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  • Remarks about Tax Measures - COVID 19 (Third Report)

Remarks about Tax Measures - COVID 19 (Third Report)

25 March 2020

Rafael Rivera , Managing Partner / Legal Services & Tax Partner |

Remarks about Tax Measures - COVID 19 (Third Report)

After ordering measures such as the temporary closure of businesses and a nationwide 24-hour curfew, the National Government published Executive Decree No. 251 of 24 March 2020 (hereinafter Executive Decree No. 251), whereby tax measures were adopted to mitigate the negative economic impact generated by the pandemic and the measures restricting commercial and economic activity adopted under the National State of Emergency decreed to deal with the coronavirus pandemic (COVID/19).


The measures adopted by the National Government were the following:

  • Extension of a grace period of one hundred and twenty days (4 months) for the payment of taxes, fees and contributions under the jurisdiction of the General Revenue Directorate. This period expires on July 17, 2020;
  • Granting of an automatic extension for the filing of income tax returns for the 2019 tax period. The extension is granted until May 30; and
  • Reduction and payment deadlines of the advance income tax for fiscal year 2020. It is allowed to estimate up to seventy percent (70%) or less of the tax liquidated for fiscal year 2019.

There are other types of tax measures that could be implemented, however they were not included in the Executive Decree No. 251. As a reference to other available tax measures, please refer to our first report on the mitigation of the economic effects of the coronavirus pandemic (COVID/19).


Grace period or extension of the payment deadline of taxes, fees and contributions administered by the DGI

The taxpayer is granted a period of grace or extension of 120 calendar days, counted from the enactment of Law No. 134 of 2020, that is, from March 20, 2020. This grace period or additional term expires on July 17, 2020. This extension applies to the payment of all direct and indirect national taxes, fees, special contributions and any other money debts, liquid and payable that are caused or owed to the General Directorate of Revenue (DGI), without generating any interest, surcharges and fines.


Taxes, fees and contributions not covered by the grace period or extension of the deadline

Executive Decree No. 51 highlights that the following taxes payable as withholding agents are not included within the benefit of the grace period:

  • Income tax withheld from employees
  • Income tax withheld from non-residents
  • ITBMS[1] withheld from non-residents
  • ITBMS held by the State
  • ITBMS held by local withholding agents
  • Dividend tax
  • Property tax withheld by banks


Support measures for micro, small and medium-sized enterprises

For micro, small, and medium-sized enterprises matching within the conditions of Article 11 of Law No. 33 of 2000 and already registered in the Official Registry of AMPYME, the National Government has ordained a time extension of their exemption of payment of income tax for an additional year, provided that such benefit has a due date during fiscal periods 2019 or 2020.


Extension or deadlines of fiscal year 2019 income tax returns

Income tax returns of legal entities to be submitted, under normal conditions, on March 31 have been postponed by two additional months, i.e. legal entities taxpayers can submit their income tax returns until May 30, 2020.

Extensions requested by individuals and/or legal entities for the filing of their income tax returns are no longer valid or applicable, and will adhere to the new deadline allowing for the filing of the tax returns until May 30, 2020.


CAIR Non-Application Requests

Regarding requests for the non-application of the alternative income tax calculation (also known as CAIR), taxpayers are still subject to the current rules of filing -five (5) working days after the filing of the income tax return. However, due to the current situation the National Government has authorized the filing of all documentation related to the CAIR non-application request through electronic means.

Likewise, this filing method will apply for procedures and applications before the General Directorate of Revenues that the latter allows to be presented electronically. The DGI shall establish the necessary procedures for the presentation of all original documents and/or certified copies.


Reduction and payment deadline of the advance income tax

For the advance income tax of year 2020, taxpayers may calculate and pay an amount of up to 70% or less of their income tax levied in their 2019 income tax returns.

Payment of the advance income tax should be made in two installments instead of the usual three payments. The installments will be due on September 30, 2020 for the first payment and on December 31, 2020 for the second payment.

Through Executive Decree No. 251, the Ministry of Economy and Finance establishes that the reduction of the advance income tax within these parameters will not be investigated or verified by the DGI.


Exemptions from the tax measures adopted by the Government

All taxpayers under investigation for administrative tax evasion or criminal tax fraud are excluded from the application of the above tax measures.

It is our interpretation from the reading of Executive Decree No. 251 that is not required that the taxpayer had been convicted by a final and binding judgement, rather than been under an existing investigation process, including those taxpayers that have more than notified five (5) working days since their notification on their investigation process.


Powers granted to the DGI

The National Government authorized the DGI the power to postpone the filing terms of returns and reports by means of a resolution as long as the taxpayer's compliance capacity continues to be affected by the state of national emergency. Likewise, it may enter into agreements and arrangements to facilitate the compliance of taxpayer obligations.

The DGI may also issue good standing certificates to taxpayers who are overdue or have inconsistencies in their account statements by means of a prior request made by the taxpayer.

However, contractors and suppliers of any of the MEF directorates, including the DGI, the submission of a good standing certificate from the DGI or the Social Security Office shall not be required.

With the new powers that the National Government has granted to the DGI, it is likely that in the coming days other tax measures will be modified or included to safeguard the country's economic and financial situation. We will continue to inform you in accordance with the new developments of the country.

If you need assistance with the application or implementation of these or other tax measures, please contact us for assistance.

[1] ITBMS is the Panamanian VAT on the transfer of movable goods and rendering of services.