CENTRO FINANCIERO LÍDER MUNDIAL

Panama is fast becoming the country of choice for companies seeking to relocate their business interests and headquarters. Panama posses an efficient workforce, Spanish and English are widely spoken and a strong, transparent tax system have all contributed to the countries growth. 

The tax laws have their origins in the territorial tax system. Income is levied on income arising from domestic sources only. The country operates on a full imputation system, this is a system in which any income tax paid by a company is credited in part, or in full, to the shareholder upon a distribution of profits to avoid any double taxation of corporate profits.

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Under the territorial tax system, Panama tax laws establish different considerations depending if the source of the income is generated within or outside Panamanian territory. Income produced from any source within the territory of the Republic of Panama is subject to income tax. The income tax of Panama is levied only upon net income derived from operations within the territory of the Republic of Panama. Foreign source income, or income generated outside the Panamanian jurisdiction, is 100% exempted. Specifically, income derived from the following activities is not considered as produced within Panama, and therefore is tax exempt:
 

• Conducting  operations in another country from an office established in Panama.

• Directing from an office established in Panama, transactions which are executed, completed or effected outside Panama.

• Distributing dividends or participations, when such are derived from income not produced within the jurisdictional territory of the Republic of Panama, including the activities producing income in parts a) and b) above.
   

In practical terms, a company with an office and employees based in Panama does not pay any income tax, if it only performs international operations from Panama.

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Tax incentives

A variety of investment incentives provide lower tax rates or exemptions. The Howard (Panama-Pacifico Special Economic Area) regime provides for tax exemptions for offshore services; gains from the sale or transfer of shares of companies established within the area; income from the transfer of goods and services between companies within the area and other free zones; income from the sale of goods or services to visitors and passengers while in transit to other countries or to vessels crossing through the Panama Canal or aircraft using authorized ports to overseas destinations; income from aviation and airport services; income from the manufacture of high-tech products; and income logistics and call center services.

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In-bond manufacturing companies may import equipment and raw materials on a duty-free basis and subsequently export 100% of production, receiving a tax-free benefit. Such companies do not have to pay VAT on imports.

Based on the territoriality principle, gains derived from "re-invoicing" operations are deemed not to be derived in Panama, provided the merchandise being re-invoiced does not enter the Panamanian territory.

Headquarters from multinationals are exempt from income tax on services provided to nonresident entities that do not derive Panama-source income, from dividend tax and from Panamanian VAT on export services provided to nonresidents that do not generate taxable income in Panama. Foreign employees working in Panama for an MHQ are exempt from income tax on their wages and other remuneration that is not paid by the MHQ.

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A variety of tax incentives are granted to encourage investment in new projects and activities relating to tourist facilities, including an exemption from income tax, property tax, import taxes and other taxes, depending on the amount of investment and location. The incentives will expire between 2016 and 2020. Incentives also are available in the Petroleum Free Trade Zones, Colon Free Trade Zone, etc.