Doing Business in Panama
- Panama
- 03/06/2008
- Central Law - Panama
Panama Political Structure
Panama is a representative democracy with three branches of government: Executive and Legislative branches elected by direct vote every five years, and an independent Judiciary appointed by the Executive, with the consent of the Legislature.
Political elections are governed by an independent electoral tribunal, made up of three judges, appointed for overlapping periods of ten years.
Since 1989, Panama has passed through a successful democratic process that has been validated by two national referendum and two general elections, the latest in May 1999. Panama’s next general election takes place in May 2004.
Panama generally scores higher than the Latin American regional average in terms of measuring citizen access to Democracy and Freedom.
The President has broad powers under Panama’s Constitution, but must work with a 71 member unicameral Legislative branches work in harmonious coordination and both play an important role in shaping political, economic and social initiatives. There is no Presidential reelection.
The country’s Constitution forbids the creation of a national armed force or military. The police force falls under civil control.
Pinkerton Global Intelligence ranked Panama with the highest rating for tourist safety. In the global and regional context, Panama is a very safe country.
Panama’s Business Environment
There is a climate of social, political, labor and economic stability. No major public demonstrations have been recorded in the past decade.
Panama has the lowest labor strike index in Latin America.
The 2001 index of economic freedom, produced by the Heritage Foundation, a Washington D.C. Think Tank, ranks 154 countries on the basis of government interference in the economic spheres, including: trade, taxation, government consumption, monetary policy, foreign investment, banking, wage/prices regulation and black market. Panama ranked fourth among its regional competitors, thanks to a favorable trade regime, limited government spending and intervention, well-established property rights, and a favorable regulatory environment. Compared to the rest of the nations around the world, Panama ranks quite well with a placement of 42 overall.
Official Matters
Entrance Regulations:
A tourist may stay in Panama for 90 days, period which can be extended for another 90 days, prior the presentation of his/her return ticket and a proof of economic solvency. Visitors who have entered with a prior authorization may stay during the period granted and if they need to extend their stay, they should extend it through an application before the National Bureau of Migration together with the necessary supporting documents. It is not necessary to obtain departure permits to leave the country, provided the visitor is within the period granted to tourists. If a visitor stays longer without having extended or justified his/her stay in Panama, he/she should cover the costs of a penalty which is imposed according to the time exceeded.
List of countries which do not require a Visa or tourist card to enter the national territory: Germany, Hungary, Argentina, Israel, Austria, Italy, Chile, Nicaragua, Costa Rica, Poland, El Salvador, Portugal, Spain, United Kingdom, Finland, Greek Republic, France, Singapore, Guatemala, Switzerland, Uruguay, Holland (the Netherlands), Luxembourg, Belgium and Bolivia.
Countries which require a stamped Visa: Chad, Cyprus, Egypt, Philippines, Peru, Dominican Republic, Thailand, Ecuador.
Countries which can enter with a tourist card (or Visa): Antigua and Barbados, Aruba, Australia, Bahamas, Belize, Bermuda, Brazil, Canada, Colombia, South Korea, Curacao (Dutch Antilles), United States, the Vatican, Granada, Greece, Guyana, Island, Japan, Malta, Mexico, Monaco, Norway, Paraguay, Western Samoa, Saint Christopher and Nevis, San Marino, Saint Vincent, Trinidad and Tobago, Venezuela.
Citizens: from all other countries require an authorization to enter the country.
Stamped Visas can be obtained in Panamanian consulates abroad. Authorized Visas can be obtained in the Panamanian consulates abroad with the authorization of the Bureau of Migration of Panama and clearance by the National Security Council.
A Tourism Card is B/.5.00 and is issued by airlines or travel agencies. All tourists should carry their valid passports except for the citizens of the United States of America, who only need a proof of their nationality to obtain their card.
Financial Sector
The banking sector is supervised and regulated by the Superintendence of Banks, public institution in charge of granting the banking licenses and inspecting the system. At present there are 50 banks with general banking licenses authorized to engage in banking businesses in and out of Panama; 25 banks with international banking licenses which carry out business in and out of the country, 10 with representation banking licenses and two official banks.
With financial assets of 28.000 million dollars, the Banking Center engages in transactions worldwide, mainly with the Latin American region. The regional offices established in Panama carry out different operations with depositors and borrowers from Latin America and the Caribbean.
Panama’s tax regime does not impose taxes on the income obtained through transactions which are used or take effect outside the national territory and exempts from taxes the interests earned on banking deposits. We have a great operational flexibility which is supported by the characteristics of the Panamanian legislation. There is discretion and reserve in the handing of the operations which are binding agreements in the Panamanian financial sector, provided as such by the banking laws set forth for the protection of the client.
