Panama Implements Revised Income Tax Classification for Individuals and Legal Entities

Panama has recently introduced a revised classification system for income tax returns filed by individuals and legal entities. The new system is designed to provide a more organized approach, based on both the general regime and specific economic activity sectors. This initiative has been implemented by the Tax Authority, which has introduced new tax forms for individuals and certain companies.

According to Resolution No. 201-4370, issued on 19 May 2023, the Tax Authority has unveiled new forms for filing income tax returns. These forms are applicable to various entities, including individuals (both salaried and non-salaried), legal entities, insurance companies, agricultural and livestock businesses, banks and financial institutions, hotels, the legal industry at large, real estate entities, mining companies, as well as the multinational headquarters (MHQ) sector in Panama, which includes Panama Pacifico and Free Trade Zone.

To provide some context, nearly 16 years ago, the Tax Authority had approved forms for income tax returns for legal entities operating under regular or special regimes, as well as for individual salaried employees, independent professionals, and merchants. However, these forms lacked proper classification based on activities and regimes, which hindered effective oversight by the Tax Authority.

Under the new resolution, in addition to introducing updated forms for income tax returns, certain provisions have been established. It is clarified that income tax returns filed by taxpayers with an annual gross income exceeding Panamanian Balboa (B) 11,000 must be countersigned by a certified public accountant. This measure aims to enhance the accuracy and reliability of the tax filing process.

The new resolution became effective upon its publication in the Official Gazette on 27 June 2023. It applies to income tax returns for the 2022 fiscal year that have not yet been filed. With this revised classification system and the introduction of new tax forms, Panama aims to streamline the income tax filing process and strengthen its control and oversight mechanisms.

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