The first fiscal amendment of the Juan Carlos Varela government was passed earlier this month on May 4, by Law 27 of 2015. Here are two important pointers of the fiscal reform:

1. TAXABLE INCOME PRODUCED IN PANAMA

Article 694 of the CF originally included as taxable income the income received by natural or legal persons whose domicile is outside the Republic of Panama; product of any service or act, documented or not, that benefits individuals or corporations, domestic or foreign, located within the Republic of Panama [this includes, but not limited to professional fees and income derived from copyright royalties, key factory or commercial trademarks, patents, know-how, technological and scientific knowledge, trade secrets], to the extent that such services have an impact on the production of income of Panamanian sources or its conservation and expenditure has been considered as deductible expenses by the person who received it.

Following the reform, it is now established as taxable income and therefore subject to withholding of Panamanian source income received by a non-resident of the Republic of Panama, paid or credited by:

  • Public entities (central government, autonomous, semi-autonomous entities, local governments, state companies or corporations in which the state owns 51% or more their actions);
  • Non taxpayers of income tax and/or;
  • Taxpayers who are currently in loss.

2. PAYMENTS RECEIVED BY NON RESIDENT TAX PAYERS

The reform revives and amends Article 733 -A to establish that payments of dividends, interest, royalties, fees or of similar nature made from the Republic of Panama to outside its territory, that are exempted of income tax withholding in virtue of any special law, such exemption won´t apply in cases where the final beneficiary of the payments can credit, on their country of residence, the taxes that would have been paid in Panama if such exemption would not exist.

In the event that the legislation of the beneficiary´s country of residence does not allow such accreditation, the Republic of Panama would recognize the exemption granted by the special regime, if the beneficiary proves conclusively by formal opinion of an independent expert in tax matters of the country of residence, in which certifies a tax credit recognition won´t be granted for the taxes paid in the Republic of Panama.

On cases were the credit is partial, the Republic of Panama will waive the percentage of income tax that the other country does not allow the beneficiary credited, as long as proven conclusively, by formal opinion of an independent expert in tax matters of their country of residence, in which certifies a tax credit recognition won´t be granted for the taxes paid in the Republic of Panama.