Tax Incentives

Tax Incentives

In Panama, foreign and domestic investors can benefit from a series of tax incentives in various commercial areas within which we can mention the most relevant:
Colon Free Zone: Through Decree Law No. 18 of 17 June 1948, created the Colon Free Zone as an autonomous entity of the Panamanian State, within its own tax incentives in this region is important to refer business the following:

1. It is a zone free from paying any tax, contribution, tax, national, provincial.
2. All goods or other goods or negotiable entering free trade areas that owns or operates the Colon Free Zone, at all times be exempt from paying taxes, levies and other fiscal contributions, national, provincial or any other denomination, both by introducing them to such areas as their stay within them.

Export Processing Zones:
The scheme was established by Act 25 of 1992, it has lots of tax incentives such as:
1. Promoters and operators will be exempt from all national taxes.
2. Firms in export processing zones can be transferred free of liens and up to six months, semi processed raw materials to companies located outside the processing areas themselves.
3. Dividends and interest coming from securities issued by the promoters or operators in a processing zone for export are exempt from any kind of national duty.
4. On the other hand there is a special immigration regime joined the tax, which allows foreigners to be to work within a zone of this type, obtain a permanent resident visa, in that sense foreigners in this condition must be satisfied that have invested amount not to exceed B/.250.000.00 as a promoter or operator within a processing zone for export.

Call Centers:
Through Act No. 54 of 2001 provides that natural or legal persons that have a grant from the Regulatory Authority for Public Services for the provision of call center service for commercial use (Call Centers) for export may be eligible for the benefits granted by Law 25 of 1992, which establishes a special regime for the establishment and operation of export processing zones.
Special Conditions for the operation of Special Economic Area Panama-Pacific:
Law 41 of July 20, 2004 regulates the creation of this special area, which also enjoys a number of tax incentives to investors, those who went on to detail:
1. Exemption from any tax, contribution, levy or import duty on all types of goods, products, equipment, services and other general goods brought into the Panama-Pacific area, including, without limitation, raw materials, fuels and lubricants , artifacts, supplies and spare parts introduced into the Panama-Pacific area.
2. Tax exemption on the transfer of physical movable and Servicing of all types or classes of goods, products, equipment, goods, services and other general goods brought into the Panama-Pacific area, and any tax, fee or the right to provide services.
3. Exemption from payment of commercial or industrial license
4. Exemption from stamp duty
5. Exemption on commercial and industrial improvements, property tax on land and improvements.

Tourism Activity:
Law 8 June 14, 1994 regulates the promotion of tourism in Panama, in that sense, this standard gives a number of tax incentives that favor the investors in this activity, within which we can mention the following:

1. Those who invest in the construction, equipping, rehabilitation and development of public accommodation establishments, excluding land, for a minimum value of B /. 300.00.00 in the area of the city of Panama and B /. 50,000.00 in the rest of the country will enjoy the following exemptions:
a) Exemption from tax, business license
b) Tax charges for the use of docks, airports, heliports owned, built or rehabilitated by the company
c) Exemption of income tax caused by the interest earned by creditors in a loan for investment in tourist establishments.
d) Companies that invest in the development of construction activity, will be taxed at the income tax, with option to depreciate the property at a rate of 10% per year on improvements.
2. Those companies involved in tourism public transport at airports, docks and hotels, enjoy exemption from import tax for vehicles only introduced to develop such activities.
3. The yachts that visit the ports of Panama, shall enjoy an exemption on all taxes, fees and duties, provided their stay does not exceed 90 days.

Old Town:
This incentive was created by Decree Law No. 9 of 1997, a group that creates incentives for the restoration of Monumental Old Town of Panama City, in that sense, the main tax advantages in this type of activity are:
1.The investor may deduct as expenses on income tax to pay, any amounts invested in the construction, remodeling, improvement of parks, and other walls that are within the Monumental Heritage and treated.
2. The owners of buildings or buildings located in Old Town that have been rebuilt or restored, will be exempt from income tax for a period of ten years from the issuance of occupancy permit and based on profits derived lease or sell the same goods.
3. Both banks and other financial business company may grant loans under preferential interest rates to restore property located within the monuments of our city’s Old Town. In this sense, the lenders will receive a tax credit equal to the difference between the income which it received the bank or financial institution if it had granted the loan to the normal interest rate.

