Worldwide VAT, GST and Sales Tax Guide
Tax representatives. Tax representatives are not required in Panama.
Withholding agents. Entities with annual purchases of goods and services in an amount equal to or greater than USD3 million will be considered VAT withholding agents. A VAT withholding agent is required to withhold 50% of the VAT included in the invoice or equivalent document submitted by the supplier. Panamanian tax authorities issue an annual publication that contains a list of VAT withholding agents identified according to the new criterion set out in the Decree. For 2024, the list contains 736 companies, including construction companies and banks, among other businesses. The withholding agents identified in the list are subject to the withholding obligation.
Reverse charge. VAT on services performed within Panama by a foreign individual or foreign entity to a Panamanian entity or individual must be collected and paid by the Panamanian recipient entity or individual based on a reverse-charge mechanism. Panamanian recipients must deem that VAT is included in the invoices from their non-established counterparty and make a VAT withholding to be paid within 10 days to the tax authorities. The amounts withheld may be considered input tax and used to offset output tax of the Panamanian party. The amount that the Panamanian party is required to withhold is calculated according to the following formula: the amount included in the invoice multiplied by 0.065421.
Domestic reverse charge. There are no domestic reverse charges in Panama.
Digital economy. There are no special rules or regulations regarding VAT for the digital economy. The ordinary VAT rules should be applicable based on the characterization of the transactions being carried out digitally.
It is important to consider that Panamanian tax legislation is governed by the principle of territoriality; therefore, transfers of movable property and services are subject to the payment of VAT, provided they are made within Panamanian territory regardless of where the money is received.
In this sense, if nonresidents are providing electronically supplied services for business-to-consumer (B2C) supplies by means located within the national territory (Panama), then provision of such services would be subject to VAT, which would trigger the obligation of VAT withholding for the local taxable person receiving the service. This withholding is made through the reversecharge mechanism (see the Reverse charge subsection below). Where the local consumer is not able to perform the withholding, then the nonresident would be required to register in Panama to comply with the applicable tax obligation.
Nonresident providers of electronically supplied services for business-to-business (B2B) supplies are not required to register and account for VAT on their supplies in Panama. Instead, the customer is required to self-account for the VAT due by way of the reverse charge (see the Reverse charge subsection above).
There are no other specific e-commerce rules for imported goods in Panama.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Panama.
Registration procedures. Panamanian tax authorities issue a national tax registry number (Registro Único del Contribuyente [RUC]), which is the taxable person ID number (it applies to VAT and income tax, among other taxes). The RUC can be registered in person with the Panamanian tax authorities or online (https://dgi.mef.gob.pa/ and via the computer tax system e-Tax 2.0). To register as taxable persons in Panama, a company or individual must complete and present the following documentation:
• For professional and independent individuals:
– Copy of ID
– Copy of last paid utility bill of a public service to prove the domicile of the taxable person
Partial exemption. The VAT paid by a taxable person relating to exempt supplies cannot be considered as an input tax (as it cannot be offset against an output tax), but a cost that should be borne by the taxable person and it will be deductible for income tax purposes.
When taxed and exempt transactions are jointly carried out, the deduction of the input tax must be made in the proportion in which the income corresponds to taxable transactions in relation to the total income, excluding the tax itself.
Approval from the tax authorities is not required to use the partial exemption standard method in Panama. Special methods are not allowed in Panama.
Capital goods. There are no special input tax recovery rules for capital goods. If a capital good is used for both taxable and exempt supplies, the business must apportion the input tax by using partial exemption (see above). The business should carry out a proportion calculation and apply the percentage of the taxable and exempt revenues over the total revenues for the declared period, excluding the tax itself.
Refunds. If the amount of input tax recoverable in a period exceeds the amount of output tax payable, the taxable person receives an input tax credit. The credit may be carried forward to offset output tax in the subsequent VAT period. If it is not possible to offset the input tax credit in the following period, the taxable person may use the excess as a credit in the following period. VAT credits are not refundable.