In order to engage in the banking business in or from Panama, an authorization from the Superintendence is needed through the issuance of a license.
TYPES OF LICENSE
There are three types of licenses:
1. General License: It authorizes the operation of a banking business in any part of the Republic of Panama and transactions which are made, used or take effect abroad.
2. International License: It authorizes the management of transactions which are made, used or take effect abroad from an office in Panama.
3. Representation License: It only authorizes the establishment of one or more offices of representation in Panama for operations which are executed abroad.
REQUIREMENTS TO ABTAIN BANKING LICENSES
The application for the granting of a banking license to a Bank in formation which will get organized as a juridical person pursuant to the legislation of the Republic of Panama, should attach the following documents:
1. Corporate Charter;
2. Authorization by the Board of Directors;
3. Particulars of the shareholders, directors and officers of the applicant and of its promoter;
4. Resume of the persons responsible for the bank;
5. Personal financial statements of the directors, officers and of the controlling shareholders or of those with the capacity to exercise the control of the Bank;
6. Information on the Economic Group or Financial Conglomerate;
7. Brief description of the financial activities of the Economic Group or Financial Conglomerate;
8. Substantial investments of the applicant;
9. Provide evidence it has the minimum capital required (B/. 10,000,000.00 – General License; B/. 3.000,000.00 –n International License);
10. Capital Distribution;
11. Audited consolidated financial statements of the applicant and/or promoter group;
12. Registration and authorization by the auditors;
13. Publications and reports;
14. Projects of activities to be developed / business plan;
15. Feasibility study;
16. Procedures, policies and manual related o the management of risks; and
17. Any other document, information or requirement as requested by the Superintendent.
Banks authorized to exercise the banking business in and/or from the Republic of Panama:
Official banks: 2
General license: 36
International license: 30
Representation offices: 6
As of August 2004, the /banking Center registered a level of accumulated profits of B/. 479.4 millions which represents a growth of 7.8% compared to a similar period of the previous year. Profits amount to an average return of 2.22% on assets generating income, on an annual basis, and an average return on capital of 17.30%. The good performance during the above mentioned period reflects the favorable financial condition of the Banking Center.
The level of assets of the Banking Center amounted to B/.32.492 millions, representing an increase of 1.1% compared to a similar period of the previous year. The trend of the assets of the Center keeps on being characterized by the increase of the internal credit to the private sector and by the decrease of the external operations. The internal credit to the private sector has been favored by the favorable liquidity levels of the Banking Center and an increase in the local savings.
Incentives and steps for establishing a business
Panama has one of the most modern and flexible corporate laws in Latin America.
Among the advantages offered by the Panamanian corporate law we have:
1. Two or more persons of any nationality, even if they are not domiciled in Panama, may organize a corporation for any lawful purpose. The articles of incorporation may be executed anywhere, even outside of Panama, and in any1aruage.
2. There are no requirements regarding the amount of paid capital.
3. Ownership of a Panamanian corporation may reside in a single individual or corporation and no part of the capital needs to be held by a Panamanian.
4. There are no nationality or residence requirements for shareholders.
5. Neither the directors nor the officers are required to be shareholders.
6. The Boar of Directors must be composed of at least three directors, but none of them may hold more than two positions.
7 Meetings of shareholders or directors may be held outside of Panama. Proxies may be used by shareholders/directors.
In order to form a company in Panama, the investor must submit the following information:
1 The name of the corporation. It may be in any language but it must terminate in a word or abbreviation indicating that it is a corporation.
2. The objectives and purposes of the corporation.
3. The amount of authorized capital. Usually the authorized capital will consist of US$10,000 divided into 100 shares of US$100 each.
4. Shares may be nominative or bearer shares.
5. Duration of the corporation, usually perpetual.
6. The full names and addresses of three or more directors and/or officers.
7 The domicile of the corporation.
In order to engage in commercial or industrial activities, all corporations, partnerships or individuals must obtain proper authorization from the Ministry of Commerce and Industries.
Basie Types of Business Licenses:
1. Commercial License Class A is required for wholesale operations, commercial and mortgage banks, insurance and reinsurance companies, international transportation companies, mutual funds, public services, high-tech companies, and others.
2. Commercial License Class A is required for retail businesses, including representation agencies, financial institutions, international financial agencies, bars, small restaurants, drugstores, gas stations, local transportation. This license is only granted to Panamanians or corporations owned solely by Panamanians.
3. An industrial License is required for extractive and manufacturing industries, as well as construction companies.
Exemptions for business license requirements are granted to persons or legal entities engaged exclusively in agriculture, cattle, sheep, or poultry raising, or in the manufacturing and sale of handicrafts. Licenses must be kept at all times in a visible and accessible place. An annual tax is levied based on the net worth of the company, as stated in the income tax return.
