That they have a prescribed prescription period exceeding fifteen (15) years or more.

b. That the taxpayer has not carried out or executed any own management of recognition of the obligation.

C. That the tax administration has not issued, at the date of entry into force of this Law, any suitable administrative act of interruption of the prescription.

In the event that a case of alleged prescription of the debt is declared or filed by mistake, it will be deemed interrupted, without prejudice to the administrative sanctions that are merited, and the period of its configuration will be restarted from the date of the alleged declaration or of your file if necessary.

Transitional Paragraph ^[3] Payments entered in official receipts are considered made by taxpayers, even if they had not been effectively entered into the National Treasury for reasons not attributable to the taxpayer, his legal representative or the resident agent. The collection of late payments and surcharges originated in the non-payment of the single rate to legal persons, whose delinquencies are attributable to the incorrect migration of data or inconsistencies in their update, and to those who verify, through receipts officers, have made the corresponding payments.

The increase in the amount of the second single rate onwards to three hundred balboas (B / .300.00) will be effective as of January 1, 2006.

Transitional Paragraph ^[6] For the purposes of the entry into force of the new single rates indicated in this article, as amended by Law 28 of 2012, corresponding to the annual renewals of private interest foundations, it will be understood that they govern from from January 1, 2013; that is, they take effect for those payments that correspond to the rates applicable to fiscal 2013 and subsequent periods.

References

1. ↑ National Assembly (Panama) (June 29, 1956) [ Law 8 of January 27, 1956 ] by which the Fiscal Code of the Republic is approved. Official Gazette (12,995) p.127
2. ↑ Article 318-A was modified by article 1 of Law 28 of 2012 , promulgated in Official Gazette 27029-C on May 8, 2012.
3. ↑ ^{Jump to:3.0 3.1 3.2 3.3 3.4 3.5 3.6} Article 318-A was modified by article 1 of Law 49 of 2009, promulgated in Official Gazette 26370-C on September 17, 2009.
4. ↑ With Law 24 of 2013 , article 34 specifies that in any legal norm, document or ongoing process in which the General Directorate of Revenue is designated or formed, it will be understood as referring to the National Public Revenue Authority.
5. ↑ As amended by article 1 of Law 28 of 2012 , promulgated in Official Gazette 27029-C on May 8, 2012.
6. ↑ As it was with Law 52 of 2012.

OECD Tax man ready to change blacklisting rules on Panama

FINANCIAL AFFAIRS

OECD says Panama pledge a positive step

The country faces a review on its financial services sector by the Global Forum.

Following the announcement of President Juan Carlos Varela on the commitment of Panama to exchange financial information, the director of the Center for Fiscal Policy and Administration of the Organization for Economic Cooperation and Development (OECD) Pascal Saint-Amans acknowledged that the pledge is a step forward for Panama but said the country still has a long way to go.

Saint-Amans spoke with La Prensa during the annual meetings of the International Monetary Fund and World Bank, which concluded yesterday in Lima, Peru. The following are questions and answers from the interview.

What do you think of Varela's pledge?

It is a good step forward. In October of last year, 94 countries committed themselves to the automatic exchange of information. They pledged to implement the standard. Panama was one of the few jurisdictions that did not make the pledge, along with Bahrain, the Marshall Islands, Vanuatu and Nauru, with Panama being the only significant financial center.

Panama said it would exchange information, but that it would not accede to a multilateral convention. what is your opinion of that?

From a legal point of view, once a commitment is made, it has to be implemented. To share information, it can be done through a multilateral convention, or it can be done bilaterally. In that case, one should move fast if you want to grant the exchange of information to all interested countries that meet the standard of confidentiality.

Do you think that Panama will pass to the second phase of the review of its jurisdiction?

The peer review, which includes 30 countries, has made that recommendation to the Global Forum, which has until the end of October to decide. I think it was premature of Panama to announce that, as it broke the rules of confidentiality. It is more than likely, but who knows. There are members of the Global Forum who are not in the peer review group. We have to wait for the Global Forum, which is the sole decision-making body in this matter. In substance, it is true that the members of the review group have recognized some progress that was made in Panama.