A frequent exporter that regularly has VAT credits may request a document called a “cancellation certificate” from the VAT authorities to help ease cash flow. The exporter may sell the cancellation certificate to other taxable persons that can offset it against their own VAT liabilities.
Law 52 of 2012 grants certain taxable persons’ privileges for input tax deduction. This provision applies to manufacturers of foods or medicines and to businesses involved in the agriculture sector whose revenues exceed USD300,000. These taxable persons do not charge VAT, but they may not offset input tax against other tax liabilities.
Pre-registration costs. Input tax incurred on pre-registration costs in Panama is not recoverable.
Bad debts. The output tax can only be deducted for bad debts if the following requirements are met:
• The values are properly recorded for and have been declared as taxable transactions.
• The insolvency of the debtor or the prescription of the debt is verified to prove the insolvability of the debtor (e.g., cessation of payment or bankruptcy).
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Panama.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Panama is not recoverable.
H. Invoicing
VAT invoices. A taxable person must provide a VAT invoice for all taxable services and supplies of goods made, including exports. An invoice is necessary to support a claim for input tax credit. Special fiscal equipment authorized by the tax authorities or the electronic invoicing system of Panama must be used. There are taxable persons who, according to their activity, may be exempt from issuing invoices through fiscal equipment. However, they must issue equivalent documents with the minimum documentation requirements according to local legislation.
Annual returns. Annual returns are not required in Panama.
Supplementary filings. VAT withholding return. VAT withholding agents need to file Form 4331 monthly (the VAT withholding return), on or before the 15th day of the month following the end of the return period
Correcting errors in previous returns. Any corrections to a previous VAT return should be filed on an amended VAT tax return within the last 12 periods/per return. If the corrections are filed after 90 days of the original VAT return, the taxable person must pay a fine of USD500. The rectification must be requested by filing, before the tax authorities, a document explaining the facts that motivate the rectification. Then, the corrections must be filed both online through the eTax 2.0 and in paper before the tax authorities.
Digital tax administration. There are no transactional reporting requirements in Panama.
J. Penalties
Penalties for late registration. There is no specific penalty for the late registration of VAT.
Penalties for late payment and filings. If a taxable person does not pay VAT due on time, a fine of USD10 may be applicable and the payment would be subject to late payment surcharge and a monthly interest.
Penalties for errors. A fine of USD10 may be imposed for late filing if no VAT is due as a result of credits in favor of the taxable person. Fines of USD100 to USD500 may be imposed for filing inaccurate VAT tax returns that do not result in a reduction in the tax payment, issuing invoices without being registered with the tax authorities and failure to comply with regulations regarding the carryforward of tax credits. Recidivism is penalized with fines ranging from USD500 up to USD5,000 and temporary closure of the business.
VAT returns may be amended only once per period and within a maximum period of 12 months following the date on which the original VAT return was due. The filing of the amended return costs USD100 for individuals and USD500 for legal entities if the amended return is filed more than three months after the due date for the original VAT return. Tax fraud is punished with penalties varying from 5 to 10 times the amount of undeclared VAT or by imprisonment for a period of two to four years.
There are no penalties associated with the late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details. For further details, see the subsection Changes to VAT registration details above.
Penalties for fraud. With effect from 1 January 2022, tax evasion is considered as a crime (said disposition has been added to the Penal Code and the Tax Code has been modified). Tax evasion is considered as a crime, whenever someone intentionally avoids taxes (by omitting, hiding, falsifying or deceiving the tax office), for themselves or for a third party for USD300,000 or above in a calendar year.
Tax evasion will be punished with a penalty of two to four years for anyone who, personally or by an interposed person, receives, possesses, deposits, negotiates, transfers or converts money, securities, real estate and other financial resources, knowing that they come from crimes against the National Treasury to hide, cover up or hide their illicit origin, or help evade the consequences legal of such punishable act.
Additionally, it is established that, if the crime has been committed through one or more legal persons, the penalty will be imposed on the legal entity in question and will be a fine of one to three times the amount of the tax defrauded.