Tax Differences Between Builders and Developers

The direct connection between the specific activities of construction companies and real estate developers can lead to serious errors in income tax statements in Panama.

Monday, August 20, 2012

Construction companies have three options for determining the yearly income on which they will be taxed, while development companies which own real estate projects, and which do not qualify for the special rate of item a) of Article 701, are subject to declaring income according the date of registration of deeds in the Public Registry of Panama, which recorded the transfer of the real estate property.
An article in Prensa.co reviews the specific differences between these two types of companies, often united by common interests in real estate:

"Construction companies, for starters, are authorized to determine, at their own choice, the taxable income of each fiscal year in accordance with any of the three methods outlined in Executive Decree 170 of 1993:

1) Applying the percentage of net profit calculated for each project, on the amounts actually received in the year of construction activity. This percentage may be changed in the following years in the event of a variation in the calculation;

2) Applying the percentage of net profit calculated on the value spent on each project in the year and deducting the costs and expenses actually incurred in the year, and

3) assigning the result of the work (total revenue less costs and expenses attributable to it) in the fiscal year in which the work is finished. "

The confusion between this two activities introduces a high tax risk for developers when they mistakenly use the constructor formula.

More on this topic

Costa Rica: Tax Incentives to Encourage Investment

March 2009

The Directorate of Taxation issued a resolution which widens accelerated depreciation and is applicable to goods purchased and investments made this year.

María Siu wrote in the Prensa Libre website: "Now all taxpayers or declarers, without any resolution from the tax administration, may use the accelerated depreciation method on new tangible goods.

Minimum Income Statement

September 2011

The Costa Rican Department of Taxation will audit companies that declare income below the minimum percentages required.

The thresholds for the different productive sectors will be published before 24 September and arise from the amounts that were declared previously by the taxpayers and those detected in the audits.

The Housing Market in Guatemala

February 2012

The deficit between supply and demand for housing solutions is growing every year, requiring state policies for the creation of credit systems for low-income sectors.

In Guatemala, the demand for housing grows between 55,000 and 60,000 units every year, but only 20,000 new houses are built, calculates the Guatemalan Chamber of Construction (CGC).

Costa Rica: Details of Anti Tax Evasion Bill

August 2014

Limiting the deduction of interest from income tax and eliminating the exemption from payment of 15% for dividend distribution between companies are part of the changes included in the project.

The Bill to Improve Anti-Tax Fraud, presented by the Ministry of Finance amends various tax issues that must be taken into consideration by companies operating under Costa Rican law.

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