Panama Investor Blog

Shippers Brace for New Tax on Fuel

A tax on shipping is really a tax on everybody. The shippers will pass the taxes on to their customers who will pass them on to the consumers.  The affects of the Copenhagen agreements will soon be felt by everyone and it is only the beginning!  Just another scheme for the redistribution of wealth IMO.

BRUSSELS -- Shipping companies, already crimped by a global trade slump, fear that the Copenhagen climate summit will deliver another hit: a tax on bunker fuel, the thick, sulfuric low-grade oil that powers ships.

In anticipation of a levy, the industry has developed a flurry of new technologies ranging from a giant kite that functions as a sail to aerodynamic paint, and are making simpler adjustments such as sailing more slowly.

Read the rest here at Wall Street Journal online.

IRS penalties for noncompliance

An article in International Properties caught my eye because it listed the penalties for noncompliance in reporting bank accounts, corporations and other structures by U.S. citizens. I like the way each noncompliance starts out as "A penalty for failing to file the Form XXXX". Thought my U.S. readers might want to know what the slaveholders will do to you should they discover you forgot to inform them of all your holdings. You can read the whole article here.

A short summary of some of the compliance requirements:

• A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). U.S. citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account. Non-willful violations are subject to a civil penalty of not more than $10,000 for each account and for each year that the account is unreported.
• A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a U.S. person, transfers of property from a U.S. person to a foreign trust and receipt of distributions from foreign trusts. This return also reports the receipt by U.S. persons of gifts from foreign entities. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
• A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by U.S. persons with various interests in and powers over those trusts under section 6048(b).The penalty for failing to file each one of these information returns or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the U.S. person.
• A penalty for failing to file Form 5471, Information Return of U.S. Person with Respect to Certain Foreign Corporations. Certain U.S. persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
• A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
• A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. U.S. persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and 10 percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Flat Tax back on track

I am very happy to see that the government still plans on implementing the flat tax system. This will be a big boon to business and a simplification of the existing and confusing tax system currently in place.

La Prensa

The government has given a new setback to the filing of tax reforms, whose most important change would be the replacement of Alternative Calculation of Income Tax (CAIR) by applying a flat tax (flat rate or only).

  The original plan was to introduce this reform last October, but then the long process of discussion and generated positions against last fiscal adjustment law adopted last September, the Ministry of Finance reported that the tax changes "integral" would postponed to 2010.

  However, the president, Ricardo Martinelli, said the Panamanian tax change will model during the special sessions of the National Assembly, scheduled for the recess of the legislature in November and December.

  Deputy Finance Minister, Dulcidio Guard, said the new initiative are reviewing the alternative calculation of income tax, lower tax rate on income of individuals and corporations across the flat tax and elimination of various taxes that have little revenue, but would not specify.

The official said he had met with the industry to explain some ways to achieve increased effective rate of tax.

  With just days to the end of November, the official said they are committed to the private sector to review the reform before it is submitted to the Assembly.  However, business associations are concerned about the dimension of the reforms against time for consultations.

 Ruben Castillo, president of the Panamanian Association of Business Executives (APED), said the tax issue is difficult, complicated and technical and can not "move quickly", referring to the discussion in the Assembly.

  Hopes that the reform is stable so it does not send a bad signal to investors that the revenue generated is invested not in form.

  Adolfo Linares, president of the Chamber of Commerce and Industry, suggested that points to a genuine fiscal policy to avoid falling into a purely tax collection reform parameters.

  For Gaspar García de Paredes, president of the National Business Council (Conep), fiscal policy must meet the mission of maintaining the vitality of the economy, instead of collecting more taxes and lose taxpayers.

Ministry promises "fair" prices for ROP land

The battle over ROP land along coastal areas has heated up as many gathered at the ministry yesterday to air their concerns about the new law. Although there are many details involved, the bottom line for the state is money and how much they can  charge per hectare to those who want to retain and title the land. For many foreigners who purchased ROP from local farmers this comes as a complete shock as they did not expect to have to pay more than they already have. For many it could mean the end of their dreams of retirement in Panama as they may not have funds enough to buy the property from the state. Many investors who bought ROP as speculation may also find it difficult especially in these tough real estate times. Although the Ministry of Finance promises to be fair in the pricing structure, one has to wonder what "fair" means to them. If they want to charge fair market value for the properties it cold be devastating to those who have already paid once for the property. If the ministry does make the payment small so as not to adversely affect the local farmers they will surely put in place an evaluation for the property that will be much higher in order to begin taxing the property on a yearly basis. After all, this is the real reason ROP land is being titled, IMO. In any case, we should find out pretty soon what the price structure will be.

La Prensa:

José González Pinilla
jagonzalez@prensa.com jagonzalez@prensa.com

  The draft law regulating the title, in coastal areas will be modified.  Deputy Finance Minister, Dulcidio Guard announced yesterday that presented to the Assembly a draft reform package, which had passed the first debate, which has been questioned by locals and investors.

