Panama - what tax benefits does this offshore have for e-commerce

Panama is not a signatory to any double tax treaties with regard to commercial activities. Additionally, Value Added Tax (VAT) is not levied on goods or services exported from Panama. Therefore, Panama is a zero tax jurisdiction, which provides many benefits for e-commerce businesses.

Panama became the first country to adopt a specificlaw applicable to electronic commerce in Central America. On August 1, 2001, Panama enacted Law 43 of 2001, which "defines and regulates electronic documents and signatures and certification authorities in electronic commerce, and the exchange of electronic documents". Law 43 was a collaborative effort between the public and private sectors and represents an advance for the legal recognition of electronic documents and signatures, which are the basic elements necessary to increase public confidence in electronic transactions. The provisions of the Law 43 on electronic documents are based on the United Nations Commission on International Trade Law (UNCITRAL) Draft E-commerce Law.

Law 43 provides for the maintenance of correspondence, invoices, ledgers, corporate books and other records that were previously regulated by the Code of Commerce and Tax Code. The Law allows to process online transactions only to users outside of Panama, so that their income would be tax-exempt.

What are the tax benefits for E-commerce in Panama?
Foreign investors are attracted to the Republic of Panama because of the tax benefits, particularly those referring to income tax. Income tax is levied on all revenues produced within the territory of the Republic of Panama, subject to certain exemptions specified by law. Additionally, the use of the U.S. Dollar as currency combined with the current low-tax environment has attracted e-commerce operations into Panama.

Panama has also passed favorable legislation to encourage international businesses to incorporate in Panama, especially e-commerce. In Panama, e-commerce businesses are exempted from contributions, duties or import fees on all machinery, equipment, furniture, vehicles, appliances, or materials necessary for the development of the project. Additionally, e-commerce businesses have the following benefits available to them: exemption from any national direct tax on capital; exemption from income tax; exemption from any national direct tax on dividends and interests originated from securities issued by the company and traded in local or international markets.

What are the rules regarding taxation of telephone calls made over the Internet?
The legislature of Panama in February, 2004 approved the rule of taxing the telephone calls made over the Internet at the same rate as traditional phone calls. The tax imposes a 12% levy on all international calls, regardless of how they are made, in place of the previous $1 levy per international call. The legislature approved this rule in response to a drop of around $12 million in revenue for the Panamanian government resulting from the increased use of VoIP (Internet based) communications technology.

Ira Piltz, Greenpoint Technologies