Panama: Beneficial tax rates available for new form of legal commercial entity
Panama: Beneficial tax rates available
Law No. 186 (2 December 2020) provides for a new form of a legal commercial entity.
The creation of this new entity—Sociedades de Emprendimiento (SE)—is intended to provide opportunities for those seeking to engage in business activities in Panama and specifically for the creation of innovative processes, products or services. The formation of business entities as an SE, thus, is intended to allow for the creation of new business opportunities without having to engage in complex legal procedures (and incur the related costs).
With regard to taxation, the tax treatment of SEs is more beneficial than would apply for other types of corporate structures.
- There is an exemption from income tax during the first two years of operation (measured from the date of registration in the Public Registry of Panama).
- There is relief from the requirement to use “tax printers” (impresoras fiscales).
- There can be reductions of up to 50% of import customs duties on imports of inputs and raw materials for the creation of innovative products, services, or processes.
- Contributions made to the SE by individuals, up to a maximum amount of ten thousand balboas (B / .10,000) per tax year, may be a deductible expense.
These tax benefits have a maximum duration of two years from the date of the SE’s registration in the Public Registry. Once the two-year period has elapsed, the SE will be subject to the payment of income tax and the single annual fee, and will be required to use tax printers.
The requirements to establish an SE include that it be formed by two to five individuals (natural persons), of any nationality, if domiciled in Panama are required. The law strictly prohibits a natural person from being part of another existing SE; however, the members of the SE can belong or be a participant in any other type of legal entity. Among the differences between an SE and a standard public company are the following:
- SEs do not require a resident agent (as does a public company)
- There is a maximum gross income limit for SEs of one million balboas whereas a company does not face an income limit. If an SE were to realize income greater than In the event that an Entrepreneurship Company obtains income greater than one million balboas, it would be required to transform itself into another type of legal entity within six months.
- The participants in the SE can only be natural persons (whereas participants in a company can be legal persons)
- There is a two-year exemption from payment of the annual fee for SEs (whereas companies are subject to an annual payment of three hundred balboas (B / .300))
Among the requirements for SEs are that they:
- Maintain a register of participations and minutes (either physically or digitally)
- Issue an electronic invoice for all the provision of services or sales of goods that they conduct
- Must digitally record all income and expenses of the SE annually and must prepare financial statements to be submitted annually
Read a December 2020 report (Spanish) prepared by the KPMG member firm in Panama
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