Recent photos by Juliette Passer, Panama January 2011 - Healthy & strong - at: http://picasaweb.google.com/juliettepasser
Tuesday, January 25, 2011
Sunday, January 9, 2011
Summary of recent Tax Laws of Panama by Juliette Passer
2009 & 2010 TAX REFORMS IN PANAMA
Part I
Law 8 of March 15, 2010 (as published in the Official Gazette 26489 A as of March 15, 2010) contains comprehensive amendments to Panama’s Fiscal Code, including a reduction in the corporate and income tax rates and an increase in the current ITBMS (Impuesto de Transferencias de Bienes, Muebles y Servicios) rate (“Law 8”).
Law 8 is a second tax reform recently carried out by the Government of Panama seeking to collect revenue to fulfill its educational, health and social projects.
Law 49 of September 17, 2009 (as published in Official Gazette 26370 C of September 17, 2009) became effective in September 2009 and introduced important changes in the tax system such as extending the scope of the dividend tax to dividends paid out of foreign source income and to Colon Free zone corporations (“Law 49”).
We have prepared a two-part summary of this important legislation: Part I covering Law 49 and Part II covering Law 8.
SUMMARY
LAW 49 OF SEPTEMBER 17, 2009
A. Annual Franchise Tax
National or foreign juridical persons, except non-profit associations, must pay as part of their registration fees an annual franchise tax in the amount of $250 and of $300 for subsequent years.
National or foreign juridical persons may be stricken-off from the Public Registry (same effect as being dissolved) due to lack of payment of said tax for 10 consecutive years. However, if said juridical person pay a $1,000 fine within the 3-year dissolution period it could be reinstated.
B. Capital Gains
Gains from sale of real estate properties continue to be taxed at a fixed 10% (ten percent) rate, provided the sale is not carried out within the taxpayer’s ordinary course of business. However, taxpayer will be required to pay a 3% rate over the value of the transfer or the Cadastral value of the real estate property, whichever is greater, as an advance of income tax. Said 3% tax may be considered at taxpayer’s choice, as definitive tax.
Taxpayer may request the Treasury for a refund in cash or a tax credit. This tax credit may be assigned to other taxpayer provided the 3% tax rate paid in advance is higher than the 10% tax rate over capital gains from the sale of real estate properties.
Taxpayer was allowed to update the cadastral value of real estate properties if sale of said properties took effect before June 30, 2010.
As allowed by the Ministry of Agriculture, real estate properties destined for agricultural purposes must pay a definitive 3% tax rate.
C. Colon Free Zone and other free zone corporations
Foreign operation activities carried out by Colon Free Zone and other free zone corporations are limited to billing services, repacking and similar provided they produce effects abroad.
Commissions, storage and warehouse services, leases, transfer of merchandise and cargo in Colon Free Zone and other free zone corporations are considered as local, interior or domestic operations.
Colon Free Zone and other free zone corporations when distributing dividends or profits to their shareholders must withhold 5% of such amounts which correspond to the income tax on dividends. If dividends or profits are not distributed a so called complementary tax must be withheld over 20% of the net income after taxes as advanced income tax on dividends, or in other words at a 2% rate over the total net income after taxes.
Customs fraud and smuggling shall be punished with imprisonment from 1 to 3 years and from 4 to 6 years in case of recurrence, and fines from 5 to 10 times the value of the illegal goods provided they exceed $50,000.
All loans granted in the Colon Free Zone shall be subject to payment of the Special Compensation Fund interest (known by the Spanish acronym of “FECI”).
D. Real Estate Tax
All land and real estate improvements thereon located in Panama are subject to real estate tax.
The tax base depends on the total value of the land plus all improvements.
