PANAMA ABRUPTLY TARGETS FOREIGN COMPANIES FOR EXCESSIVE AND UNAUTHORIZED TAXES AND FEES

Foreign-owned companies located in the Republic of Panama have received extraordinary demands from local tax authorities, to forthwith pay taxes, fees and charges that are not only unwarranted, but have no basis in law. These fees, which should be considered confiscatory, due to their size, most be paid, according to government demands, or bank accounts, and other assets of the foreign companies will be seized.

In addition, additional fines, and prison terms for nonpayment, have been threatened. Some of the charges levied include:

(1) Taxes for closed and dissolved companies, properly shut down years ago, demanding payments of annual taxes for each and every year since the companies terminated their existence with government agencies.

(2) Social security taxes, for years, notwithstanding that some companies had zero employees.

(3) Capital Gains taxes on the sale of real estate, notwithstanding that such tax laws, imposed briefly by former President Martinelli, were reportedly repealed.

It is noteworthy that companies of Panamanian nationals have not been targeted for these unauthorized taxes and charges. Most observers believe the reason for the imposition of illegal taxes and fees are a crude and desperate attempt by the new government to raise funds for the national budget, which has major shortfalls. Unfortunately, the reaction will probably be that foreign companies, and investors, will flee Panama in droves, resulting in a smaller tax base, and an even greater deficit.

Why the new, reformist, Varela government would engage in these strong-arm tactics is a mystery, because its efforts to date, to root out domestic  problems, have been a breath of fresh air in what was a sewer of  corruption, official misconduct, and rampant white-collar crime. If it appears that the new government intends to become solvent by draining foreign companies of assets, then the net result will be mass capital flight, and a general awareness, by the international community, that one can no longer so business in Panama; That could severely impact the economy, which relies upon its status as an offshore financial center.