Business Environment

flag Panama Panama: Business Environment

In this page: Accounting Rules | Tax Rates | Intellectual Property | Legal Framework | Standards | Business Practices

 

Accounting Rules

Tax Year
The fiscal year begins on January 1st and ends December 31st of the same year. Although, a special 12-month fiscal year may be requested in certain cases, from the General Director of Internal Revenue.
Accounting Standards
Panama converted to IFRS as from 2009 and has historically utilized accounting principles that complied with the IFRS Standards. The National Accounting Management created an integrated system of financial administration (in Spanish only).
Accounting Regulation Bodies
National Accounting Management
Accounting Reports
The accounting structure should include:
- The balance sheet: Assets (current assets, liquid assets, bad debt allowance, salaries, other, income tax, inventories, expenses incurred, Total current assets), equipment (machinery property, Depreciation), and other assets ;
- The income statement: Revenues, Gross profit, Operating costs, Operating earnings, Total operating costs, Earnings before income taxes, Net income ;
- The management balance; and
- The appendices.
Publication Requirements
The Panamanian commercial law does not itemize the contents that have to be included in the accounting or the certification of the accounts. It is generally established practice that companies maintain a journal, a big ledger, the inventory and also annually prepare the necessary documents for financial analysis.
Professional Accountancy Bodies
Panama College of Public Certified Accountants , (Spanish only).
Certification and Auditing
In Panama, all companies as well as subsidiaries of foreign companies are required to seek the services of an external auditor to carry out an annual financial audit of their organization. The auditors have to be certified public accountants and have to satisfy the government of the accuracy of the published accounting information.
You can contact an external auditor: Deloitte, KPMG, Ernst & Young, PricewaterhouseCoopers.
Accounting News

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Tax Rates

Consumption Taxes

Nature of the Tax
Value Added Tax (VAT) - Impuesto a la transferencia de bienes corporales muebles y la prestación de servicios (ITBMS)
Tax Rate
The VAT standard rate is 7% except on alcoholic beverages and hotel accommodations (10%) and tobacco products (15%).
Reduced Tax Rate
Certain goods and services are exempt from VAT: supplies made by agricultural producers; unprocessed fish, meat and game supplied by non-industrial fishermen and hunters; exported goods; medical and pharmaceutical products; school materials; supplies of goods made in a free zone in Panama; supplies of movable goods within an authorized customs warehouse; oil and related products (motor oil is subject to VAT); groceries; hand tools, fertilizers, insecticides, fungicides and similar products used in agriculture.
Certain products have higher rates: alcoholic beverages and hotel and other lodging services are taxed at 10%, whereas tobacco and tobacco-derived products are taxed at 15%.
Other Consumption Taxes
Excise duties are levied on several products, including jewellery, expensive automobiles, guns, tobacco, alcoholic beverages, and services such as cable television and mobile services. Different tax rates apply depending on the type of service or good (between 5% on soft drinks and 100% on tobacco products).

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Corporate Taxes

Company Tax
25% (the rate may vary if the company is subject to an alternative minimum tax (CAIR))
Tax Rate For Foreign Companies
The Republic of Panama adheres to the territorial tax system: as much as all the income generated in Panama is taxed indiscriminately, be it of a Panamanian or foreign physical or corporate body, income generated from "offshore" activities of people or companies is not taxed (which is a significant exception to the general principles of international taxation).
A company is considered as a tax resident when it has been incorporated in the country and if Panama is regarded as the place where the central management is located.
Branches located within the country's territory must pay dividend tax through a definitive withholding tax of 10% of net taxable income generated by the branch, less all income taxes paid by the same corporation in Panama.
Capital Gains Taxation
Capital gains arising from the sale of securities and negotiable instruments are taxed at 10%. The buyer must retain 5% of the sales price as a tax advance and pay the amount to the tax authorities.
Real estate gains are taxed at the standard corporate tax rate if the transaction giving rise to capital gains is part of the taxpayer's main business activity, otherwise, a reduced rate of 10% applies. However, in such cases, the buyer must retain 3% of the sale price or the taxable value of the property (whichever is higher) and pay this amount as a tax advance.
Main Allowable Deductions and Tax Credits
Costs and expenses that are related to non-taxable income are deductible. Companies are therefore encouraged to separate their costs and expenses generating taxable income from others. Deductions are available for depreciation (including goodwill when the transferring party declares it as income). Start-up expenses are also deductible, through amortization over a maximum of five years.