To calculate the tax base it shall be considered the highest value of any of the following:
1. Assessment of the property fixed by the Directorate of Cadastre.
2. Sale price of a property
3. Appraisal of a property in inheritance proceedings
An alternative real estate tax up to taxpayer’s choice is established on the following terms:
Taxable base more than $30,000 and up to $100,000 - 0.75%
Taxable base over $100,000 - 1%
The alternative rates apply only if real estate properties are updated in their payment of the tax, provided that the taxpayer has presented a sworn declaration (affidavit) indicating the estimated value of the real estate until June 30, 2010.
General or partial appraisals on properties cannot longer be requested by taxpayers. Now, the Directorate of Cadastre acting ex-officio is empowered to effect said appraisals.
Real estate properties with assessed value no higher than $30,000 are exempt from this tax. Properties under Horizontal Property Regime are not exempted from this tax.
New rates for properties under Horizontal Property Regime are set forth, as follows:
Taxable amount (US$) ______ Rate
Up to $20,000 1.40%
$20,000 up to $50,000 1.75%
$50,000 to $75,000 1.95%
Over $75,000 2.10%
Tax exemptions on real estate improvements for residential purposes:
Assessed value of real estate improvements Exemption period
1. Up to $80,000 20 years.
2. $80,001 and up to $100, 000 15 years
3. $100,01 and up to $250,000 10 years
4. Over $250,000 5 years
Real estate evasion is punished with a fine of no less than 5 times no more than 10 times the amount of tax evaded and imprisonment from 2 to 5 years.
E. Tax on transfer of tangible personal goods and rendering of services
Effective as of July 1, 2010, Law 49 introduced a new 7% rate (instead of former 5% rate) and included the following:
1. Commissions from transfer of negotiable documents or securities in general.
2. Commissions from services rendered by entities legally authorized to perform banking and/or financial services.
3. Commissions or retributions from services rendered by real estate and goods brokers.
4. Professional services performed to persons domiciled abroad who do not generate taxable income in Panama.
5. Lease contracts for residential purposes with short time periods less than 6 months.
6. Fixed-line telephone services for commercial purposes
7. Legal services rendered to international commerce vessels.
Tax exemptions include the following:
1. Freight
2. Fixed-line telephone for residential purposes
3. Loading and unloading cargo operations
4. Transfer in or inside the ports and ancillary services rendered in connection with cargo in ports.
5. Repair, maintenance, cleaning and ancillary services rendered to vessels in transit in Panamanian territorial waters.
F. Tax on Notice of Operations
Annual tax on Notice of Operations is equivalent to 2% on the capital and ranges from a minimum of $100 up to a maximum of $60,000. Former maximum amount of $40,000 was increased to $60,000 by Law 49.
Colon Free Zone and any other free zone corporations must pay a maximum amount of $50,000.
Any juridical persons which require a Notice of Operation are obligated to withhold a dividend tax regardless the source of the income.
Multinational enterprises and other corporations under special regimes are exempted from the obtainment of notice of operations.
Financial institutions regulated by Law 42 of 2001 shall pay an annual 2.5% tax on their paid-in capital as of December 31 of each year. Said tax may not exceed $50,000.
G. Modifications to Law Decree 2 of 1998 which regulates gaming activities
A goodwill payment of $1,000,000 must be paid by new managers and operators of casinos and of $50,000 for the operation of slot machines halls type A.
Slot machines halls type A shall pay as of January 1, 2014 a 22% tax rate on their gross income. Currently the rate is 10%.
As of January 1, 2012 full casinos shall pay 15% tax rate on their gross income, currently the rate is 10%.
Gaming Control Board is the State entity in charge of the supervision on the transfer of shares and designation of board members and officers of corporations that have contracted with the State.
H. Dividend withholding tax
Corporations when distributing dividends or profits to their shareholders must withhold 10% of such amounts which correspond to the income tax on dividends.
Corporations when distributing dividends or profits from export operations must withhold 5% of such amounts.
I. Capitalization of retained earnings
Undistributed profits in any given fiscal year that are capitalized in any subsequent fiscal period shall now be subject to income tax on dividends.
