Doing Business in Panama

Transcription

1 Doing Business in Panama

2 This guide has been prepared by Baker Tilly Panama, an independent member of Baker Tilly International. It is designed to provide information on a number of subjects important to those considering investing or doing business in Panama. Baker Tilly International is the world s 8 th largest network of independent accounting and business advisory firms by combined fee income, and is represented by 161 firms in 137 countries and 27,000 people worldwide. Its members provide high quality accounting, assurance, tax and specialist business advice to privately held businesses and public interest entities. This guide is one of a series of country profiles compiled for use by Baker Tilly International member firms clients and professional staff. Copies may be downloaded from Doing Business in Panama has been designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this guide may not be comprehensive and recipients should not act upon it without seeking professional advice. Facts and figures as presented are correct at the time of writing. Up-to-date advice and general assistance on Panama matters can be obtained from Baker Tilly Panama, contact details can be found at the end of this guide. November 2014

3 Contents 1 Fact Sheet 2 2 Business Entities and Accounting Companies Partnerships Branches Limited Liability Micro-Enterprises Audit and Accounting Requirements Filing Requirements 5 3 Finance and Investment Exchange Control Banking and Sources of Finance Investment Incentives and Restrictions 7 4 Employment Regulations General Employment Matters Visas Trade Unions 9 5 Taxation Corporate Income Taxes Personal Taxes Employment Related Costs and Taxes Withholding Taxes on Payments Abroad Indirect Taxes Other Taxes Tax Incentives for Businesses 15

4 2 1 Fact Sheet Facts and figures as presented in sections 1 through 4 are correct as at 25 November Geography Location: Area: Land boundaries: Coastline: Climate: Terrain: Central America 75,420km² Time zone: GMT -5 Colombia and Costa Rica Caribbean Sea and the North Pacific Ocean Tropical maritime; hot, humid, cloudy; prolonged rainy season (May to January) and short dry season (January to May) Interior mostly steep; rugged mountains and dissected, upland plains; coastal areas largely plains and rolling hills People Population: 3.86 million (January 2014 estimate) Religion: Roman Catholic 85%, Protestant 15% Language: Spanish (official) and English Government Country name: Government type: Capital: Administrative divisions: Republic of Panama Constitutional democracy Panama City 10 provinces and three indigenous territories Political situation The unicameral National Assembly has 71 seats. The Head of State and the Head of Government is the President, who is elected by popular vote to serve a five-year term. The cabinet is appointed by the President.

5 Doing Business in Panama 3 Economy GDP per capita: US$11,037 (2013) GDP real growth rate: 8.4% (2013) Labour force: 1,777,005 (2012) Unemployment: 4.1% (January 2014) Currency (code): Panamanian Balboa (PAB) alongside the US dollar (USD); pegged exchange rate 1:1

6 4 2 Business Entities and Accounting The company forms available in Panama include the corporation and the limited liability company. Other business forms include partnerships, limited liability micro-enterprises, and branches. 2.1 Companies Corporations A corporation (sociedad anónima) may be formed by two or more natural or legal persons, and one or more of them may be shareholders, directors, officers, manager, agents, or liquidators of the corporation. Corporations are separate legal entities. There is no minimum share capital requirement. Corporations are administered by the general meeting of shareholders, and by a board of directors. Corporations are required to be registered in the Public Registry of Panama (Registro Público de Panamá) Limited liability companies A limited liability company (sociedad de responsabilidad limitada) may be formed by two or more natural or legal persons. Limited liability companies are separate legal entities. There is no minimum share capital requirement, and contributions may be made in money, goods or services. Contributions in kind must be fully paid up on incorporation. The liability of partners is limited to the contribution amount promised or made. The company s articles of association may state that an annual general meeting is required. The company is managed by natural or legal persons appointed by the articles of association. Limited liability companies are required to be registered in the Public Registry. 2.2 Partnerships Under a general partnership (sociedad colectiva), the partners are jointly and severally liable for the obligations of the partnership. Under a limited partnership (sociedad en comandita), general partners are jointly and severally liable for the obligations of the partnership, whereas the liability of limited partners is generally limited to the amount of their contributions.

