VAT, GST and Sales Tax in Panama


Name of the tax Value-added tax (VAT)
Local name Impuesto a la transferencia de bienes corporales muebles y la prestación de servicios (ITBMS)
Date introduced 22-Dec-76
Trading bloc membership None that would provide differentiated VAT treatment
Administered by Ministry of Finance ( Paginas/home.aspx)
VAT rates
Standard 7%
Other 10%, 15%, exempt
VAT number format National Tax Registry Number (RUC)
VAT return period Monthly
Registration Gross annual income of USD36,000 or month average above USD3,000
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods made in Panama by a taxable person
  • The leasing of movable goods located in Panama
  • Supplies of services
  • The importation of goods from outside Panama, regardless of the status of the importer

Who is liable

A taxable person for VAT purposes is an entity or individual that performs commercial, industrial or financial activities or sup­plies services, provided its income is greater than USD36,000 per year or has a monthly average greater than USD3,000; non-domiciled persons and importers are liable regardless of their income. Taxable persons that are designated as withholding agents for VAT must appoint a legal representative. All persons must register as taxpayers, and no separate register of VAT tax­payers exists.

Withholding agents. According to article 1, numeral d) of Executive Decree No. 463 of 14 October 2015, whoever buys goods and services for a total amount superior to 10 million dol­lars (USD10 million) in the previous fiscal year, will be consid­ered a withholding agent for VAT purposes and, therefore, obliged to retain 50% of the VAT included in the corresponding invoice or equivalent document issued by the provider of said services or goods in the following fiscal period.

In that sense, the Panamanian tax authorities must issue a list of all retention agents that comply with the criteria mentioned above, at the latest 15 December of every year. On 19 October 2015, the first list was published through Resolution No 201­ 17679, which qualifies 166 private entities as withholding agents for VAT purposes.

Group registration. Panama does not allow entities controlled by the same economic group to file a single VAT return.

Non-established businesses and tax representatives. A “non-established business” is a business that has no fixed establish­ment in Panama. A non-established business must register for VAT if it supplies goods in Panama. To register, a non-established business must file a registration form. A foreign corporation must also submit a copy of its articles of incorporation, legalized by the Pan amanian Consul, together with an official translation in Spanish.

Non-established businesses rendering services in Panama are subject to withholding of VAT. The Panamanian recipient would deem that the VAT is included in the invoice and make the with­holding. The amount withheld may be offset as an input VAT. The non-established business would not receive a refund.

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 nonresident counterparty and make a VAT withholding to be paid within 10 days to the tax authorities. The amounts withheld may be considered input VAT and used to off­set output VAT of the Panamanian party. The amount that the Panamanian party is required to withhold is calculated according to the following formula: the amount invoiced is multiplied by 0.065421.

Registration procedures. The Panamanian tax authorities issue an RUC which is the taxpayer ID number (it applies to VAT and income tax, among other taxes). The RUC can be registered with the Panamanian tax authorities or via the internet through the webpage: To register as taxpayers 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 taxpayer
  • Legal entities:
    • Certificate of registration issued by the public registry. — Copy of legal representative’s ID
    • Copy of business registration (Aviso de Operación) or business license issued by the Ministry of Trade and Industries
    • Copy of last paid utility bill from of a public service to prove the domicile of the taxpayer

If the taxpayer’s information changes, the Panamanian tax authorities should be notified.

Late-registration penalties. There are no additional specific pen­alties for late registration of VAT taxpayers.

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.

Deregistration. Entities that are no longer taxpayers for VAT pur­poses (because of the income threshold) need to fill out and file a form stating that they will no longer be considered as taxpayers for VAT purposes. This document may be downloaded from the webpage of the Ministry of Finance. A final VAT return must also be filed with the Ministry of Finance.

VAT rates

The term “taxable supplies” refers to the supplies of goods that are liable to VAT.

The VAT rates are:

  • Standard rate: 7%
  • Supplies of alcoholic beverages, such as liquors and beers, and hotels and other lodging services: 10%
  • Cigarettes, cigars and other tobacco products: 15%

The standard rate applies to all supplies of goods and services, unless a specific measure provides for a higher rate or an exemp­tion. The following list provides some examples of exempt sup­plies of goods.

The term “exempt supplies” refers to supplies of goods that are not liable to tax. Exempt supplies do not give rise to a right of input tax deduction.