J. Loans
Loans secured by fixed-term deposits in banks located in Panama shall be subject to payment of 1% tax rate of FECI.
Loans agreed as automatic loans in life insurance policies, secured by the mathematical reserve or cash surrender value that will be used to pay premiums for the same insurance policy are excluded from payment of FECI.
K. Selective consumption tax(known by the Spanish acronym of ISC)
ISC on cigarette consumption was increased from 32.5% to 50% rate.
Services subject to the ISC include mobile telephone communications services and cable or satellite television, as well as the amount of winning paid by slot machines.
By Juliette Passer, Esq., Ramon Valdes & Lynette Landau ©2010
We provide peace of mind!™
www.panamanagement.com
http://panamalaws.blogspot.com
Part I
Law 8 of March 15, 2010 (as published in the Official Gazette 26489 A as of March 15, 2010) contains comprehensive amendments to Panama’s Fiscal Code, including a reduction in the corporate and income tax rates and an increase in the current ITBMS (Impuesto de Transferencias de Bienes, Muebles y Servicios) rate (“Law 8”).
Law 8 is a second tax reform recently carried out by the Government of Panama seeking to collect revenue to fulfill its educational, health and social projects.
Law 49 of September 17, 2009 (as published in Official Gazette 26370 C of September 17, 2009) became effective in September 2009 and introduced important changes in the tax system such as extending the scope of the dividend tax to dividends paid out of foreign source income and to Colon Free zone corporations (“Law 49”).
We have prepared a two-part summary of this important legislation: Part I covering Law 49 and Part II covering Law 8.
SUMMARY
LAW 49 OF SEPTEMBER 17, 2009
A. Annual Franchise Tax
National or foreign juridical persons, except non-profit associations, must pay as part of their registration fees an annual franchise tax in the amount of $250 and of $300 for subsequent years.
National or foreign juridical persons may be stricken-off from the Public Registry (same effect as being dissolved) due to lack of payment of said tax for 10 consecutive years. However, if said juridical person pay a $1,000 fine within the 3-year dissolution period it could be reinstated.
B. Capital Gains
Gains from sale of real estate properties continue to be taxed at a fixed 10% (ten percent) rate, provided the sale is not carried out within the taxpayer’s ordinary course of business. However, taxpayer will be required to pay a 3% rate over the value of the transfer or the Cadastral value of the real estate property, whichever is greater, as an advance of income tax. Said 3% tax may be considered at taxpayer’s choice, as definitive tax.
Taxpayer may request the Treasury for a refund in cash or a tax credit. This tax credit may be assigned to other taxpayer provided the 3% tax rate paid in advance is higher than the 10% tax rate over capital gains from the sale of real estate properties.
Taxpayer was allowed to update the cadastral value of real estate properties if sale of said properties took effect before June 30, 2010.
As allowed by the Ministry of Agriculture, real estate properties destined for agricultural purposes must pay a definitive 3% tax rate.
C. Colon Free Zone and other free zone corporations
Foreign operation activities carried out by Colon Free Zone and other free zone corporations are limited to billing services, repacking and similar provided they produce effects abroad.
Commissions, storage and warehouse services, leases, transfer of merchandise and cargo in Colon Free Zone and other free zone corporations are considered as local, interior or domestic operations.
Colon Free Zone and other free zone corporations when distributing dividends or profits to their shareholders must withhold 5% of such amounts which correspond to the income tax on dividends. If dividends or profits are not distributed a so called complementary tax must be withheld over 20% of the net income after taxes as advanced income tax on dividends, or in other words at a 2% rate over the total net income after taxes.
Customs fraud and smuggling shall be punished with imprisonment from 1 to 3 years and from 4 to 6 years in case of recurrence, and fines from 5 to 10 times the value of the illegal goods provided they exceed $50,000.
All loans granted in the Colon Free Zone shall be subject to payment of the Special Compensation Fund interest (known by the Spanish acronym of “FECI”).
