Taxes for Operational Companies in Panama: Everything You Need to Know

Running a company in Panama involves understanding various types of taxes and fiscal obligations. These include:

• Income Tax (ISR): Companies must file an annual income tax return, paying taxes on the net profits generated.
• Value Added Tax (ITBMS): Similar to VAT, it is applicable to the sale of goods and services, with a standard rate of 7%, except for certain exemptions.
• Operation Notice Tax: This annual tax equals 2% of the company’s declared capital, with a maximum cap of $60,000 per year and a minimum of $100.
• Municipal Taxes: Companies that operate physically in local jurisdictions must comply with taxes imposed by the respective municipalities.

Additionally, there are sectoral or specific taxes depending on the nature of the company's economic activity.

Unlike annual taxes, monthly tax obligations require constant monitoring and strict compliance. The key ones are:

• ITBMS Payment: Companies registered for ITBMS must file and pay this tax monthly through the General Directorate of Revenue’s (DGI) e-Tax system.
• ITBMS Withholding: Companies acting as withholding agents must withhold a percentage of the ITBMS from transactions.
• External Remittance Withholding Report: Applies to companies making payments to foreign suppliers or contractors for services, subject to a 12.5% withholding on the gross amount.

Engaging a licensed public accountant can help ensure compliance with these obligations and avoid unnecessary fines or penalties.

Annual tax obligations are critical moments for companies in terms of documentation and financial reporting. These include:

• Annual Income Tax Return: Mandatory for all companies, it declares net profits and calculates the corresponding income tax.
• Transfer Pricing Report: Applies to companies with international transactions between related parties to prevent tax evasion.
• Presentation of Financial Statements: An essential requirement that must be signed by a licensed public accountant in Panama.

Accurate preparation of all accounting records is crucial to ensure compliance with these legal formalities.

In addition to standard taxes, companies must also consider the following:

• Real Estate Tax: Companies with real estate must pay this tax quarterly, based on the cadastral value.
• Social Security Fund (CSS) Contributions: Companies are required to contribute to the social security system, including employee deductions and employer contributions.
• Environmental and Additional Municipal Fees: Specific to certain commercial activities, such as restaurants or manufacturing industries.

These taxes vary depending on the company's operations and require tailored attention to ensure compliance.

Efficiently managing taxes and complying with tax obligations in Panama can be challenging, especially for foreign companies. Here are some practical tips:

• Hire a licensed public accountant: Having an expert in Panamanian accounting ensures proper tax preparation and filing.
• Use the e-Tax system: The Panamanian DGI platform makes it easy to declare and monitor your tax obligations.
• Plan financially: Reserve the necessary funds for your monthly and annual taxes in your cash flow projections.
• Stay up to date: Tax laws may change; make sure you're up to date to avoid penalties.

While tax obligations may seem complex, having the right support can make a difference.