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Wednesday, March 26, 2008

Property tax exemption for 20 years, BUT ... (reloaded)

After an unexpected Presidential veto, for the 2nd time a law has been approved on March 10, 2008, by the Legislature to extend the number of projects with a 20-year property tax exemption.

To qualify for this exemption:
a) the BUILDING permit has been issued before July 1, 2009, AND
b) the REGISTRATION of improvements in the Public Registry is completed BEFORE December 31, 2011.

Since registration can take around 1 week, in practice the Occupation Permit would be from 1 week before, in order to comply with the deadline for registration.

The law will only enter into force when signed by the President and published in the Official Gazette http://www.gacetaoficial.gob.pa As of now, Bill 386, "whereby Law 6 of 2005 on Tax Equity is reformed and another provision is enacted" is not in force.

The text of the bill can be downloaded in PDF files (Yahoo registration required): http://groups.yahoo.com/group/Live_in_Panama/files/ProyectosdeLey/Bill386PropertyTaxreload.pdf

Unlike the previous schdule of exemptions which had September 1, 2005, as threshold date for construction permits which would qualify for the 20-year exemption, Bill 386 has a confusing text which applies :

  • the normal 5-15 year exemption to residential improvements with building permits issued AFTER September 1, 2006,
  • the 20-year exemption when the building permit was issued before JULY 1, 2009.
What happens with homes with building permits dated between September 1, 2006 and June 30, 2009? Presumably they would be subject to a 20-year exemption only if they register the improvements by the 2011 cutoff date. If they miss the 2011 date, the normal 5-15 exemption applies.

Despite this extension, residential improvements have the normal limited exemptions of:
  • 15 years Up to US$ 100,000.00
  • 10 years From US$ 100,000.00 to US$ 250,000.00
  • 5 years Above US$ 250,000.00
Non-residential improvements keep exemptions of 10 years.

A caveat: These exemptions only apply to the value which the builder declares for the improvement, NOT to the full value which the buyer pays for the property. For example: if a builder underreports that a condo unit is worth US$70,000, but signs a bill of sale to transfer the unit for US$120,000, property tax would be applicable as follows:

- US$30,000 would be free of taxes because of the minimum threshold for property tax,
- US$40,000 would be free of tax for 15 years (or 20 if the builder registered the improvement before the 2010 deadline).
- US$50,000 would be subject to property tax from the date of the purchase because they are not part of the original value of the improvement.


So if you already purchased a property believing the 20-year tax exemption spiel from your friendly realtor or developer, get a statement ("estado de cuenta") from the nearest Ministry of Economy and Finance (MEF) for the "finca" where your unit is located. It is likely that the builder has not even notified MEF about the new owner, so you may have to show up with your title deed. Property tax statements are NOT sent by mail so outstanding taxes, interest and surcharges may be piling up as you read this post...

Extension to file appraisals

Procastinators lost here. The dream of many developers to have extended the December 31, 2007 deadline to claim an alternative property tax rate vanished with the new version of Bill 386. Property owners who file an update appraisal before that cut-off date are entitled to 40% savings in property tax, with a reduced rate of:
a. 0.70% over the property value above US$30,000.00 up to 50,000.00.
b. 0.90% over the property value between US$50,000.01 and US$75.000.00.
c. 1% over the property value US$75,000.00.

The cut-off date had been extended several times since the original 2006 deadline (See: June 30: Last day to file for property tax reductions). Since appraisers tend to list inflated values, this increases the assessed value with the government which is used to estimate the gain realized when the property is sold later.

The catch: The amended value cannot be increased by the Government for 5-years, which means that after that period, the Government will have a database of the properties which are likely to have increased values.

Why bother with bids?

And then on to a totally unrelated subject, under Bill 386 appropiations for projects funded by the government Social Investment Fund (widely perceived as a pork-barrel dispenser) will be exempt from normal government procurement rules for 2 years until December 31, 2009. This was the sugarcoat for the bill, to allow the Fund run by the President to work faster in government-friendly circuits.

(This post replaces Property tax exemption for 20 years, BUT ... of Wednesday, January 30, 2008).