D. Real Estate Tax
All land and real estate improvements thereon located in Panama are subject to real estate tax.
The tax base depends on the total value of the land plus all improvements.
To calculate the tax base it shall be considered the highest value of any of the following:
1. Assessment of the property fixed by the Directorate of Cadastre.
2. Sale price of a property
3. Appraisal of a property in inheritance proceedings
An alternative real estate tax up to taxpayer’s choice is established on the following terms:
Taxable base more than $30,000 and up to $100,000 - 0.75%
Taxable base over $100,000 - 1%
The alternative rates apply only if real estate properties are updated in their payment of the tax, provided that the taxpayer has presented a sworn declaration (affidavit) indicating the estimated value of the real estate until June 30, 2010.
General or partial appraisals on properties cannot longer be requested by taxpayers. Now, the Directorate of Cadastre acting ex-officio is empowered to effect said appraisals.
Real estate properties with assessed value no higher than $30,000 are exempt from this tax. Properties under Horizontal Property Regime are not exempted from this tax.
New rates for properties under Horizontal Property Regime are set forth, as follows:
Taxable amount (US$) ______ Rate
Up to $20,000 1.40%
$20,000 up to $50,000 1.75%
$50,000 to $75,000 1.95%
Over $75,000 2.10%
Tax exemptions on real estate improvements for residential purposes:
Assessed value of real estate improvements Exemption period
1. Up to $80,000 20 years.
2. $80,001 and up to $100, 000 15 years
3. $100,01 and up to $250,000 10 years
4. Over $250,000 5 years
Real estate evasion is punished with a fine of no less than 5 times no more than 10 times the amount of tax evaded and imprisonment from 2 to 5 years.
E. Tax on transfer of tangible personal goods and rendering of services
Effective as of July 1, 2010, Law 49 introduced a new 7% rate (instead of former 5% rate) and included the following:
1. Commissions from transfer of negotiable documents or securities in general.
2. Commissions from services rendered by entities legally authorized to perform banking and/or financial services.
3. Commissions or retributions from services rendered by real estate and goods brokers.
4. Professional services performed to persons domiciled abroad who do not generate taxable income in Panama.
5. Lease contracts for residential purposes with short time periods less than 6 months.
6. Fixed-line telephone services for commercial purposes
7. Legal services rendered to international commerce vessels.
Tax exemptions include the following:
1. Freight
2. Fixed-line telephone for residential purposes
3. Loading and unloading cargo operations
4. Transfer in or inside the ports and ancillary services rendered in connection with cargo in ports.
5. Repair, maintenance, cleaning and ancillary services rendered to vessels in transit in Panamanian territorial waters.
F. Tax on Notice of Operations
Annual tax on Notice of Operations is equivalent to 2% on the capital and ranges from a minimum of $100 up to a maximum of $60,000. Former maximum amount of $40,000 was increased to $60,000 by Law 49.
Colon Free Zone and any other free zone corporations must pay a maximum amount of $50,000.
Any juridical persons which require a Notice of Operation are obligated to withhold a dividend tax regardless the source of the income.
Multinational enterprises and other corporations under special regimes are exempted from the obtainment of notice of operations.
Financial institutions regulated by Law 42 of 2001 shall pay an annual 2.5% tax on their paid-in capital as of December 31 of each year. Said tax may not exceed $50,000.
G. Modifications to Law Decree 2 of 1998 which regulates gaming activities
A goodwill payment of $1,000,000 must be paid by new managers and operators of casinos and of $50,000 for the operation of slot machines halls type A.
Slot machines halls type A shall pay as of January 1, 2014 a 22% tax rate on their gross income. Currently the rate is 10%.
As of January 1, 2012 full casinos shall pay 15% tax rate on their gross income, currently the rate is 10%.
Gaming Control Board is the State entity in charge of the supervision on the transfer of shares and designation of board members and officers of corporations that have contracted with the State.