Examples of exempt supplies of goods

  • Supplies made by agricultural producers
  • Unprocessed fish, meat and game supplied by nonindustrial fisher men and hunters
  • Exported goods
  • Medical and pharmaceutical products
  • School materials
  • Supplies of goods made in a free zone in Panama
  • Supplies of movable goods within an authorized customs ware­house
  • Oil and related products (motor oil is subject to VAT)
  • Groceries
  • Hand tools, fertilizers, insecticides, fungicides and similar prod­ucts used in agriculture

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.”

For a sale of goods, the tax point is when the invoice is issued or the goods are supplied, whichever is earlier. For services, the tax point is the date on which the invoice is issued, the date on which the services are rendered or the date on which total or partial payment is made, whichever is earlier. For recurring annual ser­vices, the tax point is when total or partial payment is made. For a lease of movable property, the tax point is when the parties to the lease enter into the contract.

For supplies of goods made by a company to a manager or legal representative of the company for his or her personal consump­tion, the tax point is the earlier of when the goods are delivered or when the supply is recorded.

Imported goods. The time of supply for imported goods is when the customs return is filed.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on services and supplies made. Input tax includes VAT charged on goods and services supplied in Panama and VAT paid on imports. A valid tax invoice or customs docu­ment must generally accompany a claim for input tax credit.

Nondeductible input tax. If a taxable person provides a service or good to a VAT exempt customer (for example, certain govern­ment institutions), the VAT paid on the purchases or imports of goods and services related to sales to such tax exempt customer may not be recognized as input VAT thus, the VAT would become a cost for the seller. Similarly, the VAT paid on supplies to pro­duce VAT exempted sales should be considered a cost.

Examples of items for which input tax is nondeductible

  • VAT paid on supplies required by public energy generating companies.

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • VAT paid on import of inventory
  • VAT paid for services received

Refunds. If the amount of input VAT recoverable in a period exceeds the amount of output VAT payable, the taxable person receives an input VAT 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 fiscal year. VAT credits are not refunded.

VAT-free purchases by frequent exporters. 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 taxpayers that can offset it against their own VAT liabilities.

Law 52 of 2012 deems a number of domestic taxpayers to be treated as exporters and grants them similar 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 taxpayers do not charge VAT, but they may not offset input tax against other tax liabilities.

Partial exemption. The VAT paid by a taxable person related 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.

Preregistration costs. Not applicable.

Recovery of VAT by non-established businesses

Panama does not refund VAT incurred by foreign or non-estab­lished businesses that are not registered for VAT there.


VAT invoices and credit and debit notes. A taxable person must provide a VAT invoice for all taxable services and supplies made, including exports. An invoice is necessary to support a claim for input tax credit. Special fiscal equipment authorized by the tax authorities must be used.

A VAT credit note may be used to reduce VAT charged and reclaimed on a supply if the value is reduced for any reason (for example, the price changes or goods are returned as a result of a discount or bonus). A credit note must generally contain the same information as a tax invoice.

Exports. VAT is not chargeable on qualified supplies of exported goods. To qualify, exports must be supported by documents that confirm that the goods have left Panama, such as customs documents, export invoices and copies of bills of lading.

Foreign-currency invoices. If a VAT invoice is issued in a foreign currency, the amounts must be converted into Panamanian bal­boas (PAB), or US dollars (USD).

VAT returns and payment

VAT returns. All taxpayers must submit VAT returns monthly. Monthly returns must be submitted by the 15th day of the month following the end of the return period. Payment in full is due on the same date.

Return liabilities must be paid in Panamanian balboas or US dollars.

Special schemes. None.

Electronic filing and archiving. It is possible to file the VAT returns electronically, however, in order to do that the individual or entity will need to request an NIT (numero de identificacion tributaria), a tax ID number from the tax authorities. This special number is required for all online tax processes on the website of the Panamanian tax authorities (e.g., tax declarations, state­ments), enabling corporations to be managed remotely. Archiving may also be done electronically, if the archive is compliant with the electronic document law.

Annual returns. If the monthly returns have been submitted, no other annual returns will need to be submitted to the tax authori­ties from a VAT perspective.


If a taxpayer does not pay VAT on time, the penalty is 10% of the VAT due plus interest, per month or fraction of a month, from the date the tax should have been paid until the date of payment. The interest rate is 2% over the interest reference rate indicated by the Banking Commission. For fiscal year 2016, the applicable inter­est rate is 0.8%. This interest rate is updated annually.

A fine of USD10 may be imposed for late filing if no VAT is due as a result of credits in favor of the taxpayer. 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 2 to 5 years.