Offshore Tax Summaries
Personal income tax in the Republic of Panama is based on a sliding scale which ranges from a minimum of 7% after the first $9,000, to a maximum rate of 27%. Regardless of the expatriate's residency status, the tax is only applied to Panamanian-sourced income. Taxable income includes wages and salaries, other business profits, pensions/bonuses, income from copyrights, royalties, trademarks, stock sales, bonds, and securities. Deductions may be made on all medical expenses that may be incurred in Panama, all donations made to charities, interest paid on home mortgages, education expenses, and loans for home improvements.
Panama is renowned for its light tax burden. If an expatriate qualifies for Panama's pensionado program (a "retiree" may be as young as 19 years of age), he is entitled to a one-time exemption of duties on the importation of household goods, and an exemption, every two years, of duties on the importation or local purchase of a car.
If he chooses to either buy or build a new house, he won't pay property taxes for up to 20 years, nor will he pay taxes on foreign-earned income. In 1994, Panama passed Law No. 8, one of the most modern and comprehensive law for the promotion of tourism investment in Latin America and the Caribbean. Since the law was enacted, dozens of the world's largest hotel chains swept in to take advantage, including Marriott, Radisson, Holiday Inn, Sheraton, and the Intercontinental. But Panama's attractive tourism investment laws are not just for big business. With a minimum investment of $50,000 anywhere in Panama's interior the expatriate can benefit from:
A 20-year exemption of any import taxes due on materials, furniture, equipment, and vehicles.
A 20-year exemption on real estate taxes for all assets of the enterprise.
Exemption from any tax levied for the use of airports and piers.
Accelerated depreciation for real estate assets of 10% per year.
The investment amount does not include the price of the land. For projects in the metropolitan area, the minimum investment requirement is $300,000.
Personal income tax in Panama is based on a sliding scale that ranges from a minimum of 7% after the first $9,000, to a maximum rate of 27%. For temporary residents, the tax is only applied to Panamanian-sourced income.
Real estate transfer taxes in Panama are paid by the seller, and are 2% of either the updated registered value of the property or the sale price, whichever is higher. The updated value is the registered value, plus 5% per annum of ownership. If the property is bought by a corporation, it is customary for the shares of the company to be sold (instead of the property), thus eliminating the need to pay transfer tax.
Panama completely abolished all Inheritance taxes. Despite this, taxes on gifts (inter vivos) of properties located in Panama are in effect, and the rate depends on the degree of relationship between the donor and the donee. This does not apply to property owned outside of Panama.
Rental income tax
If anyone receives rental return on his property, he will be liable for income tax up to a maximum of 27% (on returns greater than $250,000). However, if he invests in one of the special "tourism zones," he may be exempt from income tax for 15 years.
Properties having a registered value of $30,000 or lower do not pay property tax. For properties of a higher value they pay as follows:
1.75% from $30,000 to $50,000;
1.95% from $50,000 to $75,000; and
2.1% for any property value above $75,000.
If the expatriate buys or builds a residential property in Panama, he may be exempt from property taxes for up to 20 years, if the construction permit is issued by September 1, 2006 and the occupancy permit issued and improvements registered by September 1, 2007. On homes or apartments where the construction permit is issued after September 1, 2006 the following exemptions will apply:
Value up to $100,000: 15-year exemption
Value from $100,000 to $250,000: 10-year exemption
Value over $250,000: 5-year exemption
The exemption is transferable during the exemption period to any new buyer. The land itself is not exempted and would continue to incur property tax, if its value were above $30,000.
Capital gains tax
Capital gains are included in the annual tax return and are taxed at whatever level the individual is being assessed for income tax. Unless the expatriate owns the property for a minimum of two years and he is not in the business of selling and buying property, he may choose to pay a flat 10% of the gross profit.
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