H. Dividend withholding tax
Corporations when distributing dividends or profits to their shareholders must withhold 10% of such amounts which correspond to the income tax on dividends.
Corporations when distributing dividends or profits from export operations must withhold 5% of such amounts.
I. Capitalization of retained earnings
Undistributed profits in any given fiscal year that are capitalized in any subsequent fiscal period shall now be subject to income tax on dividends.
J. Loans
Loans secured by fixed-term deposits in banks located in Panama shall be subject to payment of 1% tax rate of FECI.
Loans agreed as automatic loans in life insurance policies, secured by the mathematical reserve or cash surrender value that will be used to pay premiums for the same insurance policy are excluded from payment of FECI.
K. Selective consumption tax(known by the Spanish acronym of ISC)
ISC on cigarette consumption was increased from 32.5% to 50% rate.
Services subject to the ISC include mobile telephone communications services and cable or satellite television, as well as the amount of winning paid by slot machines.
By Juliette Passer, Esq., Ramon Valdes & Lynette Landau ©2010
We provide peace of mind!™
www.panamanagement.com
http://panamalaws.blogspot.com
Thursday, January 6, 2011
Focus on Investors - Doing business in Panama with your eyes open! by Julette Passer
Trust experience and knowledge™.
Focus on Investors - Doing business in Panama with your eyes open!
By Juliette Passer
Panama is a great place to live and work. In recent years Panama has been growing in popularity among investors, expatriates and retirees alike. Recently popular online publication “International Living” rated it as the No. 1 place to retire in the world, and for good reasons. Panama’s prospects for economic growth are strong amidst global economic meltdown, showing positive growth of 2.3% in 2009 and this economic expansion is expected to continue in 2010 and beyond. This is mainly due to substantial growth in the financial and construction sectors, tourism and the commercial expectations placed on the ongoing expansion of the Canal, which connects the Pacific and Atlantic Oceans creating a natural hub for business between North and South America as well as between Asia and Europe with direct maritime access to over 80 countries and 3.5 billion people. Panama's dollar-based economy offers low inflation and zero foreign exchange risk. Its legal and regulatory regimes are business friendly. Its government is stable, democratic, and reform minded and actively seeks foreign investment in all sectors, especially services, tourism and retirement properties. Panama’s current and planned public investment in productive infrastructure is one of the highest in the region and is on par with East Asian economies, including the planned construction of a subway in Panama City. These factors are expected to contribute to lowering unemployment rates to 4.8% and 4.6% in 2011 and 2012 respectively.
Its banking sector currently comprises of more than 80 foreign banks, providing full banking services through ATM cards, Visa credit cards, check books, Internet banking and Visa debit cards. The first two banks opened its doors in 1904, one was called the International Bank Corporation is today’s Citibank, part of Citigroup, the biggest financial conglomerate in the world and the second one was the Banco Nacional de Panama. The banks of Panama are strictly supervised and licensed by the Superintendency of Banks (Superintendencia de Bancos de Panamá), Panama’s regulatory authority. At present, Panama is reported to have the most upgraded banking system in the world.
Panama offers a higher quality of living at a lower cost and with less crime than typical Central American destinations, although Panama City is rapidly getting to world pricing. Panama has a wealth of variety to offer whether it is beaches, lakes, mountains or the countryside and prices for real estate purchases with a range of choices for practically any budget.
The Colon Free Zone, the second largest in the world after Hong Kong, is a vital trading and transshipment center serving the region and the world. Panama has no restrictions on the outflow of capital or outward direct investment. Its accession to the World Trade Organization in mid-1997 opened up trade and lowered tariffs.
According to Panama's constitution, nationals and foreigners are treated equally under the law. Both Panamanian and foreign companies must fulfill the same basic requirements to organize and operate most types of business activities in Panama. There are restrictions on foreigners participating in retail trade and practicing certain professions. In practice, however, there are legal ways to overcome these restrictions. Panama has one of the most modern and flexible corporate law frameworks in Latin America. Panama is an interesting and potentially profitable jurisdiction for licensing agreements and joint ventures as well as routine commercial operations for international companies.
