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Other Taxes

Panama - Other Taxes

Despite the view that Panama is a tax haven there are a number of different taxes in place in addition to income tax. These are varied and not all will apply to everybody but if you are buying or selling anything of value you should be aware of the potential tax bill that may follow.

VAT is applicable in Panama and is applied to most services. The standard rate of VAT is 7% but there are also higher rates in force. A rate of 10% on accommodation and alcoholic products and a rate of 15% on tobacco products are also in force. There are VAT exemptions for a number of products and services such as food, medicines, crude oil and medical services. There is also an exemption for items which are exported to other countries. Those who are liable to pay VAT to the government need to file returns on a monthly basis.

There are several types of taxes which are not applicable in Panama. These include wealth taxes and inheritance taxes. However, there are a number of different rates on property tax. When a property is sold a transfer tax must be paid. This is at a rate of 2% of the sale value of the property or the registered value of the property, whichever is the highest figure. This amount is paid by the person selling the property. Further taxes are then levied on properties. The real estate tax is based on the official value of the home and the rate that is applied is between 1.75% and 2.1%. Properties which are valued at below $30,000 are exempt from this tax and this can be paid in three instalments, usually at the end of April, August and December.

Some urban areas may also impose a local tax. This is set locally and may not apply to everybody as the criteria for each one is different. Not all areas will do this, so some local research may be needed first if you want to avoid this type of tax.

Those who are liable for capital gains tax will pay a standard rate of 10%. This may be levied on the proceeds of a sale of property, providing the person selling does not deal in property for a living. Those who buy and sell property as a business will be liable for higher rates of capital gains tax. This 10% is based on the net profit made on the sale of the property. The buyer of the property will withhold 3% of the high value of the property and pass this on to the tax department in Panama. The 10% of the profit is calculated when the sale is completed and if this is higher than the 3% then the seller can choose to leave the 3% as the tax. If it is lower the seller can request a refund of the difference between the two figures.

Capital gains tax is also applicable to the sale of securities. The buyer of the securities is instructed to withhold 5% of the agreed sale price and will pass this amount to the tax department. The person selling then calculates 10% tax on the profit. If the 10% is the higher amount then the seller can opt to leave the 5% as the tax. If the 5% is the higher amount then the seller can request a refund of the difference.

Even though inheritance tax is no longer in effect, there are still taxes which are applied to gifts of property which is held in Panama. The rates that apply will depend upon the relationship between the person giving the gift and the recipient. These taxes are not applied to any property or monies which are held outside the country, but you may find that you are taxed in that country instead, so you need to familiarise yourself with their laws too.

Stamp duty is another tax which is payable on certain documents, for example, contracts. These are based on the value of the documents and this may be applied to a number of goods or services which are not liable for VAT. The rate for stamp duty is currently 0.001 for each PAB.

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