Incentives and steps
Panama has one of the most modern and flexible corporate laws in Latin America.
Among the advantages offered by the Panamanian corporate law we have:
1 Two or more persons of any nationality, even if they are not domiciled in Panama, may organize a corporation for any lawful purpose. The articles of incorporation may be executed anywhere, even outside of Panama, and in any1aruage.
2. There are no requirements regarding the amount of paid capital.
3. Ownership of a Panamanian corporation may reside in a single individual or corporation and no part of the capital needs to be held by a Panamanian.
4. There are no nationality or residence requirements for shareholders.
5. Neither the directors nor the officers are required to be shareholders.
6. The Boar of Directors must be composed of at least three directors, but none of them may hold more than two positions.
7 Meetings of shareholders or directors may be held outside of Panama. Proxies may be used by shareholders/directors.
In order to form a company in Panama, the investor must submit the following information:
1 The name of the corporation. It may be in any language but it must terminate in a word or abbreviation indicating that it is a corporation.
2. The objectives and purposes of the corporation.
3. The amount of authorized capital. Usually the authorized capital will consist of US$10,000 divided into 100 shares of US$100 each.
4. Shares may be nominative or bearer shares.
5. Duration of the corporation, usually perpetual.
6. The full names and addresses of three or more directors and/or officers.
7 The domicile of the corporation.
In order to engage in commercial or industrial activities, all corporations, partnerships or individuals must obtain proper authorization from the Ministry of Commerce and Industries.
*Basie Types of Business Licenses: *
Commercial License Class A is required for wholesale operations, commercial and
Visas
Immigrant Visa as an investor
Investment Capital - $150,000.00
1. Registration or affiliation before the Bureau of Migration and Neutralization
2. Four photos passport size
3. Power of attorney and application through a lawyer
4. Certified check in the amount of US$100,00 to the order of the National Treasury – to cover the change of status
5. Certified check in the amount of US$500,00 to the order of the Ministry of Government and Justice – to cover the repatriation fund
6. Certificate of good health issued by a Panamanian certified physician.
7. Police record from the country of origin duly authenticated by the Panamanian Consulate in the issuing country or authenticated by Apostille. Nationalities exempted from the presentation of this document: Brazil, Cuba, Great Britain, Venezuela, and Mexico.
8. Sworn statement on the investment before a Panamanian notary.
9. Sworn statement on personal records.
10. Shares Certificate.
11. Letter from the Certified Public Accountant and the Treasurer of the Panamanian company on which the investment was made.
12. Authenticated copy of the deposit slips, bank transfers, commercial invoices, customs liquidations, lease contracts or any other document which may evidence the investment.
13. Certificate issued by Panama’s Public Registry on the company in which the interested party has invested.
14. Last payroll duly authenticated before the Social Security Bank which should include three Panamanian employees earning at least minimum wages.
15. Paid up taxes certificate of the company issued by the General Bureaus of Revenues.
16. Last income tax return of the company
17. Copy of the commercial license duly authenticated before the Ministry of Commerce and Industries.
18. Original passport valid for at least six months.
Note: If the visa applicant is accompanied by dependents, the investment should be increased to $4,000.00 per each additional dependent. This visa entitles the investor to a personal identity card as foreigner within the Panamanian territory after completing the second stage of the process.
Temporary visitor Visa as a technician
This visa is perfect for foreigners who enter the country to render their services for a term not greater than five (5) years.
1. Registration or affiliation before the Bureau of Migration and Naturalization
2. Four photos passport size
3. Power of Attorney and application by the legal representative of the company contracting the foreigner.
4. Copy of the identification card or passport of the legal representative of the company contracting the foreigner.
5. Power of Attorney and application through a lawyer.
6. Certified check in the amount of $100.00 to the order of the National Treasury – to cover the change of status.
7. Certificate of good health issued by a Panamanian certified physician.
8. Police record from the country of origin duly authenticated by the Panamanian Consulate in the issuing country or authenticated by Apostille. Nationalities exempted from the presentation of this document: Brazil, Cuba, Great Britain, Venezuela, and Mexico.
9. Sworn statement on personal records.
10. Copy of the commercial license of the company
11. Copy of the certificate issued by the Public Registry on the company contracting the foreigner.
12. Employment letter and contract.
13. Power of Attorney and Work Permit.
14. Original passport valid for at least six months.
Note: This visa should be extended annually with a maximum of five extensions and it does not entitle the holder to bear a permanent resident identification card. For the approval of the visa by the Bureau of Migration, it is necessary to present the Resolution issued by the Ministry of Labor and Employment Development whereby the work permit is approved.