Bad debts as well as national and municipal taxes on any taxable activity are deductible. Fines are not deductible while the deduction for donations to charities is limited to 1% of taxable income. Since the tax is territorial in Panama, there are no unilateral tax credits for taxes paid abroad.

The calculation of the tax base is different for companies with taxable income above USD 1.5 million. These companies may be subject to the ordinary corporate tax rate or pay 4.67% of gross taxable income as an alternative minimum tax. Many tax exemptions are available to companies investing in the Panama-Pacifico Special Economic Zone and manufacturing companies (in the form of VAT exemption for imports).

Tax losses of up to 20% per annum can be carried forward over five years. Losses cannot exceed 50% of taxable income in a tax year. The carryback of losses is not permitted.
Other Corporate Taxes
Employers pay social security contributions of 12.25% of the total remuneration of the employee and are required to pay an education insurance tax (1.5% of salary). Workplace accident insurance premiums are also payable by the employer at rates ranging from 0.56% to 5.67% depending on the risk associated with the employee's occupation.

The property tax varies between 0% and 1% for commercial or industrial real estate and land. A property transfer tax of 2% of the purchase price or the cadastral value (the highest value being used) is levied on sales of real estate. Stamp duties vary typically between PAB 0.10 and PAB 100 and apply to certain commercial contracts.

Companies that have not declared their dividends are subject to a tax on retained earnings ranging from 10% to 40% of their after-tax income (2% for companies in the free-trade zones, subject to conditions). All companies are also subject to a franchise tax of USD 300 per annum and an operations notice tax (2% of the company's capital, minimum amount of USD 100 and maximum of USD 60,000 per year).

Municipalities reserve the right to levy taxes at the local level, usually ranging from USD 10 to USD 2,000 per month.
Other Domestic Resources
Tax Collection Directorate
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  Panama Latin America & Caribbean United States Germany
Number of Payments of Taxes per Year 36.0 28.2 10.6 9.0
Time Taken For Administrative Formalities (Hours) 408.0 327.5 175.0 218.0
Total Share of Taxes (% of Profit) 37.2 46.8 36.6 48.8

Source: Doing Business - Latest available data.

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Individual Taxes

Tax Rate

Individual income tax Progressive rate from 0% up to 25%
PAB 0 - 11,000 0%
PAB 11,001 - 50,000 15%
Over PAB 50,000 25%
Allowable Deductions and Tax Credits
Interest paid on mortgage loans for homes (except for preferential interest for new homes) or for home improvements on residences located in Panama is deductible, capped at USD 15,000 annually.
All medical expenses incurred in Panama are deductible, while educational expenses are deductible up to USD 3,600 per student.
The contributions to retirement funds are considered deductible up to USD 15,000.
Donations to local educational and charitable institutions are deductible up to a maximum of USD 50,000 per year. Deductions for political contributions are capped at USD 10,000.
Married individuals can enjoy a personal exemption of USD 800.
Special Expatriate Tax Regime
Citizens and residents are taxed on income earned from Panamanian sources. Non-residents are taxed only on income from Panamanian sources. The tax on any type of income paid to a non-resident must be withheld by the payer.

An individual is considered resident in Panama if he/she is in the country for more than 183 days in a calendar year or has established permanent residence in Panama.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
List of Double Taxation Agreements
Withholding Taxes
Dividends: 5% (distributed out of foreign-source profits or export profits)/10% (distributed out of domestic profits)/20% (in the case of bearer shares)/40% (paid to an individual or legal entity resident in a jurisdiction that discriminates against Panama); Interest: 0 (residents)/ 12.5% (effective tax rate for non-residents); Royalties: 0 (residents)/ 12.5% (effective tax rate for non-residents).

