panama 2011 vat gst essentials

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PanamaCountry VAT/GST Essentials

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b | Panama: Country VAT/GST Essentials

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

Panama:Country VAT/GST Essentials

Contents

Scope and Rates 2

What supplies are liable to VAT? 2

What is the standard rate of VAT? 2

Are there any reduced rates, zero rates, or exemptions? 2

Registration 4

Who is required to register for Panamanian VAT? 4

Are there penalties for not registering or late registration? 4

Are there any simplifications that could avoid the need for an overseas company to register for VAT? 4

VAT Grouping 4

Is VAT grouping possible? 4

Can an overseas company be included in a VAT group? 4

Returns 5

How frequently are VAT returns submitted? 5

Are there any other returns that need to be submitted? 5

VAT Recovery 5

Can I recover VAT if I am not registered? 5

Does your country apply reciprocity rules for reclaims submitted by non-established businesses? 5

Are there any items that you cannot recover VAT on? 5

International Supplies of Goods and Services 6

How are exports of goods and services treated? 6

How are goods dealt with on importation? 6

How are services which are brought in from abroad treated for VAT purposes? 6

Invoices 7

What do I have to show on a tax invoice? 7

Can I issue invoices electronically? 7

Is it possible to operate self-billing? 7

Transfers of Business 7

Is there a relief from VAT for the sale of a business as a going concern? 7

Options to Tax 8

Are there any options to tax transactions? 8

Head Office and Branch Transactions 8

How are transactions between head office and branch treated? 8

Bad Debt 8

Am I able to claim relief for bad debts? 8

Anti-Avoidance 9

Is there a general anti-avoidance provision under VAT law? 9

Penalty Regime 9

What is the penalty and interest regime like? 9

All information reflected in this document was obtained/summarized from KPMG in Panama as of October 2011.


2 | Panama: Country VAT/GST Essentials

Scope and Rates

What supplies are liable to VAT?

Value-added tax (VAT) in Panama is a tax on the transfer of tangible goods and the provision of services called ITBMS (Impuesto a La Transferencia de Bienes Corporales Muebles y Prestación de Servicios). In general, all transactions involving the transfer or transmission of tangible personal property (commodities and products), and the provision of services within the Republic of Panama are subject to this value added-type tax.

Therefore supplies which are liable to VAT include the following transactions:

Transfers such as:• the sale or contract implying the exchange of ownership;

• the personal use of corporate or non-corporate property by the owner, partner, directors, legal representatives, board of directors, or shareholders;

• the promise of a sale (contract) on goods to be transferred physically; and

• transfers of goods to owners, partners, or shareholders as a result of the definitive closure of an enterprise.

Rendering of services, such as:• works with or without the delivery of materials

• intermediation in general

• personal use by the owner, partners, directors, legal representatives, board members, or shareholders of the enterprise of the services rendered by it; also considered as such, the inventory differences

• the rental of real property and tangible property, or any other convention or act that implies or is intended to give the use or enjoyment of the property

• importation of tangible goods or merchandise used either for personal consumption, charity, educational, scientific, or commercial purposes or for the transformation, improvement, or production of other goods.

What is the standard rate of VAT?

Since 1 July 2010, the standard VAT rate is 7 percent of the amount of the professional fees or of the value of the transfer of the personal property or commodities except for the import, wholesale, and retail sale of alcoholic beverages whose rate is 10 percent and, for the import, wholesale, and retail of all kinds of cigarettes and cigars for which the tax rate is 15 percent of the taxable base.

Are there any reduced rates, zero rates, or exemptions?

