In Panama, with the sanction of Law 189 of December 17, 2020, the Tax Code is reformed and a special income tax regime is created applicable to micro, small and medium-sized enterprises, businessmen and entrepreneurs.
How much will be the tax to pay according to Law 189?
If the total income is, in the case of legal persons:
• up to B /. 11,000.00, the tax payable on the net taxable income will be 7.5%;
• of B /. 11,000.01 to B /. 36,000.00, you will pay 10%;
• of B /. 36,000.01 to B /. 90,000.00, 12.5%;
• of B /. 90,000.01 to B /. 150,000.00, 15%;
• of B /. 150,000.01 to B /. 350,000.00, 20%;
• and B /. 350,000.01 to B /. 500,000.00, you will pay 22.5%. In addition, they are exempt from the complementary tax.
In the case of natural persons, you will pay as net taxable tax in this way:
• Income of up to B /. 11,000.00 the tax payable on the net taxable income will be 0%;
• of B /. 11,000.01 to B /. 36,000.00, you will pay 7.5%;
• of B /. 36,000.01 to B /. 90,000.00, 10%;
• of B /. 90,000.01 to B /. 150,000.00, 12.5%;
• of B /. 150,000.01 to B /. 350,000.00, 17.5%;
• of B /. 350,000.01 to B /. 500,000.00, you will pay 22.5%.
• of B /. 500,000.01 to B /. 500,000.01 will pay 25% of the net taxable income.
• of B /. 1,500,000.01 onwards, will pay 25% of the net taxable income or 4.67% of the total taxable income.
To enjoy these benefits, natural or legal persons must be registered in the AMPYME Business Registry; Legal persons may not be the result of the division of a company into several legal persons, that is, affiliated, subsidiary or controlled by other legal persons. Nor will it apply to those who receive gross annual income that exceeds half a million Balboas. The shares or participation quotas of legal persons considered micro, small and medium-sized companies must be nominative and their shareholders or partners, natural persons.
A. How is taxable income calculated?
Taxable income is the result of subtracting foreign source income and exempt income from gross income.
B. Tax deductions
Those costs incurred by the company that by their nature serve to generate income or to maintain the business may be deducted as expenses. These expenses considered as deductible in the income statement must be duly documented and can only be deducted in the same fiscal year in which they occurred.
C. Exemption from taxes on interest.
In the following assumptions, the interest income detailed below is exempt from taxation, and therefore is considered non-taxable income.
• Interest on savings from checking accounts and term bank accounts in banks licensed in Panama.
• Interest on debt securities duly registered with the National Securities Commission and listed on the stock market.
• Non-resident lenders and financial institutions that receive interest and commissions paid by Panamanian banks or for the construction of houses are also tax-free.
Concepts to keep in mind to understand ISR
• Tax residence: a company is considered tax resident if it is incorporated in Panama or if its main activity lies there.
• Tax base: Panama operates with a territorial tax regime, this means that both resident and non-resident companies have to pay taxes on the income generated in the country.
• Taxable and non-taxable income:
The only taxable income are those located within Panamanian territory: all sales of products or services to persons, entities or companies in Panama are considered a source of income for Panama.
On the contrary, all those income or sales made outside the country will be considered as exempt from the tax point of view.
• Two examples of taxable income: those obtained from the lease or sale of real estate in Panama and the commissions and interest accrued on loans that finance businesses in Panama.
• Examples of non-taxable goods: there is a special regime for “call center” type businesses that exempts their income from income tax, businesses that bill products that are not consumed or enter Panama are not taxable, as are the income received by those companies that facilitate commercial activities outside of Panama