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Latin America Investment News on Viva Tropical

Panama: Differences Between Builders and Developers Cause Costly Tax Errors

Article Summary:

For tax purposes in Panama, there is a big difference between builders and/or construction companies, and those who promote real estate, and this difference is playing out in how the companies file their Panamanian income taxes. If filed incorrectly, it can lead to serious and costly errors.

Photo Credit: La Prensa

Original Article Text From La Prensa via Google Translate :

Builders and Developers


For tax purposes there is a big difference between those who are stirred into activity by executing construction works of architecture or engineering on property, better known as builders or construction companies, and those who perform actions or activities to promote ideas, people and things , including real estate, own or others, identified as promoters.

The difference between them is related to the work they do and how to file your annual taxable income all tax purposes.

Construction companies, for starters, are authorized to determine, at its option, the taxable income of each fiscal year in accordance with any of the three methods outlined in Executive Decree 170 of 1993:

1) Applying the percentage of net profit calculated for each work, on the amounts actually received in the year of construction activity. This percentage may be changed in the following years in case of clear variation calculation, 2) applying the percentage of net profit calculated on the value carried in the year of each project or contract execution and deducting costs and expenses actually incurred in year, and 3) assigning the result of the work (total revenue less costs and expenses attributable to it) in the fiscal year in which the work is completed.

This deprives the proof of completion or occupancy permit delivery report of the work, whether after incurred additional costs and expenses that may be deducted equally.

Instead, the promoter companies owning real estate projects, which do not qualify for the special rate of item a) of Article 701, are subject to state income according to the date of registration of deeds in the Public Registry of Panama, in the which must contain the actual transfer of real estate. The cost of sales for the period should correspond to the ratio of their respective costs according to the total cost of the work.

As for the cost, each item must be analyzed appropriately for each sale (commissions, taxes and the like) and the rest will be provided by sales of the period.

It is clear that the promoters are required to declare their net income in the fiscal period in which to register the deeds of sale for tax purposes or complementary dividend, tax and operational reporting.

In summary, to declare the income of the period the construction companies have three different options, but the developers, to be part of a different activity, not eligible for any of the three approved systems for builders, they shall be required to declare their income depending on the time they register in the Public Registry transfers (sales) of property or real estate.

The confusion between these two activities creates a high fiscal risk to promoters when wrongly adopted the formula for builders.

Furthermore, it encourages the denial of the application of non-application of CAIR to support such a claim request in the formula given to construction companies to declare their income when they finish the work. Crassus and costly mistake.

Link to Original Article:

From La Prensa

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