In Panama, employers have several tax responsibilities. These include Social Security Contributions, Educational Insurance Tax, Income Tax Withholding, and Occupational Risk Insurance.

Social Security Contributions (Caja de Seguro Social - CSS)

This is mandatory for all employers with employees in Panama. The employer rate is 12.5% of the employee's gross salary. The authority responsible for this is the Caja de Seguro Social (CSS).

Educational Insurance Tax

This is also mandatory for all employers with employees in Panama. The employer rate is 1.5% of the employee's gross salary. There is no employee rate for this tax. The authority responsible for this is the Ministry of Education (MEDUCA).

Income Tax Withholding

This applies to employees earning wages in Panama. The rates are graduated and employers should consult the most recent tax tables published by Panama's tax authority, la Dirección General de Ingresos (DGI). Employers use tax tables and calculations provided by DGI based on the employee's gross salary and pay period. The payment deadline is monthly or in some cases semi-monthly. The authority responsible for this is the Dirección General de Ingresos (DGI).

Occupational Risk Insurance

This applies to employers in industries with occupational hazards. The employer rates vary by industry and the associated level of risk. These rates are established by the CSS. There is no employee rate for this insurance. The authority responsible for this is the Caja de Seguro Social (CSS).

Employers must also note that they are required to pay a 13th Month Bonus, which has income tax and social security implications. Employers must register with the DGI and CSS for tax identification and reporting purposes. For specifics on Occupational Risk Insurance, businesses should obtain specific premium details from a qualified insurance provider or contact the CSS for assistance.

In Panama, employees are subject to two main types of tax deductions: Social Security Contributions (Caja de Seguro Social - CSS) and Income Tax Withholding.

Social Security Contributions (Caja de Seguro Social - CSS)

This is a social security tax that benefits employees. It applies to all employees working in Panama. The rate is 7.25% of the employee's gross salary. The calculation is straightforward: Gross salary * 7.25% equals the Employee Social Security contribution. The employer withholds and remits this tax on behalf of the employee.

Income Tax Withholding

This is a direct tax on employee salaries. It applies to employees earning wages in Panama. The rates are graduated income tax rates. The specific rates can be found on the website of the Dirección General de Ingresos (DGI) – Panama's tax authority. The employer uses official tax tables provided by DGI to determine the correct amount of income tax to withhold for each employee based on gross salary and pay period frequency. The employer withholds and remits this tax on behalf of the employee.

Important Notes

The 13th-month bonus is mandatory in Panama, and tax deductions (income tax, social security) apply to it like regular salary. Employers are responsible for the accurate calculation, withholding, and remittance of employee social security and income taxes.

In Panama, the Value Added Tax (VAT) is known as the ITBMS (Impuesto de Transferencia de Bienes Muebles y la Prestación de Servicios), or the Movable Goods and Services Transfer Tax.

VAT Rates

The standard ITBMS rate in Panama is 7%. However, certain goods and services are subject to higher rates. For instance, alcoholic beverages and hotel accommodation services are taxed at 10%, while tobacco and tobacco-derived products are taxed at 15%.

Exemptions

Several services in Panama are exempt from ITBMS. These include financial services such as banking and insurance, medical and health services like hospitals and clinics, educational services including schools and universities, public transportation within certain parameters, and certain cultural activities and performances.

Filing Procedures

Businesses providing taxable services in Panama must adhere to the following procedures:

1. Registration: Register for ITBMS with the Dirección General de Ingresos (DGI), Panama's tax authority.
2. Invoicing: Issue compliant tax invoices detailing the ITBMS charged.
3. Periodic Filings: File regular ITBMS returns (usually monthly), reporting VAT collected and claiming eligible VAT credits.
4. Payment: Remit the net ITBMS owed to the DGI.

Important Considerations

VAT regulations in Panama can be complex and the Panamanian government may update VAT laws and procedures periodically. Therefore, it is crucial to stay updated on the latest changes.

Businesses engaged in manufacturing, logistics, and certain services can benefit from Special Economic Zones (SEZs). The key advantages of these zones include exemption from import/export duties, reduced income tax rates (often 1%), and exemption from property taxes. To qualify, the business must operate within a designated SEZ zone, and minimum investment thresholds may apply depending on the zone. Specific business activities might also be required. The application process involves contacting the SEZ authority responsible for the zone of your choice and completing the application with the necessary documentation.

Multinational Enterprise Headquarters Regime (SEM)

Foreign multinational companies establishing their regional headquarters in Panama can benefit from the Multinational Enterprise Headquarters Regime (SEM). The key advantages of this regime include exemption on income and transfer taxes for services rendered to affiliated companies abroad, exemption from taxes on dividends distributed from foreign-sourced profits, and exemption from work permit fees for certain qualified personnel. To qualify, minimum investment thresholds apply (USD 200 million in assets or global operations in 40+ countries), and specific licensing requirements must be met. The application process is through the Ministry of Commerce and Industries (Ministerio de Comercio e Industrias - MICI).

Other Tax Incentive Programs

Panama offers additional tax incentives for specific sectors like tourism, agriculture, and reforestation. It's important to carefully assess your business needs and choose the program that best aligns with your operations. Eligibility requirements and application processes can change; ensure you have the latest information from official sources. Consider seeking professional guidance from a Panamanian tax advisor for a comprehensive analysis and successful application.