Varela said that debate on the exchange of information should be conducted in the UN. Do you agree?

It is an opinion I respect completely. But in this case, there are 127 jurisdictions, including Panama, that are members of the Global Forum. What matters is that all countries are equal. No longer is the OECD a group of countries dictating what rules other countries have to make.

In Panama there is a concern because the steps demanded by the OECD could hurt the competitiveness of the financial services industry. Do you agree?

It is not true. Because all countries have moved. What happens is actually the opposite. Panama won a competitive advantage by not conforming. That is why other countries think that the situation is very unfair because Panama is receiving money that they have lost. The perception in Panama is really different from the perception outside.

Do you think that those flows of money look to hide the funds from tax authorities?

The reviewer group will decide that. But that's basically what we heard from the banking industry.

In the country there is a sense that a double standard is used. That the United States is not required to provide information with the same level of transparency that it demands from Panama. Is that a fair statement?

The rules are the same the United States is expected to act with reciprocity with any other country. Look at the review of the United States. It has a mark in regards to beneficiaries and they have to change. Currently they are providing required information, but not enough

- See more at: https://ssl.prensa.com/suscdigital

See also 

More Pascal Saint-Amans statements in Panama: Profits for two men and a dog http://mypanamalawyer.blogspot.com/2015/07/panama-profits-for-two-men-and-dog.html

The Economic Case for Tax Havens http://mypanamalawyer.blogspot.com/2014/10/the-economic-case-for-tax-havens.html

Panama enacts regulations and tax credits for solar energy production

Panama has currently a number of regulations in force in order to offer tax incentives 

for the construction, operation and maintenance of solar power stations or installations.   The main one is Ley 37 of 2013, which sets out the tax incentive guidelines which aim to promote the construction, management, and maintenance of solar energy systems in Panama.  The tax incentives include:

• A tax exemption on customs duties on equipment, machinery, and other materials necessary to construct and maintain solar panel systems
• An income tax credit of up to 5% of the total direct investment in a solar panel system, as well as works on the plants and/or facilities that are converted into public use infrastructure (roads, ways, bridges, schools, health centers and others of similar nature)
• Accelerated depreciation for the equipment used to generate solar power

Equipment, parts and systems which are exempt from customs duties are:

1. Solar water heaters or heat producing equipment;

2. Parts and components necessary to assemble the solar collectors to heat water and/or solar drying equipment;

3. Solar panels and individual solar cells;

4. Long-term stationary accumulators

5. Inverters and/or solar inverters; and

6. Other accessories, equipment, software and items which are destined to the use and/or development of solar energy.

The Authority of Public Services (ASEP) of Panama has issued an April 2014 regulation for public procurement of solar energy generation. The "Rules for energy trading through acts of exclusive competition for solar generation plants", set the parameters for future tenders for photovoltaic projects.

The regulation provides that tenders approved solar projects are coordinated by the state-owned enterprise Empresa de Transmision Eléctrica (Etesa) which also sets a reference price. During the tender process, will be awarded projects at prices at or below the reference price . Another regulation was issued for contracts for sale of electricity within closed contests subject to a maximum term of 20 years. The regulation also requires that the tender documentation include clauses to discourage and punish corrupt practices and fraud.

The text of the regulations were subject to public consultation by the Autoridad de Servicios Publicos (ASEP) regulator over recent months. In the query, Asep received comments from about five companies. Late last year, Asep also submitted to public consultation a technical regulation for connecting photovoltaic installations and a Code of Photovoltaic Networks.

At present, there are a number of solar projects planned in the country. In the last year ASEP has granted temporary or permanent license to about a dozen solar projects with a combined capacity of 200 megawatts. The largest solar plant in the country, Central Sarigua, was opened earlier this year with 2.4 megawatts of power.

