Withholding Tax on the Transfer of Movable Goods and the Provision of Service
The Fiscal Code of Panama, regulated by Executive Decree N°82/2005, states in its Article 1057-V, the establishment of a Tax on the Transfer of Movable Goods and the Provision (ITBMS) of services in Panama.
The purpose of this article is to provide information on the main aspects of this tax, and the withholding mechanism for this tax.
The following are considered as taxpayers of this tax:
- Those natural persons, companies that carry out the taxable event and act as transferor of real estate tangible property and/or as service provider. However, those whose average monthly gross income of the previous fiscal period has not exceeded B/3,000.00 and whose annual gross income does not exceed B/36,000.00 are not included.
- The importer, whether on his own account or on behalf of others.
Transactions subject to ITBMS
The following transactions are subject to the tax:
- The transfer made by merchant producers or industrialists in the development of their activity, of real estate tangible property.
- The performance or rendering of any type of service by producers, traders, lessors of goods, with the exception of those rendered in a relationship of dependence.
- The importation of movable goods or merchandise, whether they are intended for the use of the introducer, for charitable or educational purposes or for the improvement of other goods.
Birth of the obligation to pay ITBMS
The birth of the obligation to pay the tax arises:
- Upon invoicing or delivery, whichever occurs first, in case of transfer of tangible goods.
- In case of rendering of services when the corresponding invoice is issued, at the end of the service or at the moment of the receipt of payment, whichever occurs first.
- In case of importation of goods, at the moment of the customs declaration.
The tax rate is 7% with some exceptions.
Article 19 of Executive Decree No. 84 of August 2005 states that the following must withhold the tax:
- State agencies, decentralized entities, public companies, municipalities or entities or other public sector entities. This withholding shall be made without considering the amount of the consideration as long as the supplier is a taxpayer of ITBMS, the amount of the withholding shall be 50% of the tax, except for the rendering of professional services to the State, in which case it shall be 100%.
- Those who pay or credit retributions for taxed operations carried out by individuals domiciled abroad. The withholding will be on the totality of the tax.
- Those who are or are not ITBMS taxpayers and who in the previous fiscal period have had annual purchases of goods and services for an amount greater than five million Balboas. The amount to be withheld will be 50%.
- The entities administering debit or credit cards, which are in charge of making payments to merchants and service providers, at the time of payment or credit. The withholding will be 50% of the tax and may be used as a tax credit and must be included as payment on account in the ITBMS return.
The aforementioned withholding agents shall be obliged to issue a certificate of withholdings made in the month in which the obligation arises or causes the obligation, to the withheld suppliers, in order to document the tax credit.