Global Tax Alert (News from Americas Tax Center) | 9 January 2014

Panama creates a withholding tax applicable to factoring agreements

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On 27 November 2013, Law N° 110, introducing a 1% tax on with-recourse financial factoring agreements in Panama, was published in the Official Gazette.

This new law, which modifies Section 2 of Law N° 4 of 1994, is in effect as of 28 November 2013. The 1% tax is to be applied over the total amount of the invoice assigned to the factor.

The following transactions are exempt from the above-mentioned withholding tax:

  • Factoring transactions to finance, partially or totally, the implementation of construction contracts or agreements for the supply of goods and/or services carried out by contractors of the Panamanian State. The Ministry of Economy and Finance (the Ministry) must consent to such agreements and certain requirements must be satisfied (i.e., the overall project must be of public interest. The Ministry may disregard the financing provided by third parties to the subcontractor if the terms and conditions of the underlying financing are not in accordance to those terms and conditions to which the Panamanian Republic ordinarily agrees for similar types of financings).
  • Factoring transactions in an amount of up to US$5,000 concluded by micro, small and medium-sized companies which are duly registered as such before the relevant public authority in Panama, i.e., the Micro, Small and Medium-Sized Companies Authority (in Spanish: Autoridad de la Micro, Pequeña y Mediana Empresa, a.k.a. AMPYME).

For additional information with respect to this Alert, please contact the following:

Ernst & Young Limited Corp., Panama City
  • Luis Eduardo Ocando
    +507 208 0144
    luis.ocando@pa.ey.com
  • Klaus Bieberach
    +507 208 0165
    klaus.bieberach@pa.ey.com
Ernst & Young, S.A., San José, Costa Rica
  • Rafael Sayagués
    +506 2208 9880
    rafael.sayagues@ey.com
  • Alexandre Barbellion
    +506 2208 9841
    alexandre.barbellion@cr.ey.com

EYG no. CM4090