Panama is located at the Southeastern end of the Central American Isthmus which connects the North and South American Continents. The country occupies a strategic position as the connecting geographic link, and has been a pathway between the Atlantic and Pacific Oceans, a circumstance that eventually led to the building of the Panama Canal. Panama'seconomy has historically been oriented toward domestic and foreign trade and services; indeed Panama's geographical location and configuration are often considered to be its principal natural resources.
The country has an area of 77,082 square kilometers (29,761 square miles) and a population of approximately 2,800,000, with more than one million residing in Panama City metropolitan area.The unir of currency in Panama is the Balboa which is at par with the US dollar and is issued only in coins which coincide in zize and value with those of the United States. Given the absence ogf Balboa bills, US dollar bills are used for internal transactions in Panama, doubling as foreign exchange and internal currency.
II. TAXES (PÁG. 92 DE LA GUÍA PARA ABOGADOS)
1. IntroductionPanama is considered a conuntry with a preferential tax system, which offers benefits and incentives that makes it especially attractive to foreing investors.
Income tax is levied on all revenues produced within Panama irrespective of where the income is received and of the domicile or residence of the taxpayer. In this regard the Law Stablishes a few exceptions.
Only Panamanian sourceincome, that is, income produced in, or derived from, or obtained in Panama, is taxable. This concept of territoriality is a major factor in making Panama a center of international operations.
Notwithstanding the above, pursuant to the modifications made to the tax law by means of Law Nº 6 de 2005, it is also now considered as produced within Panama the income received from services carried outby individuals which represents work in or outside of Panama, as long as:
• The individuals have remained in Panama for a period of at least 70% continuous or alternate days in the calendar year;
• The work has an effect on the production of their income.
In this connection, those services rendered outside of Panama that are not related with the taxable activities that theindividual carries out in Panama and the sporadic services such as consulting, conferences and similar, will be exempt from income tax.
The revenue received by individuals or legal entities domiciled outside of panama will also be considered as produced in Panama, provided that:
• They are proceeds of any service or act, documented or not that benefits the taxpayer in Panama;
• They are theproceed of fees, royalties, rigths, know-how, knowledge, secrets, among other;
• They have been considered as deductible expenses.
The following forms of income are not subject to income tax as they not considered to be produced in Panama:
• Billing the sale of merchandise from an office established in Panama for an amount higher that they were billed to the office established inPanama, provided the merchandise or goods move exclusively abroad;
• Transactions conducted from an office in Panama, but perfected, consummated, or having effect abroad;
• Distributing dividends or partnership participations when they originate from income not produced within Panama, including income arising from the actvities mentioned in the preceding two paragraphs;
• Therendering of services outside the territory of Panama, as long as they are for a period of less than 30% of days in the calendar year, or that the rendering of said services are not related with the activity that generates taxpayer income;
• Interest, financial commissiones and other similar income obtained by individuals or legal entities, regardless of the place of their domicile or...