Resolution No. 201-5600 Creating the Form for the Sworn Declaration of 5% Withholding as Advance Payment on Capital Gains Tax from the Sale of Bonds, Shares, and Other Securities

Ministry of Economy and Finance GENERAL DIRECTORATE OF REVENUE Panama, December 20, 2006 RESOLUTION NO. 201-5600 "By which the form for the Sworn Declaration of 5% Withholding as Advance Payment on Income Tax on Capital Gains obtained from the alienation of bonds, shares, participation quotas, and other securities is created"

THE GENERAL DIRECTOR OF REVENUE

In exercise of its legal powers,

CONSIDERING:

That through Article 2 of Law No. 18 of June 19, 2006, subsection "e" of Article 701 of the Fiscal Code was modified, thereby establishing an obligatory regime for the calculation of income tax generated by capital gains obtained from the alienation of bonds, shares, participation quotas, and other securities issued by legal entities.

That under the new regime introduced by Law 18 of 2006, both nationals and foreigners who alienate securities that constitute taxable income in the Republic of Panama must calculate income tax at a fixed rate of ten percent (10%), which shall be applied to the capital gains obtained from the alienation of bonds, shares, participation quotas, and other securities issued by legal entities.

That Law 18 of 2006 obligates the buyer of bonds, shares, participation quotas, and other securities issued by legal entities to withhold from the seller an amount equivalent to five percent (5%) of the total value of the alienation as an advance payment on the income tax generated by the capital gains obtained by the seller.

That Cabinet Decree No. 109 of May 7, 1970, in its Articles 5 and 6, establishes that the General Director of Revenue is responsible for the permanent adaptation and improvement of administrative procedures, empowering them to regulate the formal relationships of taxpayers with the Treasury, in order to improve service and facilitate taxpayers in fulfilling their tax obligations.

RESOLVES

FIRST: ADOPT by means of this resolution the new form for the "SWORN DECLARATION OF 5% WITHHOLDING AS ADVANCE PAYMENT ON INCOME TAX ON CAPITAL GAINS FROM THE ALIENATION OF BONDS, SHARES, PARTICIPATION QUOTAS, AND OTHER SECURITIES ISSUED BY LEGAL ENTITIES," identified with number 108 with its respective instructions, which form an integral part of this Resolution.

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SECOND: This form may only be submitted through magnetic media and will be available in the taxpayer module. The taxpayer must present to the officials of the General Directorate of Revenue (DGI):

a) A copy of the delivery report indicating the various forms to be delivered as well as the name of the file containing them; and

b) A floppy disk with one or more magnetic files containing the forms.

These data will allow the system to validate the information and confirm or reject the receipt. The system will validate that the sworn declaration of 5% withholding as an advance payment on income tax on capital gains is on the floppy disk; otherwise, it will be rejected, and the report and floppy disk will be returned.

The taxpayer module will have no cost; therefore, its distribution will be made free of charge through all Provincial Revenue Administrations.

THIRD: As the submission is made on magnetic media, no document will be countersigned or signed by the DGI official. The DGI will keep the receipt certificate of the declaration on the Taxpayer's floppy disk and return the floppy disk to the Taxpayer with the receipt certificate.

FOURTH: The use of the form will be mandatory for all taxpayers who purchase bonds, shares, participation quotas, and other securities issued by legal entities.

FIFTH: This resolution will take effect from its publication in the Official Gazette, and no administrative recourse may be taken against it.

LEGAL BASIS: Articles 5 and 6 of Executive Decree 109 of 1970; subsection e) of Article 701 of the Fiscal Code as modified by Law 18 of June 19, 2006.

PUBLISH AND COMPLY

GISELA A. DE PORRAS General Director of Revenue

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