What is CAIR (Alternative Minimum Income Tax)?
CAIR (Cálculo Alterno del Impuesto sobre la Renta) is an alternative minimum tax for companies with gross taxable income above US$1,500,000 a year. The company pays the higher of the standard 25% calculation or 4.67% of gross taxable income.
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Current Rate (Calendar year)
Higher of 25% of net taxable income or 4.67% of gross taxable income, for gross taxable income over US$1,500,000
Example
A company with US$2,000,000 of gross taxable income compares 25% of its net taxable income with 4.67% of US$2,000,000, which is US$93,400. Whichever is higher is the ISR payable.
How CAIR (Alternative Minimum Income Tax) works in Panama
CAIR exists so that high-turnover, low-margin companies cannot report a very small profit and pay very little tax. It compares two calculations and takes the larger one.
If the CAIR calculation would give an unreasonable result, for example in a year when the company made a real loss, the taxpayer can ask the DGI for authorisation to be excluded from CAIR for that tax year. That request is made to the DGI and is not automatic.
The practical risk is margin. A business with thin margins and gross income just over the threshold can owe more than 25% of its net profit. Finn shows both calculations side by side when a company is near the threshold.
Related terms
Impuesto Sobre la Renta (ISR) is Panama's corporate income tax. It is a flat 25% on net taxable Panama-source income for resident companies such as the S. de R.L. and the S.A.
Panama taxes only Panama-source income. Foreign-source income, meaning activities, contracts or transactions completed or having effect outside Panama, is exempt from Panamanian tax even when it passes through a Panamanian company.
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