Corporate Income Tax in Panama: A Comprehensive Guide
Panama's corporate income tax system is designed to foster economic growth and attract foreign investment. The tax framework is governed by the Tax Code, which outlines the calculation methods, applicable tax rates, definitions of taxable income, exemptions, and legal provisions governing these elements.
Calculation of Corporate Income Tax
Corporate income tax liability is determined by applying the applicable tax rate to the taxable income. Taxable income is calculated by subtracting allowable deductions and exemptions from the gross income of the corporation. The steps involved in determining tax liability include:
- Determining the gross income of the corporation from all sources, including business activities, investments, and other revenue streams.
- Deducting allowable expenses, such as costs of goods sold, salaries, depreciation, and interest payments, to arrive at the net income.
- Applying the applicable tax rate to the net income to calculate the corporate income tax liability.
Applicable Tax Rates
Panama has a territorial tax system, meaning that only income generated within Panama is subject to taxation. The corporate income tax rate is a flat 25%. However, certain industries and activities may be eligible for reduced tax rates or exemptions.
Taxable Income
Taxable income for corporations in Panama includes all income derived from business activities, investments, and other sources within the country. This includes:
- Profits from the sale of goods or services
- Interest income
- Dividend income
- Rental income
- Royalties
- Capital gains
Exemptions
Certain types of income are exempt from corporate income tax in Panama, including:
- Dividends received from other Panamanian corporations
- Interest income from certain government bonds
- Income from the export of goods and services
- Income from certain tourism activities
These exemptions are designed to promote investment, encourage economic growth, and attract foreign capital to Panama.
Legal Framework
The legal framework for corporate income tax in Panama is primarily governed by the Tax Code (Ley 8 of 2010). Specific articles and sections relevant to corporate income tax include:
- Article 695: Defines the taxable income of corporations.
- Article 696: Provides for deductions allowable from taxable income.
- Article 700: Specifies exemptions from tax on certain types of income.
- Article 701: Establishes the corporate income tax rate.
These provisions aim to provide a clear and comprehensive framework for the calculation, assessment, and collection of corporate income tax in Panama.
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