Tax Regime
The Ministry of Economy and Finances’ general responsibility is the management of taxes. Within the Ministry, the General Bureau of Revenue is in charge of the management of the national internal taxes and the General Bureau of Customs’ immediate responsibility is the management of the customs duties.
Municipal taxes are determined by the municipalities which establish the assessments and necessary basis therefore. Likewise there are taxes established by national laws, the collection of which is assigned to the municipalities (on the consumption of alcoholic beverages, mineral resources and others).
Income Tax
As of February 3, 2005, Law No. 6 of February 2, 2005 is in force which introduces a tax reform of significant importance in numerous aspects which we indicate below:
Territory Principle:
The Panamanian tax system considers the income produced from whichever source within the Republic of Panama, in whichever place it is received or the contracts entered into, as produced within the territory.
On the other hand, our legislation establishes the withholding of taxes in Panama for remittances overseas in the following cases:
a. Remittances overseas:
Taxation on 50% of the money sent overseas to natural or juridical persons for services or transactions which may have a natural or juridical person established within the national territory as a beneficiary.
b. Interests or commissions for the financing or loans to creditors overseas – a withholding of 50% of the amount remitted will be applied based on the table indicated in the articles of the Fiscal Code No. 699 (30%) to 700 (progressive table of the natural persons), accordingly.
c. Exception:
This withholding is exempted on natural or juridical persons who due to the nature of their international businesses are engaged in operations outside the national territory which are required for the generation of income filed in the Republic of Panama.
Income tax calculation:
Basically the Income, Tax Law applies a tax on the total annual income of natural and juridical persons. The rates for natural persons are progressive while the rate for juridical persons is 30%.
As of the estimated income tax return for the year 2006, a new alternative method for the calculation of the income tax is established. The CAIR [Income Tax Alternate Calculation] is introduced.
Comparison of Calculations:
1. 30% income tax on the taxable net income, or
2. The taxable net income resulting from the deduction of 95.33% on the total taxable income. A 30% tax is applied on the result (30% x 4.67 of the net taxable income).
The alternative with the largest income tax is the one which would be paid in both the income tax return and the estimated income tax return.
Free Zones:
Companies located in areas considered as Free Zones are not subject to the payment of income tax on overseas operations. The exportation and re exportation operations from a Free Zone to a foreign country are considered as overseas operations.
Services operations made within the Free Zones are not considered overseas operations thus these are subject to income tax. If the services described above take effect abroad these shall be considered as overseas and exportation operations.
Dividends and profits coming from overseas operations which are distributed by companies established in the Colon Free Zone receive the same treatment.
Tax period and imputation of revenues
The fiscal year runs from January 1 to December 31. Pursuant to the Business Code, taxpayers are bound to keep accounting books. Taxpayers may choose a fiscal year of 12 months different from the calendar year, as long as they previously get the authorization from the General Bureau of Revenues.
Exemption according to the amount of the taxable net income
The taxable net income of natural persons which does not exceed nine thousand Balboas (B/.9,000) annually is exempted.
Tax on the transfer of personal goods and rendering of services (ITBMS)
Nature of the tax:
The Tax on the Transfer of Personal Goods and Rendering of Services is general tax of an indirect mature and an added value type.
Work Permit
The application for a work permit depends on the type of visa requested.
Requirements:
1. Power of Attorney and application
2. Employment Contract (3 originals)
3. Four photos passport size
4. Certificate issued by the Public Registry
5. Authenticated copy of the commercial and industrial license of the company. It should be authenticated by the Ministry of Commerce and Industries.
6. Migration status of the applicant issued by the General Bureau of Migration and Naturalization.
7. Employment Letter and responsibility of the contracting company.
8. Last payroll paid to the Social Security by the company (original) and a copy which will be compared before an officer of the Ministry of Labor.
9. Photocopy of the passport and Migration card in force.
Note: Every foreigner working in Panama requires a Work Permit granted by the Ministry of Labor and Employment Development which is valid for a year and should be renewed upon its expiration.
Special Temporary Visitor
Persons who may request this visa:
This visa is granted for foreign executives working for companies established in Panama and who comply whit the conditions detailed below:
a. Their salary comes from a foreign source.
b. Their salary is not less than US$1,000.00 per month.
c. They work in companies the operations of which take effect or are conducted outside the national territory.
Advantages of this visa:
- It is issued expeditiously. - Its bearer may introduce domestic articles duty free up to US$3,000.00.
