Tropiland

The French authorities have prepared their own list of countries considered to be “tax havens“ consisting of  18 “accused”, between them Costa Rica, Guatemala and Panama.

The list came forward yesterday by the newspaper Le Figaro, and will be valid until January 1, 201. The list will serve as a reference point to all French companies operating in these countries, who will charged with higher taxes.

In the list , presented by the newspaper and confirmed by official sources , no European country is listed. Instead there is an extensive coverage on Anguilla, Belize, Brunei, Dominica, Granada, Guatemala, Islands Cook, Island Marshall, Liberia, Nauru, Niue, Panama, Philippines, Saint-Kitts-et-Nevis, Saint Lucia and San Vicente and Granada.

The inclusion of Panama in the list came despite a bilateral agreement to avoid double taxation, for which Paris showed its satisfaction for Panama’s efforts on the subject of fiscal transparency.

There is a strong Central American and Caribbean “representation” on the list, and, curiously enough,  nor Chile or Uruguay were included, which they had been mentioned in the past as countries that do not provide enough cooperation on the subject of fiscal information exchange.

The list does not also include Andorra, which signed an information exchange agreement in fiscal matters with France last September.This was one of the steps taken  by the Principate to leave the Organization for the Cooperation and the Economic Development (OCDE) “tax haven” list.

Switzerland, which last Friday agreed to resume the process of ratification of fiscal information exchange with France, is not on the list either.

According to  Le Figaro,  French companies operating in the countries included on the list will receive a harder fiscal treatment, by means of  50 % (!) taxation on all income generated from businesses within those countries (ouch!). The measurements, according to the source, will begin to be applied from March 1 on.

This ,of-course, is really bad news for Panama since there is a large number of French companies operating within its territory.

Vive La France!

Panama state income during the first 11 months of 2009 totaled $3.36 billion, some $225. 3 million more than projected.

Nevertheless, these numbers represent a decrease of $240 million,  compared to the same period last year. Some of it due to dividends paid to Tocumen airport ($ 140 million) and some due to authorized payments to phone companies ($ 200 million).

Last November state collections reached $262.6 million, $13.8 millions more than budgeted, thanks to $22.8 million  in dividends paid by electrical distribution companies, which was not accounted in the budget.
Not taxable  income added $709.6 million , some $104.3 million  more than budgeted, but still $406.9 millions below last year’s numbers.

As for direct taxes, collections reached $ 1,171 billion , $30.8  millions more than targeted for 2009.

Sales Of  Goods And Services taxes (ITBMS) reached $269.3 million, 15 % over the projected numbers and fuel consumption tax (!) added $153 million.

Further more, $101.7 million have been collected due to the new tax moratorium implemented in September, and there are another $64 million pending tied up in payment deferrals and payment arrangements. The tax moratorium also wil also add an additional $15 million from Colon Free Zone and casino taxes.

In short, it looks that Martinelli’s coffers are filling up due to this administration’s tax reforms. Hopefully, these money will “live” to see its proper destinations on social and cultural programs so badly needed in Panama.

Department of Economy and Finance’s General Tax Directorate (Dirección General de Ingresos , DGI), is reporting $95 million dollars collected to date since the new tax moratorium was implemented back in August.

$88 million have been paid directly, $6 million were captured in payment agreements between tax payers and DGI, and some $56 million will have to be canceled within six months.

The most prominent contributors in this tax collection were:

• $40.5 million from juridical revenue (judgments and legal issues)
• $16.4 million  from property tax
• $10.3 million ITBMS-Sales (Sales Tax)
• $5.8 million income tax revenue
• $ 5.5 corporate registration taxes (Tasa Unica)

November 30 the last day that taxpayers, seeking refuge from the tax moratorium, can pay 25 % of the taxes due and get a 100% exemption  from on incurred interests and fines.

Further more any tax payments (or arrangements for tax payment) done between December 1 and December 31, 2009 won’t have to be paid until June 30, 2009 with a 25 % discount on interests and 100 % exemption from all incurred fines.

Law45 of August 5, 2009 that grants moratorium for the payment of taxes administered by the DGI, is in effect until December 31 of this year.

It seems that President Martinelli’s Coffers are now starting to see some money poring in. Ideally, this tax collection will facilitate  budget boosts for social programs so promptly needed.

As of last September, Law 49 (passed by Panama’s National Assembly and enacted into law by president Martinelli) is the new tax law of the land (Panamanian territory). As promised, the law implements long anticipated reforms in Panama’s taxation protocol.

