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Panama: Tax incentive amendments for Panama-Pacific special economic zone

Panama: Tax incentive amendments, special economic zone

The rules for tax incentives for companies established in the Panama-Pacific special economic zone have been amended.

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Ley No. 66 of 13 December 2018 includes changes to the Panama-Pacific special economic zone (Área Económica y Especial Panamá-Pacífico), such as:

  • A modification of the incentives by replacing the concept of the “provision of services” with “office administration services” (including such items as management and support of operations, strategic planning services, business development, personnel training, control of operations, technical assistance and technical support, market logistics among others). Companies that have been registered in the Panama Pacific special economic zone for more than 10 years and that have been dedicated to the provision of such administrative services to persons outside of the territory of Panama, may request to be qualified as companies dedicated to the provision of "office administration services.” There are options for companies with less than 10 years of being registered in the “Panama Pacifico” but registered as companies that provide services to natural or legal persons abroad and / or office administration services. 
  • A change to the tax incentive regime so that office administration services will be taxed at a reduced rate of 5% of their net taxable income, both for services rendered abroad and those provided within the territory of the Republic of Panama. Also, a foreign tax credit may be available for income tax paid abroad. Individuals or legal entities that benefit from the services offered by companies in Panama Pacifico must withhold tax at a rate of 5% or remittances, provided that the services affect the production of income and are treated as deductible expenses by the person who received them. The effective tax rate cannot be reduced to less than 2% of the taxable income generated in the Republic of Panama.
  • A modification concerning an exemption from tax on the transfer of movable personal property and the provision of services (ITBMS) for services provided by companies in the Panama-Pacific special economic zone to all persons, whether established inside or outside Panama. The effective date of this measure is 1 January 2019. 
  • New substance requirements for companies to be eligible for tax incentives for certain activities such as multimodal and logistic services, office management services, call center services and capture services, processing, and data storage. The requirements include items such as having an adequate number of qualified full-time workers and incurring an adequate amount of operational expenses in Panama. 
  • Reporting requirement are updated, and companies that have registered before 17 October 2017, will have until 1 July 2021 to comply with the new requirements, whereas companies registered as of 17 October 2017 or later must comply with these reports as of 1 January 2019.

 

Read a January 2019 report (Spanish) prepared by the KPMG member firm in Panama

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