Tuesday, March 25, 2008

US forms required for Panama trust and other non-US entities

À: JacobsReport[at] yahoogroups.com
De: "Vernon K. Jacobs" <vernjacobs[at] yahoo.com>
Date: Fri, 08 Feb 2008 16:43:44 -0000
Objet: [JacobsReport] Query re: forms required for foreign trust and other entities

QUESTION: What forms are required when setting up a foreign trust and
which forms are needed after the trust is established? Also what forms
are needed to set up a foreign limited liability or corporation owned
by the trust and which forms have to be filed thereafter? Are there
any special forms required for a Panama Private Interest Foundation?

REPLY: I've noticed that different lawyers seem to require different
forms. The following are the ones that I encourage my clients to file.

Form SS-4 Taxpayer I.D. number (You have to call the IRS at the number
in the instructions.)

Form 56 - Notice Concerning Fiduciary Relationship

On or before March 15th, Form 3520-A must be filed or an extension must
be requested with Form 7004. Until the IRS revises their instructions
or until they create a new form for foreign trusts, it's my opinion
that Form 1041 (summary) and 1040-NR (summary) need to be filed with
the Form 3520-A but some advisors would not file either or both of
these. Form 3520 is due with your income tax return, including any
extensions of time to file.

If you (or your trust) form a foreign LLC or IBC or corporation and
want to treat that entity as a disregarded entity (one owner) or
partnership (multiple owners), you first need to secure a tax ID
number by calling the IRS at the number in the instructions to the
Form SS-4. Then you should file Form 8832 within 75 days of forming
and funding the LLC/IBC/Corp. (Caution: If you form a foreign
corporation and want to treat it as a disregarded entity or foreign
partnership, you need to check the back of the instructions to Form
8832 to be sure the entity is eligible to make the election.)

Then either Form 8858 (single owner) or Form 8865 (multiple owners)
would need to be filed with your U.S. income tax return.

If you or your trust choose to form a foreign corporation, IBC or
limited liability company without making an election to treat the
entity as either a disregarded entity or foreign partnership, then you
would need to file a Form 5471 and Form 926 with your U.S. income tax
return. If the foreign corporation engages in business in the U.S., it
may need to file a Form 1120-F (or an extension on Form 7004) on or
before March 15th. (In some cases, a foreign corporation with U.S.
source income doesn't need to file until June 15th.)

As for a Panama Foundation, the required forms will depend on whether
the foundation resembles a trust or a corporation. For a more detailed
explanation of my views on these foundations see
http://www.offshorepress.com/offshoretax/panama-foundation.html If it
functions as a trust, then the forms for a foreign trust would be
required. If it functions as a corporation, then the forms for a
foreign corporation should be used.

If a tax filing date falls on a weekend or national holiday, then the
actual due date is delayed to the next Monday or the work-day after
the holiday.

Other forms might be required depending on the kind of investments you
make, or the kind of business you operate and whether you live and
work outside the U.S. for a full year, etc., etc. For an extensive
list of forms that may be required for diverse international
transactions see www.offshorepress.com/AICPA/ I originally created
this part of my web site for other CPAs, but it's not restricted in
any way and is open to the public.

Vern

The comments in this memorandum are not intended to constitute an
opinion regarding any specific tax issues because additional tax
issues may exist that could affect the tax treatment of the tax issues
addressed in this memo. This memorandum does not consider or reach a
conclusion with respect to those additional issues and was not written
and cannot be used for the purpose of avoiding penalties under code
section 6662(d). For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm


Friday, March 21, 2008

Panamaemprende becomes tool for tax evasion?

Municipalities complained that funds paid by new businesses registering under Panamaemprende are not being transferred to them by the central government http://mensual.prensa.com/mensual/contenido/2008/03/18/hoy/negocios/1298005.html Others registered online and then opened as restaurants or bars without paying the taxes for liquor licenses http://mensual.prensa.com/mensual/contenido/2008/03/18/hoy/negocios/1297933.html


economy

Mayor’s office shuts down businesses

The Mayor of Panama's office has closed and fined at least 90 companies that received permission to operate on the government's web site.

