Taxes
Foreign income is exempt from taxation in Panama. Foreign retires are not required to pay Panamanian taxes on their income generated abroad. Bank account interest is 100% tax free as is capital gains on the sale of securities. So you
can see why Panama is considered to be a tax haven by many expatriates.
Real estate taxes are reasonable. Sellers of real estate
pay a low tax for the transfer of property. Income tax for individuals who work is also reasonable.
According to the tax law, any income generated from a source within the Republic of Panama is subject to income tax. Article
694 of Panama’s Tax Code states what activities are not considered as income-producing within Panama and not subject to taxes. Article 708 and Decree 60 of the Tax Code
list types of income not subject to income taxes in Panama: Interest on savings accounts, time deposits, Panamanian securities and some types of loans.
The first $3,000 of net taxable income is exempt from taxes. People making over $3,000 are taxed progressively on their
total net income. Tax payers can take advantage of many deductions. All deductible expenses must be generated in Panama. Corporate income tax rates are around 20% to 40% as stipulated by the tax code. If you have any questions about taxes, you should contact a Panamanian attorney or accountant. Property
Tax is regulated by Article 766. The maximum annual percentage of assessment is 2.10% over the value of
the land (land value under US$20,000.00 is exempt of this particular tax, as per Law No. 36 of 1995). The property tax is also levied on the declare value of the improvement build on the land. The owners must pay according to the official assessment value (which is usually the declare (commercial) value on the last purchase Deed).
Transfer Tax on Real Property is regulated under Article 701, and was amended in 1991 with the implementation of Law No. 31 and in 1995 by Law No. 28. The Law confirms that all sellers are obligated to pay, at the moment of a transfer of
a real property, the transfer tax, but allows the seller to apply one of two options. Option 1) the seller could select the 2% tax of the declared commercial sale price, which is understood as an advance payment on the capital gain or the 5% tax of the assessment value, which is established by adding a 10% increase per annum on the purchase value. You will be pleased to know that interest payed on a mortgage is deductible from your U.S. taxes. Capital
Gain Tax is applicable if the alternative of 2%
for Transfer Tax is used for the transfer of real property and
if there is a capital gain. This tax is regulated by Article 699 and
for corporations acting a sellers, a 30% flat tax payment on
the profit will be applicable, notwithstanding, if shareholders
are foreigners. Another percentage will be applicable if the
seller is a natural person. If there is no capital gain on the transfer of a property, the 2% transfer tax paid in advance for the
sale, is to be considered as a credit for the seller and will be
lost.
Inheritance Tax was regulated under Article 819 until 1985,
at which time it was abolished with the enactment of Law No.
22.
U.S. citizens are subject to income tax wherever they
are living. You must file your U.S.
income tax returns yearly through the American Embassy.
You have to declare all income earned abroad but you may
claim
a tax exemption up to $ 80,000 on overseas-earned gross
income. The $80,000 applies to individual, unmarried taxpayers.
If
you are married, you and your spouse may exclude up to
$144,000 of foreign income, but you cannot combine the
two exemptions.
This exclusion does not apply to passive income such as
interest, dividends, capital gains or overseas pensions.
It only applies
to a
foreign earned income. You must reside
outside of the U.S. for at least 330 days a year or be
a legal resident of a foreign country
to qualify for this exemption. Your primary
business must also be located abroad to qualify for the
foreign-earned income exemption.
Fortunately, if you live outside the U.S., you qualify
for a 2-month extension and may wait to file your taxes until June 15th. However, if you mail your return from outside the U.S., it is best to mail your return at least 2 weeks before the
due date. You can speed this up by using DHL, FedEx or UPS. You need to use a U.S. tax form 2555 to apply for this extension.
Even if you earn no income in Panama, it is imperative
to file a standard 1040 tax form to avoid problems. The biggest mistake made by individuals is assuming that since their income is under the exclusionary amount, they do not have to file a return. Payment of taxes, interest and penalties
can now be done by credit card by dialing 1-888-2PAY-TAX. If you have any tax questions, contact the U.S. Embassy or IRS. Call either the Consular Section of the U.S. Embassy 227- 1777, or the nearest IRS office in Mexico City at 525 211-0042, ext. 3557. You may consult the IRS Web site at: www.irs.gov.
There is also book titled The
Expats Guide to U.S. Taxes.
It may be purchased through www.amazon.com. Another good resource is found at: www.filetax.com/expat.html. If you need help with your tax forms and returns while living in Panama, contact H & R Block Tel: 011-(507) 260-1052 or see www.hrblock.com for income tax assistance or for help with IRS problems.
If Canadians want to be exempt from income taxes in Canada they need to have severed major residency ties for at least two years. These “residency ties” can include
an unleased house, Canadian health coverage, automobile registration, spouse or child support in Canada, banking or investment ties.
A foreign tax credit is often available for taxpayers who
pay tax in another country, i.e. Panama.
To find out your tax status, consult form
IT221R3 on the Canadian
Customs and Revenue Agency. Canadian
tax returns should
be in by April 30th. Self-employed people have until June
15th. Canadians will have to contact the local Canadian Embassy concerning their tax obligations while living abroad. |