Having listed all the good reasons to invest in Panama, the caveat is - you must be careful, so to paraphrase the famous line from the Wizard of Oz: “This ain’t exactly Delaware, Dorothy!”
Foreign investors, especially from the US and Canada, Juliette Passer warns routinely drop their guard in a deceptively familiar legal environment of Panama, which is based on the Delaware Corporations Law and similar to the Wyoming Limited Liability Company Law, but allows bearer shares and untitled real estate sales.
Panama has a court and judicial system built around a civil code, rather than the Anglo-American system of reliance upon case law and judicial precedent. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts; however, the system can be inefficient and prone to abuse. Though the system is improving, many in the business community, both Panamanian and foreign, lack confidence in the Panamanian judicial system as an objective, independent arbiter in legal or commercial disputes, especially when the case involves powerful local figures with political influence. In a few cases the appearance of corruption has been so widely accepted as to constitute conventional wisdom. Arbitration is always a better choice at the Center for Mediation and Arbitration established by the Panamanian Chamber of Commerce or at various European or American arbitration centers and courts.
Since Spanish is the official language in Panama, always make sure the request your transactional documents in English, Juliette Passer advises, as translations of the Spanish documents and never sign any agreements in Spanish if you do not speak and read the language! Legal documents are not interesting reading, but it is a must for a successful investment.
The Public Register of Panama provides much transparency to the company registrations, recordings of mortgages and liens and for transfer of title to properties, however, it also prone to misuse by unscrupulous parties.
Lastly, but just as importantly, Panama has many experienced attorneys and established laws firms; however, the conflicts of interest rules and ethical standards followed by the Panama Bar are not as stringent as those in the US. Hence again, caution must be exercised. At the very least, ask the partner of the firm to warrant to you that other members of the firm are not involved in representing parties adverse to your interests and transactions and do not use affiliated entities as trustees, if the firm is representing the seller in your purchase transaction. A good local bank can be easily hired as a trustee.
Use your common sense to build a team of advisors you can trust and you will do very well in beautiful Republica de Panamá!
Copyright 2008-2010, Juliette M. Passer, Esq.
About the Author
Juliette M. Passer is a U.S. attorney, with over 19 years of broad international transactional experience, specializing in corporate and project finance, as well as new media transactions and e-commerce. Juliette Passer holds a JD (cum laude) from Cardozo School of Law and studied Soviet Law at the Columbia University School of Law. She practiced law with the international law firms of Debevoise & Plimpton and Patterson, Belknap, Webb & Tyler in New York, specializing in corporate and project finance. Juliette Passer is a member of the Council on Foreign Relations and serves on boards of several companies. She is listed in Who’s Who in American Law and Who’s Who in American Women. As a pro bono undertaking, she represents Russian and Ukrainian artists, dancers and musicians. Juliette Passer is a frequent guest lecturer and an adjunct graduate faculty at the Russian Juridical Academy, Kaplan University, Moravian College and others.
About the Author
Juliette M. Passer is a U.S. attorney, with over 19 years of broad international transactional experience, specializing in corporate and project finance, as well as new media transactions and e-commerce. Juliette Passer holds a JD (cum laude) from Cardozo School of Law and studied Soviet Law at the Columbia University School of Law. She practiced law with the international law firms of Debevoise & Plimpton and Patterson, Belknap, Webb & Tyler in New York, specializing in corporate and project finance. Juliette Passer is a member of the Council on Foreign Relations and serves on boards of several companies. She is listed in Who’s Who in American Law and Who’s Who in American Women. As a pro bono undertaking, she represents Russian and Ukrainian artists, dancers and musicians. Juliette Passer is a frequent guest lecturer and an adjunct graduate faculty at the Russian Juridical Academy, Kaplan University, Moravian College and others.
We provide peace of mind!™
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