Anexo 94

Did you take a deduction on your active business SA’s Panama Declaración de Renta on either line 29 or 56?  If so, read this it is important.  It will be especially important to comply with the new changes should you ever need to obtain a Paz y Salvo for your SA.  Be sure to check with your SA’s legal representative or tax professional and know if these new filing requirements are being met.

Among the various items that the new administration in Panamá has done with annual income taxes, is change the filing requirements – sometimes after the fact.  For example, Law 8 of 2010 which most people are aware reduced the individual and corporate tax rates was placed in the Gazetta and became the law of the land on 15 March 2010.   Corporation (SAs) tax returns for 2009 were due on 31 March and many had already filed the returns prior to 15 March.   Individual returns were due 15 March.  MIFI’s tax collector, Dirección General de Ingresos (commonly abbreviated DGi), has amended the electronic forms to prepare and file the 2009 returns five times since January.  And they have added a completely new form called Anexo 94.  DGi  wants the details of the deductions taken on lines 29 or 56 of an SA tax return for 2009 and similar lines (29 & 54) on personal returns already filed. 

Previously the annual corporation income tax return provided 11 categories of direct costs (costos) plus “other” and 21 categories of operating expenses (gastos) plus “other”.    For most taxpayers there were one or more expense categories which were not specifically identified on the Panama Declaración de Renta and which were then placed in lump sum on either line 29 for other direct costs of sales, or line 56 for other expenses.  In past years it was simple, return done, filed and accepted.

Now Panamá DGi is expecting all return filers to go back and specifically identify WHO was paid for what kind of expense and list each one individually on a new tax form.  Each company or individual who was paid has to be identified with their RUC number and each costo further broken down into one of 14 new sub- categories, and each gasto into one of 78 new sub-categories.

They have generously given the affected entities until 31 August to file the new formal report, Anexo 94, with DGi.  This form must be filed electronically, which means all SAs must have been previously registered and assigned a NIT.  The fine for failure to file the new Anexo can range from $10 to as much as $1,000.

 As most US exPats with business experience understand, this is equivalent to requiring a 1099 for EVERY person you did business with during the year.  Unlike the US of A which has a minimum $600 threshold for 1099s, the Panamá rules make no such delineation.

The time to develop and file this information can be extensive.  As a preview and example, one little Panamanian business has a flawless set of QuickBooks files, complete and detailed supporting hard copy files, and all original invoices readily available with all the various vendors RUC numbers on them.  In that case there were 10 expense accounts accumulated in those two categories with 17 different vendors who were paid.   It took over two hours to dig out the details and fill in the DGi document!  That is almost as long as was spent to prepare the original tax return.

So be sure you discuss compliance filing costs with the individual who is responsible for filing these reports for your business SA.  Normally it is your legal representative or the offshore services company who hires their tax professional to do the DGi filing.  The cost may be included in their annual service fees.