Among the changes is the establishment of a date for conducting a public consultation in order to pass a table of prices for the purchase of land with possessory rights.

  The price table is the main concern of local people and investors, who yesterday attended a forum organized by the Ministry of Economy and Finance (MEF).

  This event was attended by investors and retirees of the United States, Canada and other countries, who defended their right to the land owner who bought in the form of possessory right in coastal areas.  "I want to know how much more I have to pay," she said.

 As the land have no title but possession rights, must be purchased at State, Publius said Cortes, director of the Cadastre of MEF.

  For foreign investors, most have bought land with possessory rights to the locals.

  Cortés explained that in order not to affect them, the MEF aims to recognize the purchase by foreigners as well as the years locals have lived on the site, so that prices are fair.

  During the forum, Vice Minister reiterated that seeks to stop the land grab.

  A report by the Directorate of Land Registry points out, for example, that in Bahia Honda in Veraguas, some 700 hectares with possessory rights were bought at bargain prices: a one cent per square meter.

$1000 makes a $100,000 tax bill disappear

Such a deal! For those of us who live in Panama, stories such as these come as no surprise and most of the populace just accept it as the way things are.

From La Prensa

The lack of controls to access the database of the Department of Revenue (DGI) left a window open to alter the accounts that taxpayers have with the state.

  The CEO of Revenue, Luis Cucalón, said on arrival at the institution in July found a database vulnerable to the discretion of some officials to "downgrade accounts and alter them, possibly in exchange for money."  In the DGI had created a barter system, "Give me a thousand dollars and 100 thousand U.S. dollars delete you and no one notices.  The way to know who that was incurred in reviewing the motions of the 620 staff of the DGI by a certain date, and no time to do that, we must be realistic, "he said Cucalón.

"As no trace of the transaction, it is difficult to test this situation," he said.

 In this context, the DGI now justifies the direct recruitment of the Panamanian company Risco, SA, which will strengthen the security arrangements for a payment system of 54 thousand dollars.  According Cucalón no time to wait six months a bid.

  Under the previous administration bought two technology programs, a collection and control "FISCO massive", with a total value of half a million dollars, which were financed by the IDB.  But according Cucalón, these do not work.

  Indeed, currently working with the test program "FISCO massive".

  Gisela Alvarez de Porras, former head of the DGI, said the system has internal accounting controls to detect data manipulation.

  However, Cucalón said there is no real audit method for calculating what they could have been stopped charging $ 200 million in recent years, according to the experience of analysts.

According to Porras, is foolhardy "to refer to such a large sum and make it as true."  "I assume that the DGI has no management information at this time".

New VAT tax coming to America

Our friends at the Center for Freedom and Prosperity have come out with another excellent video, this time about a new tax the U.S. government wants to implement to pay for the huge increase in spending. Another insanity coming at a time when unemployment is climbing through the roof and consumption has fallen off a cliff. This short video tells it like it is and needs to be spread far and wide. I don't know whether any real opposition can change the direction of this freight train, but at least you know it is coming. Time to get off the tracks!

SS asks; Is Expatriation Right for You?

With all the tax ramifications of the U.S. governments spending this year many folks are asking this question about expatriating. I know because I see them regularly here in Valle Escondido. Surprisingly, they are not just from North America. People from Canada, England and many other countries are seeing the hand writing on the wall. The Sovereign Society has been writing about this issue for many years but now it is more in the forefront than ever. If you are not a subscriber to their free news letter you should do so. Here are the details of what is involved and why you might want to consider it.

Dear A-Letter Reader,

The United States is one of only two countries that imposes tax on a citizen's worldwide income, no matter where that citizen lives. (The other country is, of all places, Eritrea.)

For citizens of most high-tax countries, it's easy to legally avoid the obligation to pay tax on your worldwide income. You simply relocate to a lower-tax jurisdiction, or one that only taxes local income. After an extended period – normally 1-2 years – you become "non-resident" for tax purposes. You no longer have the obligation to pay tax on your worldwide income to the country that issued your passport. You may, however, still be subject to gift and estate taxes.

But Not in the USA…

To permanently disconnect from the obligation to pay U.S. income tax, U.S. citizens must not only leave the United States. They must also take the radical step of giving up U.S. citizenship and passport. This process (from a U.S. standpoint) is called expatriation. Before giving up U.S. citizenship, they must acquire citizenship and a passport from another country.

If you're wealthy, expatriating could result in big tax savings. The total combined state-federal income tax burden for most high earners is close to 50%. And President Obama promises to hike that burden to pay for his spending plans.