"The law was adopted to expedite starting up companies, but this has caused many problems," said Mayor Juan Carlos Navarro.

In the course of chcking up on the businesses, authorities found that the majority were not operating as they described on the web site. The majority of the violators were restaurants whose main activity was selling alcohol and not food, or places that sold alcohol that had opened too close to a church or a school.

To prevent future problems, the bill will be amended so that any business selling alcohol needs prior permission from the mayor's office.

http://mensual.prensa.com/mensual/contenido/2008/03/18/hoy/herald/1298214.html

Punta Pacifica developers play hard-to-get with public park

development

Wall keeps people out of public park

The government pledged last year to tear down a wall, but no action has been taken.

Carlos Lemos/la prensa
Keep out:A developer has erected a wall around a public park to keep non-residents away from its luxury buildings.999942

A year after Ministra de Vivienda Balbina Herrera promised to tear down a wall blocking access to a public park in Punta Pacífica, it is still standing.

On March 29, 2007, Herrera said: "We demand the removal of all obstacles that hinder the full use and enjoyment of the areas that are for public use."

The wall was erected by the developers of the luxury building Pacific Point. It is estimated that the park has a value of $15 million.

"We are analyzing the situation. We do not want to make a spectacle," said José Batista, director of the Desarrollo Urbano del Ministerio de Vivienda (Mivi).

When the project, which includes the construction of four apartment towers, was approved, it was done so with the provision that the area between the buildings be kept open to the public.

When the wall was put up, President Martin Torrijos appointed a commission to look into the matter and to come up with a resolution.

But that commission has not met since last August.

Pacific Point does not seem eager to tear down the wall, either. On the project's web site, the promoters state: "Being conscious of our obligation for watching over the personal security and the Pacific Point resident’s properties, the project has been provided with a perimeter wall that is only interrupted by a security checkpoint equipped with electronic access controls, and at the same time watched by security personnel 24 hours a day."

http://mensual.prensa.com/mensual/contenido/2008/03/18/hoy/herald/1298286.html

More details in the Spanish versions:
http://mensual.prensa.com/mensual/contenido/2008/03/18/hoy/panorama/1298688.html
http://mensual.prensa.com/mensual/contenido/2008/03/18/hoy/panorama/1298186.html

Wednesday, March 12, 2008

Panamaemprende delays updating of business data by 2 months

Panamaemprende is a great tool for opening up business license and starting to pay taxes for enterprises doing business in Panama.

But for companies that already have business licenses before 2007 (95% of current businesses), it su**s! A company having a shareholders meeting in 2008, which decides to change direcors and notify Panamaemprende, may find that the transition period for updating actual data is never ending. If your business is from 2006, the data from the business license is updated manually and may have mistakes. Once you are in, you discover that:

- Corporate directors (a corporation as director of another corporation) are not admissible, because only a password or cedula number are admitted for a director,

- A minimum of 3 directors are required for corporations applying for the license, so LLCs (SRLs) with 2 directors and Limited Liability Individual Enterprises (EIRLs) under Law 24 of 1966 cannot use Panamaemprende,

- If the address or other data does not match the one previously provided to the Directorate of Revenue under the RUC form, then Panamaemprende will not issue the license and will not allow you to save the data entered. It would be nice to know that the tax data must be updated BEFORE updating it to Panamaemprende.

- Refiling for a new license means you have to pay again (double taxation) the at least US$50 of a license.

As if that was not enough, companies that do not notify changes to Panamaemprende within 30 days are subject to fines of US$50 to US$10,000.

Let s hope that Panamaemprende is more hackerproof than the website of the Legislature, where the Internet database of previous laws is no longer online (see Hackers KO Panama's National Assembly website).

Saturday, March 8, 2008

No tourist visa extensions

In case nobody believed us...

--- wrote:

Hola,

Spent a few minutes at Migracion this am with a friend doing the tourist visa dance.

Bottom line:

Once your 90 days are up, you leave. No extensions. At least for Americans and Canadians anyway. There were more countries on the listso they are not targeting just a few.

That's what they told us and it's printed on a little sign next to Window number 1.

Cheers,

--- End forwarded message ---