In Panama, employers face several tax obligations and payroll responsibilities.
Employer Taxes
- Social Security: Employers contribute 12.25% of each employee's salary. There is no cap on the taxable amount.
- Educational Insurance Tax: Employers contribute 1.5% of each employee's salary. There's no maximum taxable amount.
- Workers' Compensation Insurance: Rates vary based on the industry's risk classification, ranging from 1% to 7% of the employee's salary. The employer pays the full amount.
Employee Deductions
- Social Security: 9.75% of the employee's salary is withheld. There is no cap on the taxable amount.
- Educational Insurance Tax: 1.25% of the employee's salary is withheld. There is no maximum taxable amount.
- Income Tax: Withheld based on a progressive scale ranging from 0% to 25%.
Corporate Taxes
- Corporate Income Tax (CIT): The standard rate is 25% of net income.
- Estimated Tax Payments: Payable in three installments—June, September, and December—with a final payment due with the annual return (within 90 days of the fiscal year-end, with a possible one-month extension).
- Branch Remittance Tax: 10%, added to the standard CIT rate.
- Capital Gains Tax: Generally 10%. Specific rules apply to real estate transactions, including a possible 2% real estate transfer tax and a 3% advance income tax payment.
Tax Administration and Compliance
- Tax Year: January 1 to December 31.
- Payroll Reporting: The List of Employees and Wages Earned (Payroll 03) report is due by May 31 of the following year.
Other Employer Obligations
- Minimum Wage Compliance: Adhere to Panama's established minimum wage laws.
- Overtime Pay: Comply with regulations regarding overtime calculations and payments.
- Paid Time Off: Provide legally mandated vacation time, sick leave, and holidays.
- 13th Month Bonus: An additional month's salary is customary and often required by law or collective bargaining agreements.
Please note that this information is current as of today, February 5, 2025, and might change due to legislative updates or other factors.
In Panama, both employers and employees have tax obligations, including income tax, social security contributions, and educational insurance tax.
Income Tax
Income tax in Panama is levied on both residents and non-residents, with rates dependent upon income levels. The first US$11,000 of annual income is tax-exempt. Earnings between US$11,000 and US$50,000 are taxed at a 15% rate. Any income exceeding US$50,000 is taxed at 25%. As of today, February 5, 2025, these figures are current, but are subject to change.
- Deductions: Married couples filing jointly can deduct US$800. Mortgage interest payments on Panamanian properties are deductible up to a maximum of US$15,000 annually.
Social Security Tax
Social security tax is a key component of Panama's social safety net, covering welfare, healthcare, and other programs. Both employers and employees contribute to this system based on the employee's remuneration. Please note that while this information is believed accurate as of today, rates and regulations can change.
- Employee Contribution: Employees contribute 9.75% of their gross salary.
- Employer Contribution: Employers contribute 12.25% of the employee's gross salary.
Educational Insurance Tax
This tax supports Panama's public education system. Employers withhold a portion of the employee's salary and contribute an additional percentage.
- Employee Contribution: Employees contribute 1.25% of their salary.
- Employer Contribution: Employers contribute an additional 1.5% on top of the employee's contribution.
Other Taxes and Considerations
- Value Added Tax (ITBMS): Panama has a Value Added Tax (ITBMS) of 7%, which increases to 10% for alcohol and hotels, and 15% for tobacco.
- Real Property Tax: Property owners in Panama are subject to a real property tax, with rates ranging from 1.75% to 2.1% of the property's assessed value.
- Capital Gains Tax: The transfer of real estate and securities is subject to capital gains tax. Specific rates and regulations vary depending on the nature of the transaction.
- Withholding Tax: Panama employs a withholding tax system on certain payments, such as dividends, interest, royalties, and technical service fees.
It is important for both employers and employees to remain up-to-date on the latest tax regulations in Panama. Consulting with a tax professional is recommended for personalized guidance.
In Panama, the Value Added Tax (VAT), known as ITBMS (Impuesto de Transferencia de Bienes Muebles y Servicios), is levied on the sale of goods, provision of services, and imports.
VAT Rates
- Standard Rate: 7% applies to most goods and services.
- Higher Rates: 10% on alcoholic beverages and hotel accommodations; 15% on tobacco products.
- Zero Rate: 0% applies to exports, certain food items, medicines, and pharmaceuticals. Exporters can recover ITBMS paid on inputs.
