Taxes - Aviation Finance & Leasing

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What taxes may apply to aviation-related lease payments, loan repayments and transfers of aircraft?

ITBMS tax

Panamanian tax laws provide for a specific tax for transfer of chattel property and services (ITBMS), which is applied to those assets transferred or services provided in the territory of Panama. This is regardless of the place where the contract has been entered into or the place where payment is made. ITBMS tax would apply for the sale of aircraft located within the territory of Panama.

Under general tax provisions, lease contracts are considered a service rendered by lessor and thus are subject to the ITBMS tax.

Currently, the applicable ITBMS rate is 7 per cent.

Income tax

Payments made by the lessee to the lessor and payments made by mortgagor to the mortgagee are subject to income tax unless reciprocity agreements are in effect between Panama and the country of the lessor or mortgagee. The United States has a tax reciprocity agreement (exchange of notes) with Panama, whereas the gross income derived from lease or mortgage payments of aircraft engaged in international transportation is exempt from income tax. The applicable corporate tax rate is 25 per cent of net taxable income.

Withholding tax

Payments made by the lessee or mortgagor to a non-domiciled lessor or mortgagee pursuant to a lease or a mortgage of an aircraft economically used within Panama, or by a local operator for international transportation, are subject to a withholding tax of 50 per cent of the applicable tax rate on 100 per cent of the amounts credited to the non-domiciled lessor, unless reciprocity agreements are in effect between Panama and the country of the lessor. The United States has a tax reciprocity agreement (exchange of notes) with Panama, whereas the gross income derived from lease or mortgage payments of aircraft engaged in international transportation is exempt from income tax.

Import tax

Aircraft operators engaged in public transportation services or aviation-related business are exempt from import taxes on aircraft and spare parts, including engines.

Gross-up provisions are not enforceable.

More info on Aviation Finance & Leasing in Panama – Contact:

María de Lourdes Marengo (mmarengo@pmalawyers.com)

PATTON MORENO & ASVAT, the experienced legal guidance you can trust.

- An extract of the Aviation Finance & Leasing Guide 2021, originally published by Getting the Deal Through / Lexology