There is no zero VAT rate but there are exemptions. The following services are exempted from VAT:

• services related to the health of human beings

• rental or sub-rental of real property with exclusive purpose of being the house or room of the person who leases it, when the rental agreement is signed for more than 6 months

• services related to education

• loans from the state

• transportation, except airfare tickets bought in Panama for either national or international flights

• electric energy

• public and semi-public fixed telecommunication

• media (social communication) except for the grant of advertising space

• mail provided by the state

• gambling in casinos and racetracks

• insurance and reinsurance services

• exportation services

• internet access service for houses and education entities

• sewer system and garbage collection


Panama: Country VAT/GST Essentials | 3

• sport events and shows free of charge developed by nonprofit associations recognized by the Panamanian Sport Authorities

• stock exchange activities

• retail sales of food in commercial premises in which no alcoholic beverages are sold

• services rendered by persons that during the last year had an average gross monthly income not higher than USD3,000 and a gross annual income not higher than USD36,000

• services based on a dependency relationship, as defined in article 62 of the labor code, as well as the activities of directors, managers, and administrators

• the payments, including interest paid and received, arising from financial services, performed by entities duly authorized for rendering such services; except charges and commissions for banking services which are considered as taxable supplies of services

• leasing contracts under Law 7 of 1990 are considered financial contracts, and as such, are not subject to value-added tax.

The following transfers of goods are VAT exempt:

• agricultural products in their natural condition. Goods that are already altered by chemical processes or treatments will not be considered as well

• export and re-export of goods

• goods that are inside free zones and those inside customs precincts, as well as warehouses and similar places

• alimentary products

• fuel and similar products, except oil and lubricants

• all kinds of seeds for agricultural purposes

• hand used tools for agricultural purposes

• newspapers, magazines, educative magnetic media, notebooks, pencils, and other items for school purposes, like books and general publications

• cement, additives and sub products used by the subcontractors in connection with the execution of design and construction of the Third Set of Locks of the Panama Canal as well as the services related of its preparation and delivery in site

• drinkable water provided by IDAAN (Instituto de Acueductos y Alcantarillados Nacionales), and other state institutions

• medicines and pharmaceutical products, as well as baby bottles, baby chairs devices for automobiles, diapers and buggies

• foreign currency, stocks, and public/private securities

• insecticide, disinfectant, and similar used for agricultural and cattle raising purposes.



Registration

Who is required to register for Panamanian VAT?

All individuals or legal entities that provide professional services, and sell and/or import goods, including state-owned industrial and commercial enterprises, are required to register when their annual gross income exceeds USD36,000 per year.

However, only individuals and legal entities registered as taxpayers (or taxable persons for VAT purposes) operating domestically within Panamanian boundaries may be registered in the Panamanian’s Taxpayers Registry (Registro Único de Contribuyentes). Such a registration involves the identification of the relevant taxable person with an identification number valid for all tax purposes (including invoicing, filing of tax returns, and other reports to the tax administration).

The aforementioned registry includes not only VAT taxable persons, but all other types of taxpayers and/or taxable persons subject to Panamanian tax laws (including income tax, excise taxes, VAT, and others).

Are there penalties for not registering or late registration?

Yes. Not registering is considered a misdemeanor subject to a fine between USD100 and USD500 for the first offense and between USD500 and USD5,000 applicable to recurrent violations of the relevant provision. In extreme situations, the tax administration could close the business of the taxable person for violating such obligations.

Are there any simplifications that could avoid the need for an overseas company to register for VAT?

Foreign entities operating overseas are not allowed to register. VAT on services performed by a foreign entity in Panama is to be paid by the Panamanian contractor based on a withholding mechanism, applying to the total amount of the services invoiced, the coefficient 0.0652421, to determine the total tax embedded.

VAT Grouping

Is VAT grouping possible?

In Panama, VAT grouping is not allowed except in the case of joint ventures that is an association of two or more individuals or companies engaged in a solitary business for profit without actual partnership or incorporation in order to share strengths, minimize risks, and increase competitive advantages in the market place.

Can an overseas company be included in a VAT group?

No. This is not possible. Overseas companies may not even be registered as taxable persons for VAT purposes, if not registered as taxpayers domiciled in Panama for all tax purposes and carrying out activities or transactions within Panamanian territory.



