Panama’s parliament is presenting considering changes to income tax rates for small- and medium-sized businesses, included in Bill 358.

The Bill includes project of law no. U-20, which in Article 1 amends Article 699-A of the tax code to provide for reduced rates of corporate tax for SMEs that satisfy the following conditions:

  • they are registered in the business registry;
  • their gross annual income does not exceed PAB500,000 (USD500,000); and
  • the SME is owned by natural persons, whether directly or indirectly.

The law includes provisions to deny access to the concessionary rates where businesses are artificially split to meet the aforementioned conditions.

The rates are as follows:

  • Net taxable income up to PAB11,000: 7.5 percent;
  • Income exceeding PAB11,000 and up to PAB36,000: 10 percent;
  • Income exceeding PAB36,000 and up to PAB90,000: 12.5 percent;
  • Income exceeding PAB90,000 and up to PAB150,000: 15 percent;
  • Income exceeding PAB150,000 and up to PAB350,000: 20 percent; and
  • Income exceeding PAB350,000 and up to PAB500,000: 22.5 percent.

The standard rate of corporate tax is 25 percent on net taxable income.

Under new Article 700-A of the tax code, for natural persons qualifying as SMEs (who are registered in the business registry and whose gross annual income does not exceed 500,000), the following rates will apply:

  • Net taxable income up to PAB11,000: 0 percent;
  • Income exceeding PAB11,000 and up to PAB36,000: 7.5 percent;
  • Income exceeding PAB36,000 and up to PAB90,000: 10 percent;
  • Income exceeding PAB90,000 and up to PAB150,000: 12.5 percent;
  • Income exceeding PAB150,000 and up to PAB350,000: 17.5 percent; and
  • Income exceeding PAB350,000 and up to PAB500,000: 22.5 percent.

Law no. U-20 would become effective from the day of its enactment.

Having been tabled on July 27, Bill 358 was approved at first reading on August 13, 2020. According to information published on the website of the National Assembly, the Bill was due to be subject to a second debate on August 18, 2020.