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Reviving Panama Corporations and their Tax Consequences

Although physically, it is not possible to revive a legal person (a corporation in this case) already dissolved and buried, actually it is legally possible thanks to the reform of the Code of Commerce offered by Law 85 of November 22, 2012.
 
More precisely, Article 528-A, introduced by Law 85 of 2012, allows a company to recover its legal status, already dissolved by the shareholders or partners, or by regulatory laws, in order to dispose of its non-liquidated assets and enable the company to sell them in due form, collect their credits and/or pay their liabilities or commitments.
 
It should be noted that the company is prevented from carrying out new business or commercial acts during its liquidation, which will be final and definitive when the share that corresponds to the remaining resources of the company have been distributed to the shareholders.
 
From a tax point of view, the first thing that we must address is the need to recover or update the status of taxpayer of a legal person removed from the database of the General Directorate of Revenue (DGI). 
 
Then the consequences will come from the various tax situations that have to be attended by the effect of the liquidation, such as the transfer of assets (movable tangible property) to pay debts to third parties or partners, and that in any case is subject to Law 18 of 2006 that qualifies these transfers as capital transactions and taxes the profit with a fixed rate of 10% as income tax. In addition, the very likely VAT will be pending.
 
As for real estate, the real estate tax will continue to be in force and the transfer of the proceeds of liquidation, regardless of the value to be allocated, obliges to face the provisions of Law 106 of 1974 concerning the Real Estate Transfer Tax (ITBI).
 
For the simple fact of transferring title to real property, the seller, in this case, the revalidated company, must pay 2% of the ITBI to be calculated on the updated cadastral value or the value assigned in the transfer, the greater of the two, before the closing of the public deed.
 
In addition, if the transfer is for a consideration (see Article 701 (a) of the Tax Code), the seller will have to pay the advance on income tax based on 3% calculated on the selling price or the value Cadastral, the greater of the two.
 
The consequences of the dividend tax will also have to be considered in the event that the liquidation produces profits which, as we are facing an unusual situation, it is understandable that the surplus fund will correspond to the shareholders who will receive it as part of its contribution in case it has not been previously canceled or as a distribution of profits subject to the dividend tax as established in article 733 of the Tax Code.
 
There is a possibility that "the deceased company" may have investments in securities issued by legal persons and even by the State, and that in order to recover them, he must revive and make them due transfer taking into account that private securities are subject to Law 18 of 2006 and that its transfer causes a tax of 10% on the profit with an advance of 5% on the sales price, which can be considered by the taxpayer as its single or definitive tax. In case the 5% advance is greater than 10% on the profit, the company will be able to recover any surplus between them.
 
Returning to the revival of dissolved companies, the shareholders' meeting, converted into supreme power during the liquidation process, is obliged to issue an act in which it is recorded that the credits have been collected, the liabilities paid and the balance distributed to shareholders.
 
Finally, this act will be notarized and registered in the Public Registry of Panama.
 
 
Juan F. Pardini
pardini@padela.com

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