Panama: New Tax Discounts for Fleets

In a move that recognizes both, that other registries are in the market and that there is competition between the more serious registries, Panama approved Law 25 of 3rd June 2002 which modifies and supplement Law 36 of 1995, implementing a package of tax incentives to offer the international shipping community attractive discounts on taxes when enrolling its vessels under the Panamanian Flag.

This new legislation enables ship owners to obtain discounts of:

a. up to fifty percent (50%) off the Registration Tax when enrolling a vessel in Panama;
b. up to thirty five percent (35%) off the Annual Tax for a four (4) year period; and
c. up to fifty percent (50%) off the Annual Consular Tax for a four (4) year period.

1. Who is eligible for these Discounts??

• Groups of at least three (3) vessels, under same ownership or economic group will be eligible to apply for the Registration Tax discount when applying for enrollment in Panama, irrespective of the age of each vessel.
• Groups of at least four (4) vessels, under same ownership or economic group will be eligible to apply for the Annual Tax and Consular Tax discount when applying for enrollment in Panama, both of which granted for a period of four (4) years, provided that the vessels have been recently constructed (newbuildings).

A quick glance at above will reveal that groups of newbuildings will be eligible to apply for all three discounts (above a, b and c) so far as they are comprised by a minimum of four (4) vessels.

2. How much Discount?

Tax discounts have been divided and classified according to each applicable tax on scales that are solely based on tonnage represented by applicants, to wit:

Registration Tax Discount scale (for groups of no less than 3 vessels)

1. gross tonnage ranging between 30,000 and 50,000 may apply for a discount of up to twenty percent (20%);
2. gross tonnage ranging between 50,000 and 100,000 may apply for a discount of up to thirty percent (30%);
3. gross tonnage exceeding 100,000 may apply for a discount of up to fifty percent (50%).

Single Vessel Special Discount

Similarly, a tax relief has been created for vessels whose gross registered tonnage exceeds 100,000. They may apply for a fifty percent (50%) discount off its Registration Tax.

Annual Tax Discount scale (for groups of no less than 4 newbuilding vessels)

• gross tonnage ranging between 50,000 and 100,000 may apply for a discount of up to twenty five percent (25%);
• gross tonnage exceeding 100,000 may apply for a discount of up to thirty five percent (3 5%).

Annual Consular Tax Discount scale (for groups of no less than 4 newbuilding ships)

a. Gross tonnage exceeding 50,000 may apply for a discount of up to fifty percent (50%)

Note that while the Registration Tax is paid when enrolling a vessel in Panama Annual Tax and Annual Consular Tax are both settled each year and Law 25 grants discount benefits for these taxes not just for the first year but for the first four (4) years.

Whilst the Directorate General of Merchant Marine (the 'Directorate") has discretionary powers to set the percentage amount of discount for each applying fleet, there is a minimum guaranteed by law, provided applicants fulfil requisites of tonnage, quantity of vessels and newbuilding tonnage (when applicable).

b. Gross tonnage exceeding 100,000 may get credit for taxes paid in another registry

In addition, the Directorate is authorized to waive the amount of taxes already paid to another (foreign) registry by crediting such amounts against payment of first year taxes. Such waiver may be applied for by those groups of vessels representing more than 100,000 gross tonnage.

If such waiver were granted, a ship owner would be able to deduct taxes paid to another Registry when enrolling the vessels under Panama flag and thus avoiding a double tax imposition within the same fiscal year.

3. Special Situations

Moreover, in special cases of groups of vessels representing a registered gross tonnage of 150,000 or no less than fifteen (15) vessels, already registered under Panama flag, the Directorate may consider arrangements with vessels' owners or representatives, for the payment of annual taxes and other obligations in special time schedules (within the fiscal year) without incurring in surcharges or interest of any kind.

The same benefit shall be granted to shipowners of any nationality in cases of economic or financial crisis, declared by any country where the Republic of Panama has Merchant Marine Consulates, irrespective of their registered gross tonnage or fleet size. This benefit must be expressly requested to Panama and payments shall be settled at such Consular Office.

It must be noted that application for any of above tax discounts or benefits granted in Law 36 must be duly requested before or at the time of enrollment, through a Panamanian licensed attorney and they will be granted by motivated resolution of the Directorate.

Tax discounts are available to new ship registrations, not to that already flagged in Panama. New vessel registrations are guaranteed to pay the same taxes during a period of 20 years as of the registration. Any tax increases will not be applicable to new registrations under these incentives.

Pardini & Associates is pleased to offer assistance for application and obtainment of these discounts to any interested party. Our firm specializes in maritime law and our team of experts are prepared to offer any additional information, should you be interested in taking advantage of this new legislation and we will guide you through the registration process of any single vessel or fleet.

Dr. J.J. Espino Sagel
jjes@padela.com