Panamanian legislation (article 1057-V of the Fiscal Code) designates a legal entity or individuals, as well as entities that by their public functions or by their activity, trade or profession, act in transactions as withholding agents that retain or receive Panamanian VAT (impuesto a las transferencias de bienes corporales muebles y la prestacion de servicios – ITBMS). The ITBMS withholding amount is 50% of the ITBMS included in the invoice or equivalent document that the supplier submits to the ITBMS withholding agent.
Details about the withholding mechanism, including the required documentation, registration, payment terms, and other formalities applicable to ITBMS withholding agents have been established by Executive Decree.
Through various resolutions issued in 2019, the government has established a procedure by which a VAT withholding agent (an entity or joint venture) can request recognition of the credit of VAT withholding.
ITBMS Credit application
The ITBMS fiscal credit generated as a consequence of ITBMS withheld by a VAT agent can be applied in the next fiscal period after the recognition date. The credit recognised cannot be more than 35% per fiscal period. An unused ITBMS credit can be transferred or sold to another taxpayer that is obliged to pay ITBMS if the taxpayer that owns the ITBMS credit asks the Tax Authorities to recognise and apply the ITBMS to that other taxpayer. However, unused ITBMS credits can only be transferred once.