Returns

How frequently are VAT returns submitted?

The VAT return must be submitted within 15 days after the month or quarter period.

• Independent professionals are required to file on a quarterly basis.

• On agreement with the tax authority, the VAT return could be submitted on an agreed basis other than monthly or quarterly.

However, producers, retailers and services providers will not be considered taxpayers if their gross annual income is under USD36,000 annually.

Amended VAT returns can only be filed before the tax authorities once per fiscal period, within 12 months, accounted from the date in which the company must file the income tax return.

The amended VAT returns filed involves a cost of USD100 for individuals and USD500 for corporations, when such returns are filed after 3 months of the legal date of the original return filed.

Are there any other returns that need to be submitted?

No other returns shall be submitted to the tax administration from a VAT perspective.

VAT Recovery

Can I recover VAT if I am not registered?

No. Only individuals and legal entities registered as taxpayers (or taxable persons for VAT purposes) operating domestically within Panamanian boundaries are granted the right to recover Panama’s VAT. It shall be noted that VAT law does not establish a special or specific registry for VAT taxable persons.

Nevertheless, all individuals or legal entities regarded as taxable persons for VAT purposes are obliged to enroll in the Panamanian’s Taxpayers Registry (Registro Único de Contribuyentes). Such a registration involves the identification of the relevant taxable person with an identification number valid for all tax purposes (including invoicing, filing of tax returns, and other reports to the tax administration.

The aforementioned registry includes not only VAT taxable persons, but all other types of taxpayers and/or taxable persons subject to Panamanian tax laws (including income tax, excise taxes, VAT, and others).

Does your country apply reciprocity rules for reclaims submitted by non-established businesses?

N/A.

Are there any items that you cannot recover VAT on?

The VAT paid in connection with both exempt supplies and supplies not subject to the tax cannot be recovered. In any event, sums that are not recovered as deductible input VAT may be considered as deductible expenses for income tax purposes.



International Supplies of Goods and Services

How are exports of goods and services treated?

Exports of goods are VAT exempt but exporters are granted the right to recover any input VAT charged on goods and services supplied and destined to produce exported goods. There are two different categories of services labeled as export services: export-related services and professional exportation services. None of these supplies are subject to VAT but under different rules. None of these supplies grant the right to recover input VAT.

Export-related services include those listed in the relevant provisions as necessary and accessory to the exportation of goods and merchandise such as:

• international freight

• load, unload and transport of merchandise in or within ports

• logistic services (including transport, distribution, storage, handling, manipulation and repackage) in tax free zones and special economic regimes

• reparation of ships and aircraft engaged in international transportation of goods and/or passengers

• maintenance and cleaning services for such ships and aircraft

• movement of containers and freight rendered within customs bonded areas

• services provided to and within port areas engaged in international trade and services required to use the Panama Canal.

Professional exportation services are those rendered by licensed professionals (mainly lawyers, accountants, and other finance professionals) to persons domiciled outside Panamanian territory. It is important that the recipients of such services shall not conduct any type of taxable business or activities within Panamanian territory. Specifically, legal services rendered to ships registered in the Panamanian Ship Registry and engaged in international maritime trade shall be qualified as professional exportation services.

It is necessary to stress that services rendered by non-licensed professionals do not qualify to receive this treatment.

How are goods dealt with on importation?

• Imported goods are taxed unless expressly exempt.

• Import goods are taxed on cost, insurance, and freight (CIF), plus duty taxes amount.

• If CIF value is unknown, freight on board (FOB) value applies adding 15 percent.

How are services which are brought in from abroad treated for VAT purposes?

Services are taxed when rendered in Panama regardless of the place where the contract or agreement is executed or made or the domicile, residence, or nationality of parties unless specifically exempt.