Changes to Panama foundation taxes

The Panamanian government has increased the government tax for Panama Companies and Private Interest Foundations.

Effective May 9, 2012, all new companies must pay US$300 at the moment of incorporation instead of the usual US$250; the annual government tax after the first year remains unchanged at US$300. The first annual tax for Panama Private Interest Foundations increases $100 to US$350 at the moment of incorporation and every year thereafter will increase to US$400 yearly.

All companies that do not pay its annual maintenance fee for two consecutive years will incur on a penalty of US$300.00 in addition to the current penalty of US$50 for each year of non-payment.

Non-profit associations, Unlimited Liability Companies and unregistered Trusts will continue to be exempt from the flat tax. All entities will continue to be exempt of Panama income tax on transactions sourced outside of Panama and interest earned from bank accounts.

These changes do not affect our rates for Resident Agents and Independent Directors. Other options can also be provided from Belize and other jurisdictions at competitive rates.

For further information regarding these changes please contact us or download here a free brochure with additional information.

About Lombardi Aguilar Group

Lombardi Aguilar Group was created as an alternative for clients worldwide who seek fast, innovative and effective solutions to their legal problems. The firm currently provides services to individual and corporate clients in Panama as well in the Americas, Europe and Asia. Its partners maintain a commitment with professional ethics and social responsibility by participating in the board of directors of groups such as the Panama Bar Association, the German Chamber of Commerce, the American Chamber of Commerce (AMCHAM) of Panama and the Association of Chinese-Panamanian Professionals.

The firm centers its law practice in private client services and asset protection (Private Interest Foundations, Trusts), business structures (Offshore Corporations), tax planning, real estate and e-commerce. It also advices in areas of Law such as Corporate, Commercial, Intellectual Property, Maritime, Tax, and Immigration Law as well as related litigation.

For more information, contact +507 340-6444, e-mail aaguilar (at) laglex.com, or visit: Lombardi Aguilar Group http://www.laglex.com/

See also the updates in Linkedin and Facebook .

Panama heading for target of 12 Double Taxation Agreements

Panama will negotiate with Singapore next week the 12th double taxation agreement (DTA) required to exit the gray list of the Organization for Economic Cooperation and Development (OECD).

On Aug 18 negotiations were completed for a double taxation avoidance agreement with South Korea.

A double taxation agreement with Mexico has been ratified by the Panama legislature. Other treaties have been signed with Barbados, and negotiations have been closed with France, Italy, Belgium, Spain, Netherlands, Qatar, Luxembourg and Portugal.

http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_156.pdf Mexico-Panama Agreement for Double Taxation Avoidance and Tax Evasion Prevention

In the last 6 months, bills have been entered into the Panama legislature to ratify Bilateral Investment Treaties for the protection of investments with Italy, Belgium, Qatar, and Luxembourg granting national treatment to investments from those countries.

http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_153.pdf Qatar
http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_146.pdf Italy
http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_148.pdf Belgium-Luxembourg
http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_147.pdf Finland

A bill to ratify a Mutual Legal Assistance Treaty with Russia has been submitted. This Agreement provides that:
Bank secrecy can not be used as a basis for denying legal assistance.
3. The Parties may not refuse a request for legal assistance only because it is considered that the crime also involves tax matters.
http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_150.pdf Russia MLAT Bill

Special tax benefits for investments in the Darien

Darien is the largest province of Panama but also the most isolated. Most of the riverfront of the Tuira river has been declared as Tourism Development Zone No. 9 with substantial tax benefits for the investor.