Registration
- Threshold: Businesses whose annual gross income surpasses US$36,000 must register for ITBMS.
- Non-Resident Businesses: No threshold exists; registration is mandatory upon conducting any taxable supply in Panama.
Filing and Payment
- Frequency: Monthly filings are required for most businesses. Professionals providing services may opt for quarterly filings with approval from the tax authority.
- Deadline: ITBMS returns and payments are due by the 15th day of the month following the reporting period.
- Method: Filing and payment methods are through both paper and online submissions after applying and receiving a NIT ID for online tax procedures.
Exempt Goods and Services
Certain goods and services are wholly or partially exempt from ITBMS. Partially exempt supplies often do not allow for input ITBMS recovery.
- Full Exemptions: Exports, basic food items, medicine, newspapers, fuels (excluding oils and lubricants). Educational materials like books, notebooks, and pencils. Transactions within free zones and some bonded warehouses.
- Partial Exemptions: Healthcare, education (other than listed exempt supplies), electricity, insurance, and financial services.
VAT Withholding
Panama utilizes a withholding system in certain situations. Government entities and large taxpayers (annual taxable purchases exceeding US$5 million) act as withholding agents. These withholding agents are responsible for deducting a percentage of the ITBMS on their supplier's invoices and remitting it directly to the tax authorities, specifically 50% of the ITBMS amount invoiced.
Invoicing
- Requirements: Paper-based invoices are mandatory, including the supplier's and customer's details, tax numbers, supply date, unique invoice number, description, converted amounts (if in foreign currency), VAT rate, amount charged, and gross amount.
- Electronic Invoicing: E-invoicing is currently not mandatory but is recognized as a valuable tool and under consideration for the future.
- Statute of limitations for ITMBS: Five years from the last day of the month the tax was due.
- Taxpayer ID (RUC): Upon registration, businesses receive a unique tax identification number (RUC - Registro Único de Contribuyentes), crucial for all tax-related activities.
Note: This information is current as of February 5, 2025, and might be subject to changes in Panamanian tax regulations. Consulting with a tax advisor is recommended for specific situations.
Panama offers a range of tax incentives designed to attract investment and stimulate economic growth. These incentives vary depending on the specific industry, location, and activity.
Corporate Tax Incentives
- EMMA Regime: Companies with an EMMA license operating in designated special economic areas benefit from a preferential 5% corporate income tax rate on relevant activities.
- Free Zone Regime: Businesses in designated Free Zones, such as the Colon Free Zone, are exempt from income tax on profits generated from sales to foreign countries.
- Panama Pacifico Special Economic Area: Law 41 of 2004 offers tax benefits, including exemptions from indirect taxes (import duties, transfer of movable property, provision of services, etc.) and some direct taxes for specific incentivized activities. Incentivized activities include headquarters and services for multinational companies, back-office operations, call centers, data processing and digital information services, and research and development.
- Ciudad del Saber (City of Knowledge): Companies operating within this area are exempt from income tax, import duties, and ITBMS (Value Added Tax).
- Multiregional Headquarters Regime (SEM): Law 41 of 2007 provides tax benefits, including exemptions for both the company and foreign employees working exclusively for the SEM entity.
- Tourism Incentives (Law 122 of 2019, extended until December 31, 2025): Investors developing tourism products are eligible for tax credits. This includes promoting construction of marinas, docks, airports, and facilities for medical tourism and outdoor activities. Benefits include import tax exoneration for construction products (up to five years) and operational products (up to ten years), tax exoneration on hotel buildings (up to 15 years), tax exoneration on investments in airports and docks (15 years), rent tax exonerations, and others.
Other Tax Incentives
- Agriculture: Income from agricultural activities is exempt from income tax if annual gross income is less than USD 350,000.
- Small Businesses: Small businesses (excluding those requiring a commercial operating license) are exempt from dividend and complementary taxes.
Tax Exemptions and Reduced Rates for Specific Activities
Certain activities may qualify for exemptions from income tax, Value Added Tax (ITBMS), and other taxes, as well as reduced dividend tax rates.
Territorial Tax System
Panama operates a territorial tax system. Income earned outside of Panama is generally not subject to Panamanian income tax, making it attractive for international investors and businesses.
Please note that this information is current as of February 5, 2025, and may be subject to change. It is essential to consult with a tax advisor for the most up-to-date and specific information regarding Panamanian tax incentives.