Requirements:
1. Power of Attorney granted to a certified lawyer in Panama.
2. Registration or affiliation before the Bureau of Migration and Naturalization.
3. Certificate of good health issued in Panama.
4. Certificate of good behavior issued by the police authorities of the place of residence for the last two years, duly authenticated by a Panamanian consulate or embassy.
5. Letter issued by the foreign company sending the executive addressed to the General Bureau of Migration and Naturalization stating the following:
a. That the applicant is an executive and that his/her salary comes from a foreign source.
b. That the applicant earns a salary greater than US$1,000.00 per month.
c. That the company undertakes to repatriate the applicant upon the termination of his/her services.
d. That his/her work is related to international operations which therefore take their effects out of the territory of the Republic of Panama. This letter should be authenticated by the Panamanian Consulate in the country it was issued os apostilled.
6. Letter issued by the national company addressed to the General Bureau of Migration and Naturalization stating the above.
7. Bank reference on the national company (except for banks), sending the executive (duly authenticated by a Panamanian Consulate or apostilled).
8. Bank reference on the national company.
9. Sworn statement on personal records, complete and signed.
10. Four color (4) photos passport size.
11. Original passport valid for at least six months.
12. Good Standing Certificate on the foreign company sending the executive issued by the complement authorities of the company’s place pf origin (authenticated by a Panamanian Consulate or apostilled).
13. Public Registry Certificate on the affiliate company in Panama where the executive is going to work.
*Standards and trade customs regulations
Trade barriers (tariffs, non-tariff barriers and import taxes)*
Traditional policies on trade and economic incentives directed agricultural and manufacturing production toward import substitution until the end of the 1980s. Today, Panama’s tariffs are the lowest in the region. Panama averages 10% in tariff rates.
The country has also made significant progress in eliminating quantitative restrictions, which include the following:
a. The reduction of the ceiling on import tariffs to 40 percent for industrial products and 50 percent for agro-industrial products.
b. The elimination of all specific import rates.
c. The elimination of the quantitative import restrictions for agricultural products and their replacement with tariff protection.
The Government accomplished these objectives and went further by setting an import tariff ceiling of 15% effective January 1, 1998. Some exceptions exist for agricultural products and a few other products such as automobiles.
Panama is a full member of the World Trade Organization (WTO). However, our import duty structure is significantly lower than the one negotiated for WTO adherence.
Customs valuation
Panama assesses import duties on an ad valorem basis. The ad valorem system uses the declared C.I.F. value as the basis for import duty calculations and in some cases utilizes historical price information as a reference.
In addition to the duty, all imports into Panama are subject to a 5 percent transfer or value added tax (ITBM) levied on the C.I.F. value, plus import duty and other handing charges. Pharmaceuticals, food, and school supplies are exempt from the ITBM tax.
In 1995, Panama changed its international trade classification system from the Customs Cooperation Council Nomenclature (CCCN) and Brussels Tariff Nomenclature (BTN) to the Harmonized System (HS).
Import permits
In Panama import permits are required depending on the product involved. Any company holding a commercial license can freely import goods into Panama.
Export controls
The Tax Code regulates all matters concerning the country’s exports. The Code establishes that all national products may be exported, except:
a. Drugs, with the exception of those having pharmaceutical or scientific purposes.
b. Staple products determined by the Government to be temporarily scarce in the country; and
c. Those products the Panamanian Government decides not to export for reasons of convenience or for the economic interest of the country.
Exports subject to the payment of export taxes require an Export Authorization, which us issued by the National Customs Office, Ministry of Economy and Finance.
Exports subject to taxes are: metals, raw sugar and natural resources.
Import documentation
The processing of customs documents in Panama for imports is fast, efficient and reliable. Imported merchandise must be cleared through customs by a customs broker licensed by the Government of Panama. Exceptions are made for goods which are imported duty free, consigned to national or municipal governments, imported by foreign diplomats, sold to the authorities of the Canal Area, sold to vessels transiting the Canal, or intended for re-export.
Basic import documentation required by the Panamanian Customs Office:
a. Import Declaration (prepared and signed by a customs broker)
b. Commercial Invoice (to be presented in English or Spanish in quadruplicate).
c. Airway Bill.
d. Bill of Lading (to be presented in triplicate).
e. Commercial License Number
f. Phytosanitary Certificate (in case of meat products)
g. Certificate of Free Sale (if required)
Any food product or other item used for human consumption (including those used on human skin or clothes) may be subject to the Certificate of Free Sale (CFS) documentation requirement. The main purpose of the CFS is to prevent the dumping of inferior goods, especially for human consumption, on the Panamanian market.