7 Doing Business in Panama 5 Under a partnership limited by shares (sociedad en comandita por acciones), general partners have unlimited liability for the obligations of the partnership, whereas the liability of limited partners is generally limited to the value of their shares. 2.3 Branches A foreign company may establish a branch in Panama by registering in the Public Registry and by submitting certain documentation. 2.4 Limited Liability Micro-Enterprises Natural persons may establish a limited liability micro-enterprise (microempresa de responsabilidad limitada) if all qualifying conditions are satisfied. Limited liability micro-enterprises must be incorporated with the Micro, Small and Medium-sized Businesses Authority (AMPYME). 2.5 Audit and Accounting Requirements Businesses are generally required to prepare financial statements that correctly reflect the operations of the business, and include a balance sheet, income statement, a statement of assets including changes in retained earnings, and a cash flow statement. Financial statements must be countersigned by an authorised public accountant if the business s capital or turnover exceeds set limits. Businesses with a commercial establishment in Panama are required to keep their accounting records in Spanish, and in the Panamanian Balboa or the US dollar. Supporting documentation and correspondence may be in the language in which it originates, but is required to be translated by a competent authority. Financial statements must generally be prepared using the International Financial Reporting Standards (IFRS). Companies listed on the stock exchange may alternatively use US Generally Accepted Accounting Principles (US GAAP). Small and medium-sized enterprises (as defined) may use the IFRS, IFRS for SMEs, or national standards. 2.6 Filing Requirements Financial statements must be prepared within 120 days following the closing date of the fiscal period and be made available to the competent authorities.

8 6 3 Finance and Investment 3.1 Exchange Control There are generally no foreign exchange controls. Transactions exceeding set limits, and suspicious transactions, must be reported to Panama s Financial Analysis Unit (Unidad de Análisis Financiero (UAF)). 3.2 Banking and Sources of Finance Panama has no official central bank. However the state-owned National Bank of Panama (Banco Nacional De Panamá) undertakes banking operations. The Superintendency of Banks of Panama (Superintendencia de Bancos de Panamá) regulates and supervises the banking sector. Commercial banks operating in Panama provide the majority of financial services. The Panama stock exchange (Bolsa de Valores de Panamà, S.A. (BVPA)) provides a marketplace for listing and exchanging securities. Venture capital investors provide investment in Panama.

9 Doing Business in Panama Investment Incentives and Restrictions For business related incentives, see 5.7. There are generally no restrictions on foreign investment in Panama; however, restrictions may apply in specific circumstances.

10 8 4 Employment Regulations For employment tax considerations, see General Employment Matters National employment standards Legislation provides minimum rights and conditions of employment in Panama, including maximum daily and weekly working hours, rest periods, public holiday entitlement, and paid annual leave entitlement. Employment contracts must generally be concluded in writing and be signed by both parties. There must be three copies; one for the employer, one for the employee, and one to be submitted to the relevant authority. A written contract of employment must include: Name, nationality, age, sex, marital status, address and identification number of the parties Names of dependent individuals living with the employee The work or services to be performed Place or places where the work or services are to be performed Duration of the contract or a statement that it is indefinite Duration and regular division of the working day Salary and date of payment Place and date of the conclusion of the contract, and Signatures or fingerprints of the parties. An employment contract may be terminated in certain circumstances, including mutual consent, end of the agreed term, completion of the work under the contract, resignation by the employee, or by a unilateral decision of the employer as permitted by legislation. An employer may generally only terminate an indefinite contract of employment where there is just cause; however, this does not apply in certain circumstances, including in respect of employees with less than two years continuous service. Justifiable reasons for an employer to terminate a contract of employment include reasons of a disciplinary nature, reasons connected with a failure by the employee, and economic reasons. Employers are generally required to provide employees with 30 days notice, or payment in lieu of notice. Employees may terminate a contract of employment by providing 15 days notice (two months notice for technical workers). If the