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Intellectual Property

National Organisations
The Directorate General of the Industrial Property Registry. Panama signed the General Inter-American Convention for Trade Mark and Commercial Protection of 1929.
The new intellectual Property Law, approved in April 1996 fulfils the WTO requirements.  The law strongly punishes brand name and patent piracy and provides for speedy proceedings in the case of conflict.
International Membership
Member of the WIPO (World Intellectual Property Organization)
Signatory to the Paris Convention For the Protection of Intellectual Property
Membership to the TRIPS agreement - Trade-Related Aspects of Intellectual Property Rights (TRIPS)
 

National Regulation and International Agreements

 
Type of property and law Validity International Agreements Signed
Patent
 
Law 35 of May 10th 1996
Validity period of 20 years (Spanish only) Patent Cooperation Treaty (PCT)
Trademark
 
Law 35 of May 10th 1996
10 years, renewable for 10 years (Spanish only)
Design
 
Law 35 of May 10th 1996
10 years, period can be extended up to 5 more years (Spanish only)  
Copyright
 
Law 15 on copyright 1994
Lifetime right for the author and his heirs as provided by the text. Berne convention For the Protection of Literary and Artistic Works
Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms
Rome ConventionFor the Protection of Performers, Producers of Phonograms and Broadcasting Organizations
WIPO Copyright Treaty
WIPO Performances and Phonograms Treaty
Industrial Models
 
Law 35 of May 10th 1996
10 years, see text  

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Legal Framework

Independence of Justice
Despite the fact that the constitution provides for an independent judiciary, it remains inefficient, politicized and prone to corruption.
Equal Treatment of Nationals and Foreigners
From the judiciary's point of view, foreign nationals can expect the same treatment as Panamanians.
The Language of Justice
Spanish.
Recourse to an Interpreter
It is always possible to have an interpreter (contact your Embassy).
Sources of the Law and Legal Similarities
The main source of the law is the Constitution of 1972 (amended several times, last amendment in 2004). The legal system is based on a civil law system. Panama accepts compulsory ICJ jurisdiction but with reservations.
Checking National Laws Online
Panama Judiciary (Spanish Only)

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Standards

National Standards Organisations
COPANIT, Panama Committee of Industrial and Technical Standards.
Integration in the International Standards Network
Panama is a member country of the International Organization of Legal Metrology (OIML), of the International Organization of Standardization (ISO), of the International Eletrotechnical Commission (IEC) and of the Pan American Standards Commission (COPANT).
Classification of Standards
Panama's standards are the COPANIT. The body responsible for standardization is the Panama Commission of Industrial and Technical Standards (COPANIT, in Spanish), which is under the Ministry of Commerce and Industry and whose executive body is the DGNTI (Management of Standards and Industrial Technology). 
Online Consultation of Standards
Standards can be consulted on the DGNTI (in Spanish) (Directorate of Standards and Industrial Technology, link in Spanish) website, the executive body of the COPANIT (Panama Commission of Industrial and Technical Standards).
Certification Organisations
DGNTI (in Spanish) Directorate of Standards and Industrial Technology.

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Business Practices

General Information
Doing Business in Panama
Communicaid
Opening Hours and Days
Banks open Monday to Friday from 9 AM to 4 PM . They close at 12 PM on every last day of work of each month. Government offices are open Monday to Friday from 8 AM to 12 PM and 2 PM to 6 PM.

Offices are open Monday to Friday and sometimes Saturday from 8 AM to 12 PM and 1 PM to 5 PM.

Businesses are open from Monday to Saturday 9 AM to 7 PM.

Shopping centers are open every day from 10 AM to 7 PM.  Some Supermarkets are open around the clock every day.

 

Public Holidays

New Year January 1st
Martyrs' Day January
Carnival February-March
Ash Wednesday February (Wednesday First week)
Maundy Thursday and Good Friday End of March
Labor Day May 1st
Panama City, District of Panama and Province of Panama Foundation 14th August
Independence Day (From Columbia) November 3rd
Flag Day November 4th
Independence Day (From Spain) November 28th
Christmas 25th November
 
 

Periods When Companies Usually Close

Holy Week End of March, week before Easter
Christmas Holidays From December 15th to January 12th
 

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Latest Update: April 2022