If for any reason the bill of lading or any other required document cannot be presented within 24 hours after the shipment has arrived, clearance of the goods will be permitted by posting a bond equal to the amount of import duties. The bond is cancelled if the prescribed documents are presented in due form within a period of 90 days. The bond may be extended in justified cases, an additional 90 days.
Taxable matter
a) In the transfer of goods: the price is taxable. Said price shall be integrated with all the amounts charged to the buyer or the debtor, as well as the ancillary benefits provided by the taxpayer and which benefit the buyer, such as transportation, freight, containers, financing interest, whether these are billed jointly or separately. In the case of the rendering of services, the amount of the agreed upon professional fees is understood as the price.
b) In the case of an exchange: the amount of the service with the highest value.
c) In dations of payment, in the contributions to companies or in any other taxable matter which may transfer the ownership of the personal goods or if a service is rendered: the value of the transferred goods or services rendered.
d) In importations: the CIF value plus all customs taxes, duties, levies, contributions or assessments which may affect the imported goods. In those cases in which the CIF value of the goods is unknown, the value will be determined by adding to the FOB value fifteen percent (15%) thereof.
CIF (Cost, Insurance and Freight) is understood as the cost of the goods free on board the maritime, air or land vessel or vehicle in which these are transported into the Republic of Panama, either directly or through a transshipment port; in addition, it includes the expenses for the preparation of documents and other necessary expenses incurred in the port of shipment, freight cost, insurance, commissions and brokerage up to the first point of dockage in the national territory.
e) In the leasing of personal goods and in other transactions in which the use or enjoyment for the asset is implied or is the objective thereof: the billed value of the leasing or, in the absence thereof, the value of the contract, during the whole term it is in force, provided said amount is not less than the depreciation, when applicable, with which the asset is affected in the same period. In the latter, the taxable basis shall be at least the same as the corresponding depreciation plus a profit of fifteen percent (15%).
f) In the leasing of real property and in other transactions in which the use of enjoyment of the asset is implied or is the objective thereof: the billed value of the leasing.
Taxpayers of the ITBMS Tax
The ITBMS tax in Panama is settled and paid monthly or quarterly in accordance to the classification of the taxpayer under the categories detailed below:
• Class 1. Taxpayers whose monthly gross income average is greater than B/.5,000.00 shall settle and pay this tax monthly.
• Class 2. Taxpayers whose monthly gross income average is less than B/.5,000.00 and greater than B/.3,000.00, shall settle this tax quarterly.
Exception:
Producers, businessmen and individuals rendering services whose monthly gross income average is less than B/.3,000.00 per month or B/.36,000.00 per year are not considered taxpayers of this tax.
Stamps or seals taxes
This tax is paid by the user through tax stamps and authorized papers. Companies with sales subject to the ITBMS tax are not bound to pay the stamps tax on their invoices or receipts related to transactions with goods and services subject to the ITBMS.
Real estate tax
All land in the jurisdictional territory of the Republic, as well as the buildings and other permanent constructions made or which will be made on said land, whether these have an Ownership Title registered in the Public Registry of Properties or not, is subject to the real estate tax.
The combined progressive rate of this tax is the following:
a) 1.75% on the surplus taxable base of B/.20,000 up to B/.50,000.
b) 1.95% on the surplus taxable base of B/.50,000 up to B/.75,000.
c) 2.10% on the surplus taxable base of B/.75,000.
The sum of the value of the land and the improvement constructed thereon, if any, is understood as the surplus taxable base.
As of February 3, 2006, an alternative combined progressive rate if the Real Estate Tax has been established:
a. 0.70% on the surplus of B/.30,000 to B/.50,000.
b. 0.90% on the surplus of B/.50,000 to B/.70,000.
c. 1% on the surplus of B/.75,000.
Requirements to make use of this new rate:
a. File a sworn statement with an estimated value of the property duly signed by a real estate appraiser.
b. The General Bureau of Land Survey is authorized to accept or deny this value. The land survey value may not be modified at the Bureau of Land Survey for the next five (5) years.
c. Be up to date in payment of this tax.
Exemption from the Real Estate Tax:
Improvements whose construction permits are issued as of September 1, 2005, are exempted from the Real Estate Tax, as of the date on which the occupation permit is issued, based on the following tables:
Improvements for residential use:
Value of the improvements in Balboas Years of Exemption
Up to B/.100,000 15
More than B/.100,000 up to B/.250,000 10
More than B/.250,000 5
Other improvements:
Value of the improvements in Balboas Years of Exemption
Whichever its value 10
Improvements whose construction permits had been issued before September 1, 2005, will enjoy twenty (20) years of exemption from the Real Estate Tax, counted as of the occupation permit, provided the registration of the improvements in the Public Registry is made before August 31, 2006.
