5% ITBMS Tax on Real Estate Commissions
Wednesday, June 11 2008 @ 01:37 PM EDT
Contributed by: Don Winner
By DON WINNER for Panama-Guide.com - Recently on the Panama Real Estate Yahoo! email group, someone asked if it was correct for a real estate agent to charge a 5% ITBMS sales tax on the commission earned through the sale. The short answer is - yes. As a matter of fact, real estate agents are required by Executive Decree #84 (of 26 August 2005) as posted in the Gaceta Oficial on Monday, 29 August 2005 to charge the 5% tax on the commissions they earn through the services they provide. (more)
Before it was ITBM: Before the changes implemented in 2005, the tax used to be called (in Spanish) the Impuesto a las Transferencias de Bienes Corporales Muebles (ITMB). After the implementation of the changes in the law, the name was changed to the Impuesto a las Transferencias de Bienes Corporales Muebles y la Prestación de Servicios (ITBMS). Notice the addition of that last part, which means "Offering Services." As a result of the change, all service providers, real estate agents and lawyers included, now have to pay a 5% ITBMS tax that is calculated on their service fees or commissions charged. They are supposed to invoice their commission, and then on the same invoice reflect the 5% ITBMS tax which is then paid to the Panamanian government.
"We Absorb It" In researching this issue, I called the offices of several real estate agencies in town and asked around. All of the larger, established and reputable agencies gave me the same answer - Yes, they charge this tax as required by law. One smaller outfit said the just charge the commission, and then they pay the 5% tax out of pocket. "We absorb it" was the response. In fact, while they are just trying to either make things easier or to not charge the tax to their customers, Panamanian law is clear and what they are doing (by "absorbing" the tax) would require their accountant to do some dancing around at tax time.
In Any Case: If you see a 5% ITBMS tax being charged by the real estate agent at closing time, don't worry about it. The 5% is calculated on the service fee or commission. So, if the agent is earning a $3,000 commission, then the tax paid is $150 bucks. Hope this helps.
Copyright 2008 by Don Winner for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.