The recipient of such services is obliged to withhold VAT on the total amount paid to the service provider domiciled abroad. Subsequently, if the acquirer of such services is a taxable person operating within Panamanian territory, it will be entitled to claim the amount withheld as input VAT in the relevant periodical return.



Invoices

What do I have to show on a tax invoice?

The invoice must contain the following data:

• type of document (such as invoice, receipt)

• sequential numbering and unique

• name and Last name or name of the corporation, address, and tax ID number of the issuer of the document

• control digit

• flowchart of originals and copies

• identification number of the fiscal equipment

• name of the buyer, date, address, description, time period, and amount of the transaction

• price, excluding VAT of the good to be transferred or the amount due for the service performed

• VAT amount

• payment conditions agreed

• records, special numbering and/or colors for the use of branches, affiliates and POS.

Can I issue invoices electronically?

Yes. Authorization from tax authorities is required.

Is it possible to operate self-billing?

No.

Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?

No. In such a case, there is no relief from VAT as a general rule. Nevertheless a tax regularity certification avoids the severance liability of the buyer. Allocation of the purchase price among taxable and non-taxable items may be considered.



Options to Tax

Are there any options to tax transactions?

There are not any options to tax transactions.

Head Office and Branch Transactions

How are transactions between head office and branch treated?

Goods and services deemed to be taxable in Panama will be subject to VAT (such as locally provided services, and sales and imports of goods).

Transactions between a head office and a branch are recognized for VAT purposes. Accordingly, any supplies of goods or services affected within Panamanian territory shall be considered as taxable events. Specific VAT provisions establishes that if a head office provides services to its branch or agency located within Panamanian territory, such branch or agency shall withhold VAT when remitting payments made abroad. In these situations, it is considered that the relevant invoice includes the VAT by applying a factor 0.065421 to the total amount invoiced.

Bad Debt

Am I able to claim relief for bad debts?

Yes. The relief is granted through the mechanism of reducing the VAT due in the VAT return corresponding to the period during which the account receivable is qualified as bad debt.



Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?

No. There is no general anti-avoidance provision under Panamanian VAT law. However, the provisions governing VAT fraud specifically refers to the following situations:

• Simulation of acts or transactions that can be used to omit totally or partially the payment of tax.

• To omit the documentation of taxable transfers contrary to the law. Accordingly, applying VAT deductions without being legally documented is also considered tax fraud.

• To omit registering transaction records or to register false VAT accounting operations as a strategy to avoid the payment of tax.

• To avoid the delivery of the records of the amounts caused by VAT to the tax authorities in the period of time according to law.

Tax fraud is punished by law with a fine not less than five times and not above 10 times the amount involved, or prison from two to five years.

Penalty Regime

What is the penalty and interest regime like?

Penalties, as well as interest, are assessed for late payments apart from commercial sanctions.

• Late filing is charged with 10 percent upon the VAT amount due.

• Interest is fixed to approximately 12 percent annual rate.

• Also, there is a USD500 charge for filing amendment return 3 months after the original form was filed.

• When there is a late return for more that 60 days, and there is no tax to pay because of credit, there is a USD10 fine.

Not registering, although using invoices as well as irregular documentation or non-fulfillment of formal obligations, are considered misdemeanors sanctioned by a fine between USD100 and USD500 for first offence and between USD500 and USD5,000 more than one offence.

In case of fiscal fraud, imprisonment from two to five years or fine from five to 10 times the amount applies. Such cases are selected for partial or total omission of tax payment, for not documenting either taxable transactions or deductions of the tax, for failure to register accounting operations, or for not submitting return or tax payment within two months of date due.


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Designed by Evalueserve. Publication name: Panama – Country VAT/GST Essentials Publication number: 111202 Publication date: January 2012

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panama 2011 vat gst essentials

Documents

country vat gst essentials

gross annual income

aforementioned registry includes

identification number valid

issue invoices electronically

including income tax

panamanians taxpayers registry

panamanian tax laws