11 Doing Business in Panama 9 required notice period is not provided, the employee is required to make a payment to the employer. Employees are generally entitled to severance pay from their employer upon the termination of a contract of indefinite duration. Employers are generally required to maintain a workforce in which 90% of ordinary workers comprise of Panama citizens, Panama or foreign spouses, or individuals with at least 10 years of residence in Panama. Specialised or technical foreign staff may not form more than 15% of the total workforce. Permission from the relevant authority is required to alter these limits Pensions and other benefits Social security contributions (see 5.3.3) generally provide associated benefits. 4.2 Visas Citizens of certain countries do not generally require a visa to visit Panama. Visas available for entry to Panama include tourist visas and short-stay visas. For further information on Panama visa requirements, visit There are generally no restrictions on foreigners purchasing real property in Panama; however, foreigners may not purchase land within 10km of the Panama border. 4.3 Trade Unions One or more unions, federations, confederations, or confederations of workers may negotiate and conclude collective labour agreements with an employer, a group of employers, or one or more employers organisations.

12 10 5 Taxation Facts and figures as presented in section 5 are correct as at 25 November Corporate Income Taxes Resident and non-resident companies are generally subject to tax only on their Panama source income, so they are exempt from tax on income which is derived from outside of Panama. Terms of any relevant double tax treaty may apply if a tax residency certificate is provided to tax authorities. The standard corporate income tax rate is 25%. Companies in which the state has a shareholding exceeding 40% are generally subject to tax at the rate of 30%. Companies whose taxable income exceeds USD1.5m are generally subject to the greater of tax calculated by applying the standard corporate income tax rate to net income (as defined), or tax calculated by applying a rate of 4.67% to gross income (as defined). The authorities have discretion to grant exemption from CAIR for up to three years. Branches of foreign companies are generally subject to an additional branch profits tax (deemed dividend tax) of 10% on their after tax profits. Taxable income must generally include any taxable capital gains (ie those from business, industry, trade or agricultural activities), subject to alternative rates for certain gains and possible exemptions. Capital gains are generally taxed at a rate of 10% of the profit. If the withholding tax deducted by the buyer is a smaller sum the seller may elect for that to be the final liability. The withholding tax for real estate is 3% of the higher of the sale price and the value of the property in the public registry, and for securities it is 5% of the sale price. Capital gains which are not part of the taxpayer s business activities are generally subject to tax at the rate of 10%. For certain gains (ie in respect of real property or securities transfers) an advance withholding tax is payable (3% for real property and 5% for securities), which may be final, or the 10% capital gain may be assessed. Unutilised losses may generally be carried forward for five consecutive years, subject to a maximum of 20% of total annual loss. Carried forward losses cannot offset more than 50% of taxable income. Losses cannot be carried back. Group tax consolidation is not available in Panama; consequently losses cannot be offset against the profits of another company in the same group.

13 Doing Business in Panama 11 The tax year is generally the calendar year. Companies may request that a different 12 month period should apply. Tax returns are generally due for filing within three months of the end of the tax year. Companies may request an extended filing date. A corporate income tax advance for next year is calculated among current year, being payable in advance for next year in three installments on 30 June, 30 September and 31 December. Any remaining corporate income tax due is payable with the corporate tax return, and any excess payments are applied against future liabilities or refunded. 5.2 Personal Taxes Resident and non-resident individuals are generally subject to tax only on their Panama source income. Individuals are generally subject to tax on net income at the following rates: Taxable Income (USD) Tax Payable and Rate Up to 11,000 0% Over 11,000 50,000 15% Over 50,000 USD5,850 plus 25% on the excess Amounts paid for representation expenses are generally subject to withholding tax at the rate of 10% on income up to USD15,000, and 25% on income exceeding USD15,000. Capital gains which are not part of the taxpayer s business activities are generally subject to tax at the rate of 10%. For certain gains (eg in respect of real property or securities transfers) an advance withholding tax is payable (3% for real property and 5% for securities), which may be final, or the 10% capital gain may be assessed. Alternative rates may also apply to specific gains. There are no separate inheritance, gift or wealth taxes in Panama.