Business exceeding the minimum legal investment enjoy the following tax incentives:
1. A 20-year full exemption from the payment of real property tax on the land or any improvements owned and being used for tourist development activities.
2. A 15-year full exemption from the payment of income tax on the company's activities.
3 A 20-year full exemption import duties, contributions, or taxes, as well as the sales tax (ITBM tax) on the imported materials, equipment, furniture, accessories, and spare parts used to construct, renovate, and furnish their establishments, provided such items are not produced locally, or are not produced in sufficient quantity or of the proper quality. "Equipment" is understood to mean vehicles with a minimum capacity of 8 passengers, aircraft, helicopters, minimum capacity of 8 passengers, aircraft, helicopters, motorboats, ships, or sports supplies used exclusively for tourist activities.
4. A 20-year exemption from duties, contributions, taxes, or fees on the use to piers or airports built by the company. The Government of Panama may use these facilities free of charges, according to the appropriated regulations.
5. A 20-year exemption from the payment of income tax in interest earned by creditors from operations for investing in the tourist activity being conducted.

Any public tourist lodging company or restaurant not covered by the above incentives, but solely engaged in a tourist activity; is entitled to a Tourism Employment Certificate (Certificado de Empleo al Turismo-CET) issued to its name, equivalent to 21.5% of the gross monthly payroll as of the promulgation of this Law, provided this gross monthly payroll does not exceed US$400.00). In the case of restaurants, this option shall be for a period of 3 years.

Private land ownership is limited in Darien National Park (brown, in the map) and the Indian nations (marked in red), but alternatives remain throughout the province.

Most investments qualifying for the Darien Tourism Development Zone benefits also would help its foreign owner qualify for a Small Business Visa.

Zone 9. Darien

Location:	Province of Darien
Characteristics:	The National Park of Darien which is ideal for ecological and tourism of adventure. It was declared by UNESCO as a Reserve of the Biosphere and the Human Kind.
Strategy:	To develop ecotourism centers in Pirre and in the Cana Valley.
Investment Possibilities:	To increase the capacity of lodgings and to improve the quality of the services to the tourist.

More about the Darien in Darien links http://www.geocities.com/WallStreet/4245/darien.htm

---

Darien, the giant is awakening

In Darien there are different ethnic groups.

The government is promoting sustainable development projects to tap the great potential of the province in all fields

HERMES SUCRE SERRANO
Hsucre@prensa.com.

Full text in http://mensual.prensa.com/mensual/contenido/2002/09/16/hoy/nacionales/707263.html

---

The real Darien starts at El Real de Santa María, the oldest continuing settlement in Panama, built in the XVI century by the Spaniards. In town, the Hotel El Nazareno (left, Telephone 228 3673, 6638 8707; $5-10– $10-15) offers basic accommodation, but be warned this is the heart of cock-fighting country so don't expect a great night's sleep; you'll also find a few stores and a couple of simple restaurants – inform them in advance if you want an evening meal. ("The Rough Guide to Central America")

---

Video: The Art of Travel Blog #4: The Darien.

---

Use of Panama Entities Increases Despite Changes to Tax Rules

Contributed by Lombardi Aguilar Group

April 15 2005


Introduction

Despite increases in maintenance costs, incorporations in Panama have increased by 30%. According to official statistics, in the first 11 months of 2004 23,138 corporations were formed, compared with 17,755 in 2003. This represents an increase of 30.3% even without the whole of 2004 being considered.

Panamanian corporations provide the following advantages:

• Fast incorporation procedures are available (subject to legal formalities);
• No paid-in capital is required;
• Shares may be issued in bearer form, or the charter may be drafted to allow only registered shares;
• Shares may be issued in US dollars or any other currency;
• The shareholders, directors and officers may be of any nationality and may be residents of any country;
• Directors, officers and/or shareholders may be either corporate entities or individuals; and
• Shareholders and/or directors may hold their meetings in any country and may attend such meetings by proxy, telephone or other means of communication.

With regard to private interest foundations, 2,734 foundations were formed up to November 2004, as opposed to 1,902 in 2003 - an increase of 40%. Panamanian private foundations are separate entities that hold assets for later distributions to beneficiaries in a similar way to trustees holding assets in trust.

All Panamanian entities which have no income from operations in Panama are exempt from Panamanian income and withholding taxes.

