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Local versus Offshore Corporation in Panama*The following information is provided based on questions asked to the Legal Department of the Ministerio de Economía y Finanzas, Dirección General de Ingresos. When a Panamanian Corporation owns real estate in Panama, rather than overseas, it ceases to be considered by the Panamanian Tax Department an "offshore" corporation and converts itself into a subject of taxation. This means that the corporation should be registered with the Panamanian Tax Department, as a local company rather than as an offshore corporation, and furthermore is required to prepare and present annual income tax returns (declaración de renta), where it receives income from the property (i.e. such as rentals). When the corporation is not receiving any income for the property, i.e. the property is not being rented out but rather occupied by the owners of the corporation, the corporation is not considered to be a "tax payer", and therefore not required to present tax returns (articles 694 and 710 of the Tax Code). However, many have been informed by the Tax Department that the company is still required to present these tax returns to the Ministerio de Economía y Finanzas, Dirección General de Ingresos, indicating that it has no income to declare or that it is non-operational. When we checked with the Tax Department about this, we received 7 responses that the tax returns must be presented, and the only ones who agreed with respect to the interpretation given to the law were the ones in the Legal Department. It seems that there is a lot of confusion within the Tax Department itself on this matter. Note, if you do file a tax return for the company for one year, for receiving income from the property, and in following years do not receive any income (i.e. you are now living in the property), you must continue filing the tax returns, indicating that the company is now non-operational. You cannot simply just fail to file. The penalty for failing to present the tax returns on time, for a corporation, is $500.00. This fine applies even if there was no income tax due. Therefore, any owner of a corporation which owns property in Panama should ensure that they present the tax return before the 31st of March each year. These tax returns, even where the company is non-operational, should be signed by the company's CPA + the legal representative of the corporation. The legal representative or person that signs the tax return is responsible for the contents thereof. It is therefore very important that this person be familiar with the operations of the company and what the corporation business activities are, since they will be liable for any misstatements made regarding the financial situation of the corporation. Any person with a local corporation with locally earned income will need to get a CPA to prepare the financial records of the corporation and review all income and expenses, or to prepare the declaration which indicates that the company is not operating (if it operated and filed and then ceases to operate).
Last modified 08-May-2009 12:07 -0400 |
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