Permits and licenses
Every commercial or industrial company should obtain a permit issued by the Ministry of Commerce and Industries. In addition, it should pay annually before the General Bureau of Revenues a tax called “Tax on Commercial of Industrial Permits”, equivalent to 2% of the declared capital of the company. The minimum tax is B/.100 and the maximum tax is B/.40,000.
For the purposes of this tax, capital is considered as the net asset at the closing of the respective fiscal period. Net asset is understood as the difference between the total assets and the total liabilities, being it understood that the sums a branch or subsidiary owes an affiliated or parent company established abroad will not be included in the total liabilities for the purposes of this tax.
Labor Legislation
Salary withholding and deductions
a. Income Tax: Determined by a schedule in the Panamanian Tax Code, depends on the employee’s taxpayer type.
b. Social Security: A 7.25% of the gross monthly salary is deducted, and the employer covers 10.75% of the assessment.
c. Education tax: A 1.25% is withheld from the gross monthly salary, and the employer covers 1.50% of the tax rate.
In addition, the employer should cover the employee’s compensation which depends on the duties performed by the employee.
The Panamanian Social Security assigns the percentage to be paid, considering that 0.98% is the minimum percentage established for office workers.
Employee rights
a. Annual Vacations (Leave): The Panamanian Labor Code establishes an annual remunerated leave, that is, thirty days for each eleven continuous months of work.
b. Thirteenth Month: It is a special compensation equivalent to one day of work for each eleven worked days or fraction thereof, continuous or otherwise. This compensation is paid in three allotments, in April, August, and December, and both income tax and social security should be withheld thereon.
c. Seniority Compensation: Upon termination of all labor contracts (contracts for an indefinite period of time only), whichever the reason for termination, the employee is entitled to receive seniority compensation equivalent to one week salary for every year worked, as of the beginning of the employment. If the year of service is not completed, the employee is entitled to the portion thereof.
Application for employment
Applicants need not to fill out any specific employment form. Employers usually prepare their own forms. These forms enable the company to select personnel before employing them.
The employment contract should include the following information:
1. Name, nationality, gender, age, civil status, home address and personal identity card number of the parties. When the employer is a corporation, the contract must contain the name of the corporation, address, name of the legal representative and Public Registry information.
2. Employee’s dependents and household members.
3. Specify services or work contracted and the variations thereof to be performed.
4. Place or places in which services will be rendered.
5. Term of the contract; whether it is for a specific period of time; or a clause stating whether the contract is for a definite term of for a specific duty.
6. Regular duration and division of the working day.
7. The salary, form, time and place for payment.
8. Place and execution date, and signature of the parties.
Classification of labor contracts
The Panamanian Labor Code defines three different labor contracts:
a. Fixed Term Employment Contract: The term of this type of contract cannot exceed one (1) year.
b. Employment Contract for a Specific Work: The term of this type of contract will be determined by the work to be performed.
c. Indefinite or Permanent Labor Contract: The term of this type of contract is undetermined by the parties.
Export documentation
The Ministry of Commerce and Industry promotes exports and investment. It facilitates the processing of export documentation through a “One Stop” office, which can reduce the export process to a few hours.
Export documentation required by Panamanian customs authorities: - Commercial Invoice - Export Declaration (usually prepared and signed by a Customs Broker) - Certificate of Origin - Bill of Lading - Airway Bill - Veterinary, Sanitary or Phytosanitary Certificate (when applicable)
Temporary Entry
The Panamanian Tax Code establishes a temporary entry regime of up to one year for all types of merchandise. There are two options. First, the goods can enter the country if the importer makes a deposit equivalent to the import duty. This payment will be reimbursed at the time the goods leave the country. Second, an insurance company can issue a bond for the importer covering the import duty value, payable if the goods fail to leave the country as scheduled.
Special temporary provisions apply in the case of trade shows and exhibitions taking place at the Atlapa Convention Center, Panama’s exhibition and convention center. Goods can enter the Atlapa Convention Center with no warranty payment or bond required. The merchandise to be displayed in certain trade shows enjoys duty free status and may be sold off the floor duty free.
Samples with commercial value are subject to temporary entry requirements. Samples with no commercial value are admitted duty free. If samples arrive in large containers, they will be taxable even though they may be marked as free samples.
Labeling and marking requirements
Panama has no special regulations for labeling and marking. Labels are required to have basic information regarding the name and address of the manufacturer, expiration date, list of ingredients, lot number, and the product form, e.g. powder, liquid, etc.
Labels in English are accepted, except medicines, household products and food, which require special instructions. In these cases instructions regarding dosage, usage, warnings, etc. must be in Spanish.
All goods arriving in Panama intended to be immediately re-exported must be marked “PANAMA IN TRANSIT” on each box or container.
