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Panama - Income Tax
There are many who consider Panama to be a tax haven. As the tax system is fairly light when compared to those of some other countries it can be considered to be a haven in some ways, but there are different levels of income tax to be paid.
As with many other countries, income tax in Panama is calculated on a sliding scale. Those who earn less than $11,000 will pay no income tax at all, but once they reach this point income tax is charged at 15%, then rises to 25% once you are earning in excess of $50,000. There are no special allowances for expats apart from certain exemptions on duties and property taxes, but this depends upon the type of visa you have.
If you earn money in Panama you pay tax on it in Panama, but you will not be charged tax on money you earn in other countries if you are a temporary resident. If you are a permanent resident you may not be charged tax on this money if you can prove that you have paid tax on it in the country of origin. You can be taxed on a number of different types of income in Panama including wages, bonus payments, pensions, royalties, sale of stocks and bonds and trademarks.
An individual is considered to be a resident of Panama for tax purposes if they are in the country for more than 183 days of the tax year, which is the same as the calendar year. Those who are non-residents but who are working in Panama will have tax deducted from their salaries at a rate of 12.5%, but once you are considered to be a resident you pay tax at the standard Panama rate which is variable and depends on the amount of money that you earn.
There are deductions that can be made for essentials such as medical expenses, charitable donations, interest payments on home loans, school fees and other loans. Deductions on mortgage interest are applicable up to $15,000 per year, charitable donations of up to $50,000 per year and the total cost of any medical expenses which are not covered by insurance. A complete list of expenses which can be deducted is available from the Panama tax office and is supplied with the relevant tax return forms to aid with the completion.
Those who earn money from renting out property will pay tax at a rate of up to 27%, though this high rate is applied to amounts earned over $250,000. An exemption will apply if you invest your money in property in one of the ‘tourist’ zones of the country. Other property tax exemptions include those applied to those who are in the country on one of the retired persons programmes.
Most tax payers will have the tax amount deducted from their salary each month and in this instance there is no requirement for filing a tax return. Those who have more than one job or who are self employed will need to file a tax return. The closing date for filing returns is 15th March in the year after the tax year. Those who need extra time can make a request and may be granted an extension of up to 2 months. Those who fail to file a tax return may be fined and will be charged interest on any payments that are made late. Couples who need to file a tax return may do so jointly if they wish.
Those who are working in Panama should also take into account the fact that around 9% of earnings are also withheld by the employer as social security contributions.
Panama has already signed a tax treaty with France and there are several more with other countries which have yet to be ratified including Spain, Holland, Japan and Mexico. A tax treaty may mean that information on expats in Panama is shared with their home country, so that the correct tax bills can be issued on both sides.
The tax office in Panama is part of the Ministry of Economy and Finance. The site is in Spanish and there are no facilities for English speaking expats, although if you need assistance there are a number of English speaking accountants who can help you with translation of difficult terms and with the filing of the tax return. This may be advisable anyway in the first year or two while you learn your way around the Panamanian system.
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