14 Employment Related Costs and Taxes Fringe benefits There is no separate fringe benefits tax. Unless specifically exempt, taxable benefits-in-kind form part of the taxable income of individuals and are subject to personal income tax Education tax Employers are subject to a 1.5% education tax on employee salary. Employees are subject to education tax at the rate of 1.25% Social security costs Employers are generally required to make social security contributions in respect of employees at the rate of 12.25% of employee salary. The employee contribution rate is 9.75%. An occupational accident insurance premium of up to 5.67% is required for employers. 5.4 Withholding Taxes on Payments Abroad The rates of withholding tax on the following payments made abroad to nonresident companies are generally: Rate Dividends 5%/10%/20% Interest Effective rate 12.5% Royalties Effective rate 12.5% (generally) For payments made to recipients in countries with which Panama has a double tax treaty, the rates of withholding tax may be reduced under the terms of the treaty.

15 Doing Business in Panama Indirect Taxes Transfer tax on movable goods and services (Impuesto sobre la Transferencia de Bienes Corporales Muebles y la Prestación de Servicios) is generally levied on the supply of goods and services in Panama, and the importation of goods. The standard rate is 7%. A 10% rate applies to public establishment accommodation services, and alcoholic beverages, and a 15% rate applies to tobacco products. Certain supplies are exempt, including exports, foodstuffs, medicines, and certain financial services. The registration threshold is average annual monthly income exceeding USD3,000, and average annual gross income exceeding USD36,000. Registered businesses can generally recover the tax with which they themselves are charged on their purchases of goods and services, subject to conditions and possible exceptions. 5.6 Other Taxes Stamp duty Stamp duty is generally levied on certain documents at the varying rates, subject to exemptions Immovable property tax An annual tax is generally levied on immovable property at progressive rates of up to 2.1%, subject to exemptions Immovable property transfer tax Immovable property transfer tax is generally levied on transfers of immovable property at the rate of 2% on the greater of the value as per the transfer deed, or the original cadastral value including improvements adjusted to current value by 5% per year Municipal tax Municipalities generally levy a monthly or annual tax on business turnover. Rates are variable and liabilities can range up to USD1,000 per month.

16 Operations notice tax An annual operations notice tax is generally levied on businesses at the rate of 2% of capital, subject to a minimum of USD100 and a maximum of USD60,000. Businesses are exempt from this tax if capital is less than USD10,000. For businesses established in a free zone, the rate is 1% of capital, subject to a minimum of USD100 and a maximum of USD50, Consumption tax Consumption tax is generally imposed on certain goods and services, including alcoholic beverages, tobacco products, jewellery, mobile phone services, and certain television services Minimum dividend tax Companies which distribute as dividends less than 40% of their post-tax earnings are charged a tax of 10% of the shortfall. The rate of dividend tax is increased to 20% for bearer shares Banks and insurance Additional taxes may apply to licensed banks and insurance companies.

17 Doing Business in Panama Tax Incentives for Businesses Free zones Business established in a free zone in Panama benefit from incentives, including exemptions from corporate income tax, import duties, and transfer tax on movable goods and services. Companies which are licensed as multinational headquarters are exempt from tax on profits from services provided to non-resident entities provided they themselves do not derive income from sources in Panama Other incentives Incentives are available to certain other businesses, including those in the tourism and agricultural industries.

18 Baker Tilly Panama José Rafael Reyes Partner T: +(507) Danilo Peña Segovia Tax Manager T: +(507)

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