Prohibited imports
The following products cannot be imported into Panama:
- Counterfeit coins or printed material that imitates currencies. - Equipment or instruments for the manufacturing of coins. - Liquors, wines, beers or medicines with labels that falsely describe contents, or any kind of harmful preparation. - Certain firearms or war materials. - Foreign lottery or raffle tickets. - Opium in the form of gum or smoking. - Obscene brochures, books, newspapers, magazines, or postcard containing negative portrayals of the country’s culture, civilization or dignity. - Plants, seeds, or animals, as determined by the Ministry of Agriculture.
Standards (ISO 9001 usage)
The Government of Panama designated the Comisión Panameña de Normas Industriales y Técnicas (COPANIT) [Panamanian Commission of Industrial and Technical Standards], an agency of the Ministry of Commerce and Industry, as the domestic registering authority for participation in the International Standards Organization ISO-9001 program. There is no legal limitation in Panama on the participation in the ISO-9001 by firms doing business. In fact, an increasing number of Panamanian firms are seeking or have already obtained the ISO-9001 certification. Panama is a member of the Pan American Standards Commission (COPAN), headquartered in Venezuela.
Export Processing Zones
For those interested in using Panama as a platform for industrial production and distribution, our country offers special incentives for Export Processing Zones (EPZs).
EPZs are well-defined areas for the establishment of industrial, commercial and service facilities that operate in a free trade system. All or most production is exported. A range of incentives have been established to attract companies into the EPZs, including:
• 100% exemption on taxes and import rights over raw materials, semi-finished products, purchase and imports of equipment and construction materials.
• Exemption on taxes and import rights over equipment, machinery, tools, components, accessories, reinvestments, package materials, and every good or service required for its operation.
• Exemption on Income Tax, patent or license taxes, tax over capital goods or assets.
• Exemption on Sales Tax on local purchases. Exemption on taxes on dividends or interest generated by stocks, certificates, and other bonds and values issued by companies and placed in local and international markets.
• Exemption on Export Taxes.
The EPZ law also includes specific labor and immigration provisions for employees of EPZ firms that are more favorable to the company than the current Panamanian Labor Code.
Companies may establish operations in EPZ to engage in activities such as manufacturing, assembly, high technology, telecommunications, logistics, packing, printing, specialized and general services. IT services, offshore banking and insurance and others.
Howard
Howard is located on the west bank of the Panama Canal, the fastest growing area of Panama City. The conversion of this former U.S. Air Force Base into civilian use was carefully structured by the Government of Panama, under the advice of the International Financial Corporation (member of the World Bank Group). The fundamental objective of the Panamanian Government is to combine the existing world class logistics and telecommunication infrastructure in Howard with Panama’s expertise in the Commercial, Financial and Service sectors to develop one of the most successful Business Hubs of the Americas.
Colon free trade zone
Established in 1948 at the Atlantic entrance of the Panama Canal, the colon Free Zone (CFZ) is the largest of its kind in Latin America. The CFZ, the largest in the Western Hemisphere and second in the world after Hong Kong, is located in the City of Colon, adjacent to the Manzanillo International on the Atlantic side of Panama and 90 kilometers from Panama City. Goods (except for firearms or petroleum products) may be imported, stored, modified, repacked and reexported without being subject to any customs regulations.
Companies operating in the CFZ may engage in four types of sales operations:
1. Re-exportation of goods from CFZ warehouses;
2. Sales to clients located within Panama’s customs territory;
3. Direct sales to foreign clients in which goods are shipped from a third country manufacturer without physically arriving into the CFZ, or;
4. Transfers in which sales are made to other CFZ firms.
There are four basic ways of doing business in the CFZ:
1. Leasing lots on which the firm builds a warehouse or other CFZ firms facilities as designed by the firm. Land leases are granted for a 20 year period;
2. Purchasing existing facility from the Zone Administration;
3. Entering into in agreement with a company already established in the CFZ as the operator’s representative. The cost of this service is set by mutual agreement between the parties involved.
4. Leasing a public warehouse operated by the Zone Administration. The firm receives its goods and stores them like any other company of the zone. There are no fixed costs and payment is base on the weight or volume of the goods stored.
Companies located in areas considered as Free Zones are not subject to income tax payment on their overseas operations. Overseas operations are exportation and re-exportation operations from a Free Zone to a foreign country.
Services operations carried out within the Free Zones are not considered as overseas operations thus these are subject to income tax. If the above described services take their effect abroad, these shall be considered as overseas and exportation operations.
Dividends and profits from overseas operation which are distributed by companies established in the Colon Free Zone receive the same treatment.
