Regarding Withholding Tax, it is important to take into consideration that payment of interest, commissions and other charges made to local lenders will not be subject to withholding tax but may be subject to income tax and other taxes and should be included in their tax returns.
Payment of interest, commissions and other charges made to foreign lenders will generally be subject to withholding tax, at an applicable rate of 12.5%. However, this should not be the case provided that:
- the proceeds of a loan will not be used economically in Panama;
- the proceeds of a loan will not be used for the production of income of Panamanian source as defined in Article 694 of the Fiscal Code of Panama; and
- any payments on interests, commissions and other charges will not be considered by any person as a deductible expense for Panamanian income tax purposes.
Other Taxes, Duties, Charges or Tax Considerations
Foreign lenders making loans to entities incorporated and domiciled in Panama should be aware that the credit agreement will be subject to stamp tax in the Republic of Panama at a rate of USD0.10 for each USD100 of the value of any such document, if presented before an administrative authority or court in the Republic of Panama as evidence. The stamp tax will also apply in the case of local lenders.
In the case of commercial loans, there are no usury laws or other rules limiting the amount of interest that can be charged.
Learn more in our Banking & Finance Guide prepared by Partners Arturo Gerbaud, Eloy Alfaro B. and Patricia Cordero – Originally published by Chambers & Partners. https://practiceguides.chambers.com/practice-guides/banking-finance-2021/panama