If you want to incorporate in Panama, this article explains the tax laws for a Private Interest Foundation and a Corporation (SA) which are the most common offshore legal entities in Panama.
A Panama Private Interest Foundation may be instituted for the gain and benefit of individuals or a specific social purpose. A Foundation is a separate legal entity without requiring members or shareholders. It is established by a founder. The Founder may be a legal or natural person. Besides the Founder, a Foundation must have a Beneficiary and a Foundation Council (which is comparable to a board of directors), with the option to appoint a Protector who can supervise the Council. The assets held by Panama Foundations take on a separate legal identity from the personal assets of the Founder, the Protector, the Council, or the Beneficiaries. There is a minimum contribution required of US$ 10,000, but may not have to be paid up at time of registration.
Panama Private Interest Foundations are Tax-Exempt. Which means that they are not subject to any form of taxation. A Government US$ 400 annual fee may apply.
Panama foundations may not be able to engage in direct business or trade, but they may derive earnings from the disposal of assets as investments, sales, deposits…etc.
A Foundation may be used as holding entity, for asset protection (tangible or intangible), for confidentiality and privacy, estate planning, tax planning or philanthropic reasons.
The law does not require the disclosure of the ultimate founder, beneficiaries or protectors. And may be ordered by a nominee founder and Nominee member services.
Since January 1, 2017 a Private Interest Foundation is required to maintain accounting records along with its supporting documentation, for 5 years since transactions contemplated in such registries were done, but there may be no requirement to file them.
Another common Panama Legal entity is Sociedad Anónima (Corporation):
Panama taxes corporations on a territorial basis. This means that offshore income, from our research, and your results may vary, is not subject to taxation. This ranks Panama as 1st overall in terms of corp. taxation rate internationally. Income accrued within the country is subject to CIT at a flat rate of 25% .
The VAT rate in PA is 7.00%, which ranks Panama as 37th when compared to value added tax rate worldwide. In terms of other taxation, an employer will contribute 13.5% to the equivalent of a social security fund and an employee will contribute 9.75%. The overall complexity of the tax system is medium. This is measured by average time to comply with a country's labor tax requirements is as it is 144hours. Contributing to this is the number of yearly labor tax payments, which is 4 in PA.
Thin capitalization mandates are not in effect. This refers to any sort of requirements on given company with respect to debt-to-asset ratios. Distribution of dividends may be subject to a withholding tax of 10% on local-source profits and 5% on foreign-source profits (exports). However, a dividend withholding tax exemption may apply if company only earns foreign-source income. Dividends received are not subject to taxation. A dividend is a distribution of a portion of earnings of the legal entity, passed by the board of directors, to a particular class of shareholders. Dividends can be issued as cash payments, shares of stock, or other property.
Capital Gains derived from the sale of securities and negotiable instruments within Panama are taxed at 10%. Companies conducting its business outside Panama are not subject to Capital Gains Tax. A capital gains tax is levied on the profits that a corporation or natural person realizes when they sell sells a capital asset for a price that is higher than the purchase price.
Withholding tax on payments on dividends to non-residents is 10% for distribution of local-source income and 5% for foreign-source income (exports). If the entity’s shares are issued to a bearer, dividends may be subject to dividend tax of 20%. A dividends withholding tax exemption may apply for companies whose business activities are exclusively outside Panama. Interests paid to non-residents are subject to a withholding tax of 12.5%. Royalties remitted abroad are subject to a withholding tax of 12.5%.
There is no known tax on wealth in Panama. There are no known inheritance taxes. There are real property and real property transfer taxes. There are frequently implemented R&D initiatives that provide tax incentives in Panama.
The above is not tax or legal advice for your particular circumstances. We can refere you to a tax advisor in Panama who can answer all your questions. Contact us today. Ready to get started? Click incorporate now if you are in a hurry, or press the free consultation button above.
It takes approximately 83 hours to file and prepare documents for a Panama Common law.
The corporate tax is approximately 0% which is 1 in the world.
Owners of a company in Panama are not allowed to carry back a loss .
The vat rate in Panama is 7% which ranks 36 in the world.