Much awaited tax reform postponed

I believe this is good news as the sweeping tax reforms proposed were moving so quickly there was little time to think through the consequences. Now the Ministry Of Economy and Finance has decided to hold off for several more months in order to make these much needed reviews. That includes a closer look at the flat tax which was a campaign promise of the President. If implemented properly, the flat tax will simplify tax procedures and make Panama much more competitive in the world that is swiftly moving toward higher taxes. In addition it will be a marketing bonanza for Panama as flat taxes have clearly shown their ability to attract foreign investment. Although I understand the urgency in getting the reform passed in order to increase revenues to the state, it could be disastrous if not executed properly. Fools rush in where angles fear to tread. For more on the value of a flat tax click here.

Excerpts from La Prensa:

Xenia lion
xdeleon@prensa.com xdeleon@prensa.com

With 12 days for the submission of tax reform, the Government decided to postpone the presentation of the project by early 2010.

Deputy Finance Minister, Dulcidio of the Guard, acknowledged that there is still a "draft bill" because they are evaluating the various scenarios put forward by the consultants on the impact of tax changes.

Meanwhile, the deputy economy minister, Frank De Lima, said it would be unlikely the approval of the reform in 2009, because in his opinion there are many projects in the National Assembly, which ends its session in late October.

  However, some sectors will argue that strategy the Government has postponed the presentation of the reform, given the intense debate that led to the recent fiscal adjustment discussed in the Assembly.

With this tax adjustment, the Government hopes to raise $ 200 million in additional revenue by 2010, resources that will help fulfill the campaign promises and areducir the fiscal deficit.

  Comprehensive reform

The analysis of the speech today the Ministry of Economy, to be vital in his proposed tax reform includes among its topics anchors the revision of rates of income tax for natural persons and legal reforms and the introduction of flat tax , part of the campaign promise of President Ricardo Martinelli.  Another point is a thorough examination of the Alternative Calculation of Income Tax.

The transformation would include the elimination of certain exemptions that complicate the process of taxing and oversee the payment of taxes.

  "We are assessing the effect of each of the exemptions, see what areas may be affected, whether or not they make sense, a topic that has been very carefully because these are changes in the tax rate," he said De la Guardia.

Both officials said that when the document is ready to be discussed with the sectors before its submission to the Assembly.

Said Acuna, chairman of the committee of finance and public finance of the Chamber of Commerce and Industry, agreed with the postponement of the discussion of reform, provided that the document be discussed with all sectors.

Tax reform bill proposes flat tax on property

I don't like to post proposals to the tax modifications because they can change so rapidly and won't have any affect until made into law, but this gives you and idea of where taxes are going when it comes to real estate. Although I still believe 1% is way too  high compared to other countries it is far better than the 2% we are currently at. Under this plan a condo valued at $250k and no 20 year exoneration would get the first $30k exempt and then pay 1% of $220k or $2,200.00 a year property tax.

From La Prensa;

The draft of the controversial tax reform bill under discussion by the National Assembly could bring a number of changes to the country's property taxes.

In fact, the bill proposes a flat 1 percent tax that encompasses the land value and whatever improvements have been made to it. That means that if the owner of a $55,000 residence currently pays a preferential tax of $185 per year, he or she would now pay roughly $250.

Additionally, tax exemptions for owners of horizontal and vertical property valued at $30,000 or less would be eliminated.

Deputy Finance Minister Dulcidio de la Guardia said the project reflects suggestions made by several unions, while organizations like the Chamber of Commerce, the Association of Brokers and Real Estate Developers (Acoba), the National Housing Council (Convivienda) claimed they were not opposed to the modifications, they predicted that the inauguration of a flat tax would inevitably impact more than just the real estate sector.

Elisa Suárez Gómez, executive director of Convivienda, opined that the property tax rate to be footed by owners of apartments was "high"

Osvaldo Lau, a member of the board of Acoba, said that these reforms are contrary to what was agreed with the unions. "When real estate is giving with one hand and taking with the other," he said. The poorest groups are those most affected."

OECD's new campaign against "tax avoidance"

The OECD is not satisfied with going after tax evaders, but now want to eliminate any tax competition between countries thereby eliminating any advantage they might have. What does this mean to you and me? Read this report and see where things are going if they get their way.

Date: September 9, 2009

To: Supporters of tax competition, fiscal sovereignty, and financial privacy

From: Dan Mitchell

Re: What happens after Cabo Mexico City?
______________________________________________________________________

Last week's Organization for Economic Cooperation and Development (OECD) Global Tax Forum featured an unusual beginning as a looming hurricane in the Pacific forced the event from Cabo to Mexico City. This created special challenges for the Center for Freedom and Prosperity delegation since the government did not put jets at our disposal for the last-minute trip, as they did for official delegates. But we persevered and made our way to the Mexican capital.

That may have been our most significant accomplishment. The Strategic Memorandum we released last week warned that the OECD had its own version of the Brezhnev Doctrine ("what's mine is mine; what's yours in negotiable"), and that the Paris-based bureaucracy would expand its demands. Unfortunately, we were right.