Panamanian VAT credit application procedure
As a consequence of the COVID-19 Pandemic and with the aim of providing an efficient procedure to apply the impuesto a las transferencias de bienes corporales muebles y la prestacion de servicios (ITBMS) credit (ITBMS is the Panamanian VAT), the Panamanian tax authorities have clarified some criteria necessary for the ITBMS credit to be available to taxpayers.
A few years ago, Panamanian tax authorities create an ITBMS control mechanism under which ITBMS is withheld by a VAT withholding agent. The purpose of this withholding (referred to as a ‘retention’) is to facilitate, accelerate, and ensure the collection of the ITBMS, since the retention is done at the time of payment or accreditation of the purchase to the supplier of goods and services, whichever happens first. An ITBMS credit is generated as a consequence of the ITBMS withheld by a VAT withholding agent. Such agents retain or receive 50% of the ITBMS included in an invoice or equivalent document that a supplier submits to the withholding agent. The ITBMS credit can be applied in the next fiscal period after the recognition date. Any 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.
The ITBMS credit procedure
- The ITBMS credit is only available when the legal entity or joint venture is recognized as having acted as a withholding agent, in other words, if they actually received (withheld) the VAT.
- The taxpayer wishing to transfer the credit must file an application with the Tax Authorities in which it verifies that the company remains operatively inactive or that the joint venture has completed the work or project for which it was created.
- A taxpayer that wants to apply the ITBMS credit must be up-to-date with all its payments and obligations to the government.
- The ITBMS credit generated as a result of the withholding applied by an ITBMS withholding agent can be used in the tax period in which it is accepted by the Tax Authorities and/or in subsequent tax periods.
- A recognized credit may be applied to two taxpayers that are subject to pay ITBMS, so long as there is prior agreement between the parties.
If the taxpayer asks to have all or part of the credit assigned to another taxpayer, the taxpayer seeking to transfer the credit must submit a formal request to the Directorate. The formal request must include general information about the taxpayer to whom the credit is being transferred, the percentage that will be assigned, and the period in which it will be applied.
A maximum of 50% of the total ITBMS credit can be used per fiscal year. (In other words, when claiming an ITBMS credit you must do so over two tax years.)