General property appraisals by the state and capital gains tax on sale of properties are two areas that were revamped by this new Panama tax law.

Under the new law, condo taxable values are comprised of two components: the value of the land on which the condo building was contracted and the value of the improvements made on the condo.  The value of the land is taxable and distributed evenly upon all condo owners. As far as exoneration for 20 years goes, all condos now pay taxes both on land (reagrdless of being under 30K or not) and improvenents.

What follows, is a general overview of Law 49 presented here with the help of the law firm of Patton, Moreno & Asvat:

A. Franchise Tax for Corporations.
- Payments of annual Franchise Tax of B/.250.00 at incorporation and B/.300.00 in subsequent years will apply
to all national and foreign juridical persons, except for nonprofit associations.
- It is established the possibility to restore the legal personality of a corporation dissolved due to the lack of
payment of the annual franchise tax for a continuous period of 10 years, paying a fine of B/.1,000.00 during
the 3-years liquidation period.

B. Income Tax on capital gains for the transfer of immovable property.
- Base tax of 10% over taxable income from the sale of immovable property is maintained when the sale is not in
the ordinary course of business of the taxpayer. However, the taxpayer will be required to pay a sum
equivalent to 3% of the total value of the transfer or the cadastral value, whichever is greater, as an advance
on the income tax and may choose to consider this 3% as the final income tax payable in respect of profit.
- The taxpayer may request a refund in cash or the recognition of a tax credit transferable to other taxpayers,
when 3% of advance tax paid is greater than 10% of the profit from the sale.
- The taxpayer is given an opportunity to update the cadastral value of its property that will be used as base cost
in case of sale, before June 30, 2010.
- The properties for agricultural purposes endorsed by the Ministry of Agriculture pay a single, definitive rate of
3% instead of 5%.

C. Income Tax on capital gains for the transfer of securities.
- When the advancement of withholding tax (5%) exceeds the amount resulting from applying the 10% rate on
gains obtained from the sale, the taxpayer may request a refund in cash of the surplus or a tax credit for the
payment of taxes administered by General Revenue Department, which can be transferred.

D. Provisions applicable to companies established in Free Zones.
- Activities that can be considered as offshore operations within the Colon Free Zone and other free zones are
limited to billing services, repacking and similar, when they produce effects abroad. Commissions, storage and
warehouse services, leases, internal movement of goods and cargo are considered local activities.
- Companies located in any free zone of Panama shall pay the dividend tax or participation fee at a fixed rate of
five percent (5%) of the amounts distributed to its shareholders or members, regardless of the origin of the
source.
- It’s introduced a new obligation to withhold and remit to the Treasury 10% of 20% (i.e. 2%) of net profits after
taxes, to companies established in any free zones, when there is no distribution of dividends.
- It provides for imprisonment of 1 to 3 years for crimes of smuggling and customs fraud and 4 to 6 years in case
of recurrence, and fines of five to ten times the value of the good at illegal if it exceeds B/.50.000.
- It is clarified that the new loans granted within the Colon Free Zone shall be subject to payment of the Special
Compensation Fund Interest (FECI).

E. Property Tax.
- To calculate the tax base it shall be considered the highest value of any of the following:

1. the valuation of the property fixed by the Directorate of Cadastre,
2. the price set in any transfer of the immovable property, whether or not titled, including any sale, donation, payment in kind, prescription for the acquisition of TAX UPDATE: LAW 49 OF 2009 dominion, auction or any other form of transfer of a property that is not covered specifically in this section, and
3. the appraisal in inheritance proceedings.

- The alternative tariff rate for property tax shall be 0.75% on properties whose value of land and improvements does not exceed B/.100,000 and 1% for values above B/.100,000. The rate is not progressive. To qualify for this rate the taxpayer must file an affidavit on the updated value of the property until 30 June 2010.
- It is eliminated the possibility for taxpayers to request general or partial appraisals and subtotals, granting this power exclusively to the Directorate of Cadastre, which will order them ex-officio.
- Property with a value of land and improvements not exceeding B/.30,000 are exempt. Save for immovable property intended for social housing, over this amount does not apply the exemption to the land of estates subject to the Horizontal Property Regime, whose condominiums are attached vertically.
- A new table for calculating property tax subject to the Horizontal Property Regime is established:

• 1.40% for a tax base up to B/.20,000
• 1.75% for the tax base up to exceeding B/.20,000
• 1.95% for the tax base up to exceeding B/.50,000
• 10% for the tax base up to exceeding B/.75,000

- Improvements for residential use with a value up to B/.80,000 will be exempted from land tax for 20 years.
- New conducts are typified as tax evasion relating to property tax, such as the simulation of legal acts to reduce the cadastral value or total or partial failure to pay the property tax for itself or for another person. Tax evasion for these concepts will be sanctioned by the Department of Revenue by a fine not less than five (5) times or more than ten (10) times the amount defrauded or with imprisonment of two (2) to five (5) years.