New Measures for Annual Corporate Tax

The Panamanian legislature has approved Law 6/2005, which enacts changes to the Tax Code. After much opposition from the Panama Bar Association and other legal profession groups to a proposed 40% increase, the annual tax for Panama private foundations and corporations was set at the current rate of $250 for the first year. After the first year the flat tax will increase to $300 per year, which is equal to the rate currently in force in the British Virgin Islands, the Turks & Caicos Islands and Vanuatu.

The first annual tax of $250 is now payable in advance upon incorporation instead of the normal due date. Corporations and foundations formed in the first half of the year have until July 15 to pay their tax; those formed in the second half have until January 15 of the following year. Late payments are penalized with a surcharge of $50.

Entities existing at the time of enactment of Law 6/2005 will pay the $300 tax when it falls due after January 1 2006.

Penalties for Non-payment

Lack of payment will result in the non-registration of any minutes or documents related to the corporation or foundation. After two years without payment, a fine of $300 is levied and the entity is registered in the Public Register as owing taxes. Once the outstanding taxes and fines are paid, the entity will be returned to its good standing.

Lack of payment for 10 consecutive years will result in the corporation or foundation being permanently deleted from the Public Registry. As a consequence, the entity will be held as dissolved for all legal purposes.

Annual tax payments must be made through the resident agent of the corporation or foundation. If a resident agent delays forwarding annual taxes to the government, it will be fined between five and 10 times the unpaid amount.

Relief from Government Errors

As a relief from administrative delays resulting from errors in the receipt of annual taxes by the government, payments appearing in official receipts dated before December 31 2004 are considered to have been paid even if the funds did not enter the Treasury due to causes unrelated to the taxpayer, its legal representative or resident agent. Surcharges for late payment are not applicable when official receipts kept by the taxpayer show that payment was made but the government entered the data incorrectly.

Income Tax Rules Applicable to Panama-Source Income

Article 684 of the Tax Code is the cornerstone of the Panamanian taxation system. It provides that income earned by Panamanian corporations or individuals from activities taking place outside Panama is not subject to Panamanian taxation. This provision is intended to attract foreign investment by multinationals, which would then generate jobs in handling of merchandise outside Panama.

However, Law 6/2005 introduces exceptions in order to prevent abuse of these facilities by Panamanian individuals or expatriates based outside Panama. Under a new paragraph, income from professions both in and outside Panama will be considered to be earned from Panamanian sources if the taxpayer is in Panama for at least 70% of the working days in the calendar year.

If the services provided are not economically related to the taxable activities of the individual, the income will be considered as foreign-source income. Therefore, it is not taxable. As a concession to individuals acting on behalf of overseas subsidiaries of Panama-based insurance and banking companies, individuals who occasionally serve as consultants or deliver presentations or conferences abroad are exempt from the 70% rule, even when they stay outside Panama for less than 30% of the working year.

Income received by individuals or entities domiciled outside Panama will be considered as Panama-source income and taxable if it is earned from activities that benefit taxpayers in Panama. These activities include royalties from copyright, patents, software, know-how and other commercial secrets, as well as any commissions from the sale of services in Panama. By the term 'benefit' the provision specifically refers to taxpayers in Panama who deduct the licence as an expense for the production of Panama-source income. Fifty percent of the gross payments made to beneficiaries abroad will be subject to withholding by the payor in Panama at the regular tax rates.

An additional provision further clarifies that taxpayers who, by reason of their international business activities, carry out operations outside of the national territory which are required for the generation of income reported as taxable in Panama will not be subject to the withholding on payments for goods and services financed, agreed or performed entirely outside of Panama, which will not be considered as taxable income.

Deductible Expenses

Expenses incurred for the production of local-source income are deductible. The 2005 tax reform modified several deductions as follows:

• Deductibility of donations to government-approved charities is limited to a maximum of 1% of the taxable income of donor entities, or up to $50,000 of donor individuals;
• Company earnings distributed among employees are deductible by the company, with a limit of one month's salary for employees who own more than 15% of the company shares and their relatives; and
  
• Thirty percent of the amount invested in agricultural and ranching activities is no longer deductible.