The incentive for reforestation activity is contained in Law 24 of November 23, 1992, regulated by Executive Decree No. 89 of June 8, 1993.
Reforestation is the planting of diverse species within an area in which there is no vegetation within its own tax benefits of this activity are the following:

1. Exemption from income tax
2. Tax credits derived from forest preferential loans
3. Property Tax Exemption
4. Import Tax Exemption.

City of Knowledge (Ciudad de Saber):
This area is a region composed of research groups and international technology, it was created by Act 6 of 1998, within the same we find the following incentives:

1. Tax exemption on the Transfer of Goods and Services Delivery (ITBMS) on inputs required for the implementation of scientific and technological activities.
2. Exemption import tax on machinery, machinery, equipment and other, which is required for the development of their activities.

Oil: The oil market is regulated by Law 8 of June 16, 1987, activity related to exploitation of hydrocarbons includes a series of tax incentives, which we shall elaborate below:

1. Companies that adopt the system of hydrocarbons, will be exempt from paying income tax on profits from their activities during the first five (5) years of production or until full recovery of initial investment, whichever occurs first.
2. Thereafter the contractor shall pay an income tax and in lieu of all other taxes on income which is subject to the contractor as a result of its operations under this type of contract, twenty-five (25%) of net production hydrocarbons.
3. Companies benefiting from the provisions of Act 8 of 1987 by the conclusion of refining, transportation or storage, may benefit from a special regime for the depreciation of their property by applying the annual depreciation percentage that the contractor deems appropriate, up to twelve and a half percent (12.5%) of the value of their machinery and equipment, as well as other depreciable real or personal property, not exceeding the residual value thereof.
4. Companies operating within the oil system may benefit from a special regime of drag losses for purposes of payment of income tax, which is that the losses incurred during any year of operation may be deducted from the taxable income of the three ( 3) years following the year in which they occurred. The deduction may be made during any of the three (3) years or averaged for the same.

Petroleum Free Zones
The Cabinet Decree No. 36 of September 17, 2003, regulates the activity of oil-free zones in Panama, within these areas there is a special tax treatment, which we mention:

1. Not cause any tax, fee, fees, levies and other fiscal contributions by reason of the entry, export or re-export of crude oil and its derivatives, as well as inputs, raw materials, additives or additives, machinery, equipment, materials, parts, containers, packaging, equipment and other property subject to enter the Free Zone Petroleum.
2. Not cause any tax, including income tax, duties, levies and other contributions, due to the sale or delivery of crude oil, semi-processed oil or who entered such areas free of oil.

Property Tax:
This tax is regulated by the Fiscal Code of Panama, in that sense there are some exemptions to this tax, which includes the Law 50 of September 30, 2004, which we will list:

1. The improvements which the building permit is issued from September 1, 2005, are exempt from paying property tax from the date of issuing the occupancy permit, according to the following table:
a) Improvements for residential use
Value of improvements exemption Year Dollars
Until B/.100, 000.00 15
Over B/100.000.00 to B/.250, 000.00 10
Over B/.250, 000.00 5
b) Other improvements:
Value of improvements Years waiver Dollars Whatever its value 10

The improvements which building permits were issued before September 1, 2005, shall be twenty years of exemption in the payment of land tax, calculated from the occupancy permit, provided that the inclusion of the improvements in the Public Register be made before August 31, 2006.
In that sense the Law 50 of 2004 defines the term upgrades and other improvements as well:

Improvements for residential use:

Those that are constructed and intended for residential use, either single family, duplexes, multifamily, condominium or any other type or form, provided that its purpose is to meet housing needs in any sector of the country.

Other improvements:
The buildings that are built and allocated to the development of commercial, industrial, agribusiness, among others.
Property Tax Payment: Our Tax Code provides that property tax for each year may be paid in three (3) installments, as follows:

1. First installment: We must make no later than April 30 of each year
2. Second installment: We must make no later than August 31 each year
3. Third Odds should be performed no later than December 31 of each year
The Tax Code provides benefits for the taxpayers of this tax, carrying out advance payments of this tax, let’s see what they are:

1. Any payments made within the first two months of the first semester or within the first month of the second and third quarter, will benefit a 10% discount.
2. This benefit will be offered to taxpayers whose property will serve as a residence.
3. In the same case referred to enjoy the discount if payment is made within three (3) months of the year when the payment is for annuities.
* First quarter: January through April
* Second Semester: May to August
* Third Semester: September to December