E. Tax on the Transfer of Movable Goods and the Rendering of Services (ITBMS)
- Are subject to the payment of ITBMS: (a) the commissions from transfers of negotiable documents and securities in general, (b) the payment of commissions from banking and/or financial services rendered by entities legally authorized to offer these type of services, (c) the commissions or retributions paid to persons dedicated to real estate and goods brokerage, (d) the professional services to be provided to personas domiciled abroad, (e) leases of property destined for residential use for terms less than 6 months, (f) commercial fixed-line telephony, and (g) legal services provided to international trading vessels.
- On the other hand, the following services are considered exempt from this tax: (a) freight, (b) fixed-line telephony for residential use, (c) cargo loading and unloading operations, transfer in or between the ports and ancillary services rendered to the cargo in ports, (d) the repair, maintenance, cleaning and ancillary services rendered to vessels in transit within the territorial waters, and (e) commissions earned by travel agencies.

F. Tax on Notice of Operations.
- It rises from B/.40,000 to B/.60,000, the maximum annual amount of tax payable in respect of tax on Notice of Operations, at a 2% tax rate on the company’s capital. In the case of companies established in free zones, the tax basis will be 1% with a maximum of B/.50,000 annually.
- Are exempted from the requirement to obtain a Notice of Operations only the companies licensed as Regional Offices of Multinational Corporations and companies that are operating under special regimes, applicable to areas developed through the award of international processes for the selection of contractors.
- Financial institutions regulated by Law 42, 2001 shall pay a 2.5% annual tax on their paid capital as of December 31st each year, which will not exceed in any case B/.50,000.00.

G. Modifications to Law Decree 2 of 1998.
- It is clarified that the hotels which aim for a contract to operate gambling halls, must comply with luxury standards, according to international rules for four-star hotels.
- The Goodwill payment for new Managers and Operators of Full Casinos is fixed in B/.1,000,000 and B/.500,000 for Slot Machines’ Halls type “A”. The obligation to pay the Goodwill to the Gaming Control Board is established retroactively.
- Slot Machines’ Halls type “A” will pay to the State in a phased manner from January 1, 2014, the 22% of their gross income, versus 10% currently paid.
- Full casinos will pay 15% from January 1, 2012, versus 10% currently paid.
- It is regulated the transfer of company shares and the procedure for the appointment of officers of the companies that have contracted with the Gaming Control Board.

H. Others.
- It’s established a general principle by which any legal person requiring the issuance of a Notice of Operation is obliged to withhold the dividend tax regardless of source of income. For dividends from a Panamanian source,
the current rate of 10% is maintained and for income from foreign source or arisen from export operations, withholding shall be 5%.
- Article 733-A of the Tax Code, which provided for an exoneration from the withholding of 10% over the capitalization of earnings is repealed. Accordingly, retained earnings in a fiscal period that are capitalized in any subsequent period will be subject to payment of dividend tax and complementary tax.
- Limited liability companies shall pay taxes as legal persons, since it is removed the article that allowed to pay taxes by the partners in proportion to their equity participation.
- Will pay the rate of 1% of FECI the loans secured entirely by deposits and fixed-term savings held in banks located in Panama. On the other hand, loans agreed as automatic loans in life insurance policies secured by the value of the mathematical reserve or cash surrender value, which will be used to pay premiums for the same insurance life policy, are excluded from payment of the FECI.
- Selective tax on cigarette consumption is increased from 32.5% to 50%, also establishing that 40% of such tax is intended as a contribution to the National Cancer Institute, another 40% to the Ministry of Health and the remaining 20% to the Customs Authority to prevent smuggling of tobacco-derived products.
- It is typified as a crime of smuggling the possession or introduction of tobacco products to the national territory without having paid the corresponding taxes on their import or not complying with health regulations.