Alternative Minimum Tax

In order to levy tax from taxpayers experiencing recurrent losses, the 2005 tax reform requires these taxpayers to pay whichever is the greater of the tax under the normal rates and an alternative minimum tax (AMT) rate. Initial fears of a global taxation system vanished when the tax reform was enacted with an AMT solely on 4.67% of Panama-source income.

Entities will be taxed at 30% of the greater of the net taxable income under normal tax rules (Panama-source income minus deductible expenses) and the net taxable income minus 95.33% of said income.

Companies selling goods subject to the gas tax and the selective consumption tax (similar to a luxury tax) may also deduct those taxes from the income subject to AMT. Small enterprises with less than $150,000 in annual sales are exempt from AMT.

If, after payment of the income tax, the company makes a loss or has an effective tax rate above 30%, it may request in writing an exemption from the AMT. However, the tax authority is not compelled to grant this exemption and may audit the taxpayer making the request.

In order to validate the tax returns, the taxpayer must submit certified financial statements under the International Financial Reporting Standards. Taxpayers may also request an exemption from this requirement - this exemption is meant for small enterprises.

Professional partnerships are also given a third option of having the partners pay a 6% tax on the taxable earnings of the partnership under a flow-through taxation method.

Income tax rates for individuals are subject to a lower number of tax brackets and individuals with a gross annual income above $60,000 will have to pay the greater of the normal tax rate or a 6% AMT on Panama-source gross income. However, individuals holding business licences because of their mercantile activity are subject to AMT under the corporate tax rates.

Rules for Special Industries

Foreign distributors of movies for radio and television broadcast through any means have their 10% tax rate automatically reduced to 6%.

Commissions and fees received from warehousing, renting of warehouses, repackaging, invoicing and other activities carried out in the free trade zones are considered as taxable, unless they are carried out for merchandise which is re-exported outside Panama.

Gains from the sale of shares from an initial public offering of a publicly held corporation are no longer exempt from taxation. Only gains from the sale of shares, bonds and other securities of publicly held corporations conducted through a Panama stock exchange, or from a merger or reorganization, continue to be exempt from taxation. This incentive makes the use of Panamanian special purpose vehicles an attractive way of raising funds for Latin American operating companies.

Payments of interest, commissions and other charges from loans or financing, the funds from which are used outside Panama, continue to be exempt from Panamanian taxation. However, when such funds are used in Panama, payments to foreign creditors are subject to withholding of the normal tax rate (30% for corporate creditors) on half of the gross payments made.

The benefit of exempting charterers from tax on leasing of international services ships has been extended to leasing of aircraft.

Several incentives are reduced in reforestation, tourism and construction, as well as credits for improvements in industries and infrastructure. Taxpayers hoping to use tax credits must report them before August 3 2005.

Property Tax

Properties with a value below $30,000 are exempt from property tax. Additional benefits were enacted for:

• parcels with assessed value below $150,000 used for agriculture, which are tax exempt;
• private schools and hospitals, which can credit to their property tax liability the amounts spent in teaching or caring for indigent users; and
• landowners submitting updated assessments of their property values, who may be granted a 40% to 50% discount in their tax liability for five years (at the discretion of the tax authority).

The 20-year property tax exemption is maintained for improvements with building permits granted before September 1 2005. Other improvements will remain with five to 15-year property tax holidays.

Taxes Abolished

Several taxes, the collection of which became an administrative burden, were abolished. These are:

• 12% tax on long-distance calls, intended to promote the establishment of call centres in Panama;
• $1.50 per hectare tax on unused lands above 500 hectares;
• tax on sugar production;
• tax on theatre tickets; and
• tax of up to $25,000 on assets of insurers with local risks.

For further information on this topic please contact Alvaro Aguilar at Lombardi Aguilar Group by telephone (+507 340 6447) or by fax (+507 340 6446) or by email (aaguilar @nysbar.com). further information on this topic.