• Panama Tax System

  • TAX RESIDENCY

    Tax Residency

    A company is considered to be tax resident in Panama if it is incorporated in Panama or its principal business is carried out in Panama.

    Taxable Basis

    Panama operates a territorial tax system, whereby tax resident and non-resident companies are taxed only on income generated in Panama.

  • TAX ADMIN

    Taxable Period

    The taxable period for a company in Panama is the calendar year or its accounting year.

    Tax Returns

    Every company needs to submit an annual tax return within 3 months from the tax year but one can get an extension for another 2 months.

    Group tax returns are not allowed in Panama.

    Tax Assessments

    The Tax Authorities may issue a tax assessment within 3 years from the end of the year in which the tax return is submitted.

  • CORPORATION TAX

    Corporation Tax

    The corporation tax rate in Panama is 25%.

    However, for companies with taxable revenues in excess of US$1.5m an alternative tax may apply whereby they are taxed on the higher of 1.168% on gross taxable income (Calculo Alternativo del Impuesto sobre la Renta - "CAIR") or 25% on net taxable income.

    However, if the CAIR liability is higher than 25% corporation tax liability then the taxpayer can request no to be subject to CAIR.

  • DIVIDENDS

    Dividends from Foreign Investments

    Dividends from foreign investments are not subject to tax in Panama.

    Dividends from Local Investments

    No further tax is imposed on dividends except for withholding tax (see below).

    If a corporation does not declare dividends in a given year, then is liable to a minimum dividend tax amounting to 10% (20% in the case of bearer shares) of 40% of its after-tax income.

    Withholding Tax on Dividends

    The following withholding tax rates apply to dividend payments, both to local or foreign recipients:

    • 10% if the dividend payment is made from Panama-source income.
    • 5% if the dividend payment is made from non Panama-source income or income derived from exports.
    • 20% in the case of bearer shares.

    Loans to shareholders are deemed as dividend distribution and subject to 10% withholding tax irrespective if the lower rate may apply.

  • INTEREST

    Interest Income

    Panama-source interest income is taxable in Panama.

    Interest Expense Deductibility

    Interest expense is generally tax-deductible as a business expense if incurred for the production of Panama-source income.

    Withholding Tax on Interest

    Interest payments to overseas recipients carry a 12.5% withholding tax.

    Interest payments to local recipients do not carry any withholding tax.

  • ROYALTIES

    Royalty Income

    Panama-source royalty income is taxable in Panama.

    Royalty Expense Deductibility

    Royalty expense is generally tax-deductible as a business expense if incurred for the production of Panama-source income.

    Withholding Tax on Royalties

    Royalty payments to overseas recipients carry a 12.5% withholding tax if the royalty expense is treated as tax-deductible. The taxpayer may decide not to withhold taxes and therefore not deduct the royalty expense for tax purposes.

    Royalty payments to local recipients do not carry any withholding tax.

  • TAX LOSSES

    Ordinary Tax Losses

    Ordinary tax losses can be carried forward for 5 years with a maximum of 20% per year. However, the loss deduction may not exceed 50% of taxable income in a particular year.

    Ordinary tax losses cannot be carried back.

    Group Relief

    There are no group relief provisions in the tax legislation of Panama.

  • CAPITAL GAINS

    Disposal of Shares by Foreign Shareholder

    The disposal of shares in a Panama company by its foreign shareholder will carry a 5% withholding tax on the sale proceeds as well as a 10% tax on the capital gains.

    Capital Gains

    Capital gains are taxable at the rate of 10% with an additional 3% withholding tax.

    As far as sale of securities are concerned, the withholding tax is 5%. If the withholding tax is higher than the tax liability then the seller is entitled to a rebate of the excess payment.

    Capital Losses

    Capital losses cannot be deducted from capital gains.

  • PARTNERSHIPS

    Partnership Profits

    Partnerships are treated as transparent entities for tax purposes, which means that their profits are taxed directly in the hands of each partner.

  • BRANCHES

    Branch Profits

    A Branch is treated in the same manner as other types of companies in Panama.

    A 10% remittance tax is applicable on profits transferred by a Panama Branch to its foreign head office.

  • STAMP DUTY

    Stamp Duty

    Stamp duty is imposed on transfer of goods or provision of services not subject to VAT.

    The stamp duty rate is 0.1%.

  • CAPITAL DUTY

    Capital Duty

    There is no capital duty in Panama.

  • ITBMS

    Panama levies movable goods and services transfer tax (Impuesto de Bienes Muebles y Prestacion de Servicios - "ITBMS") which is similar to VAT.

    ITBMS Taxable Transactions

    ITBMS is levied on the sale, lease or transfer of goods or services with the exception of intangibles.

    ITBMS Standard Rate

    The standard ITBMS rate is 7%.

    ITBMS Reduced Rate(s)

    The following special rates apply; 10% for hotel accommodation and alcohol and 15% for tobacco.

    ITBMS Exempt Transactions

    Food, medicine, medical services and crude oil are exempt from ITBMS in Panama.

    ITBMS Registration Threshold

    Registration is compulsory for businesses with monthly turnover exceeding US$3,000 or annual turnover exceeding US$36,000.

    ITBMS Filing & Payment

    ITBMS returns must be filed monthly.

  • OTHER TAXES

    Operations Notice Tax

    All companies in Panama must pay an annual notice of operations tax at 2% on their equity (total assets less total liabilities excluding liabilities with related parties). The minimum liability is US$100 and the maximum US$60,000.

    Companies operating in free trade zones or special trade areas are taxed at 1% and the maximum liability is US$50,000.

    Transfer Tax

    Transfers of Panama real estate property are taxed at a rate of 2% on the greater of the value in the deed of transfer or the cadastral value on the date of transfer.

    Real Property Tax

    Real estate property tax is imposed on real estate property situated in Panama at rates ranging from 1.75% to 2.1%.