(Aviso de Operacion)
and entities doing business within the Republic of Panama must
get Panama Commercial Operation Permit issued by the Ministry of
Commerce and Industry. The annual tax for this permit is 2% of
the company's net worth with a maximum payment amount of
Companies located in special economic or development zones or
within free trade zones pay at a rate of 1% with maximum
amount of $50,000 USD.
Panama Sales Tax
The Panama Sales Tax applies to the imported goods, products or
services sold inside of Panama. The importer, seller, or service
provider pays this tax. The ITBMS is 7%.
Higher rates are levied for the sale of alcoholic drinks (10%),
tobacco products (15%), and specific services, such as housing
Exceptions to paying this tax include free trade zone
transactions, power generation & distribution services, cargo
and passenger transportation by sea, air, or land.
Most businesses pay this tax monthly.
Importing Products into Panama
Products imported into Panama which are not exempt by the law or
international trade agreements are subject to import tariffs and
the ITBMS tax. The import tariffs differ by products and are set
forth in a tariff line system.
Here are the Panama Income Tax Rates:
Individuals who earn less
than $11,000 per year pay no income tax.
Those earning between $11,000
and $50,000 pay a 15% Panama tax rate and
Those earning $50,000 or more
pay a 25% rate.
Various Panama Income Tax Deductions Include:
Married couples are $800 with
their joint tax return.
Mortgage interest paid on the
primary home can be deducted up to $15,000 yearly.
Student loans interest
payments for the taxpayer's or dependents' education in
Panama is fully deductible.
Health insurance premiums are
Contributions to private
pension plans not exceeding 10% of the individual's gross
yearly income to a maximum of $15,000 yearly are deductible.
Foreigners who reside in Panama for
more than 183 days per year and earn income in Panama will be
taxed at the same rate as nationals.
Annual Returns: Individuals must file
their annual income tax return before March 15th.
Individuals whose only source of income is single salary are
exempt of income tax because the employer withholds the share of
each salaries payment for taxes.
The only income which is
taxed is the one derived from within Panama. The sale of
products or services to people, entities, or companies in
Panama are considered as Panama source income
The sales of products or
services to persons, entities, or companies located outside
of Panama are not taxed.
Income derived from the
leasing or sale of Panama real estate is taxed.
Commissions and interest
earned from the loans financing business in Panama is taxed.
Call centers enjoy a special
law exempting their earnings from income tax.
Trading companies which
invoice products which never enter Panama are not taxed.
Companies in Panama who
facilitate business activities conducted outside of Panama
are not taxed.
Interest from savings and CD
bank accounts from licensed Panama banks and Panama Credit
Unions are tax exempt.
Interest from debt securities
registered with the Panama National Securities Commission
and listed on the stock exchange are tax exempt.
institutions and lenders who receive interest and
commissions paid by Panama banks or for the construction of
public housing are also tax exempt in Panama.
Income Tax: Taxable income is derived from subtracting
foreign source income and tax exempt income from the gross
Deductions: Business expenses used to generate
taxable income or to preserve the business are considered as
deductible from the income taxes and must be documented and are
only allowed in the same year they occurred.
Income Tax Rates:
tax rate is 25%.
Companies involved in
telecommunications, banking, power generation, manufacturing
cement, casino and gambling activities, and insurance or
reinsurance pay 25% tax.
If the government share in
company's capital is 40% or more than the company will pay
the 30% rate. Companies involved in agriculture and small
businesses have a special lower income tax rates.
Calculation: The traditional calculation of income
taxes is to simply multiply the net taxable income by the tax
rate. Panama corporations with taxable income exceeding $1.5
Million use a different tax scale. Their rate is the higher
between the traditional calculation and multiplying the taxable
income by 4.67%.
Monthly Payments: Since 2011, all
companies and entities pay their estimated income tax by the
15th of every month equal to 1% of the total taxable income
accumulated the prior month. This is called Monthly Income
Tax Advance or MITA.
Companies engaged in gasoline, oil products, pharmaceuticals,
food, and medical products pay a different MITA.
At the end of the tax year, the company determines its total
income tax and deducts the total MITA paid. If the total MITA
paid is larger than the actual tax owed, the company can obtain
a tax credit to be used towards future MITA's.
Losses: Losses can be carried forward 5 years as long as the
loss doesn't exceed 20% of the total loss in any year. Certain
regulated industries such as mining have special loss schedules.
Annual Returns: Income tax returns must be filed by
companies within 3 months after the end of fiscal year. While
most company tax year is the calendar year, companies can
petition for approval of a different fiscal year.
Panama Social Security Tax
Employers and employees pay social security taxes when the
employee is paid. Currently, employers pay 12.25% and the
employee pays 9.75%.
Employers are required to withhold a percentage from each
employee's pay for income tax and for social security tax.
Failure to withhold and make payments to the Social Security
Office will result in surcharges, fines, and even criminal
prosecution. There is also a professional risk premium paid to
the Social Security Office corresponding to a perceived risk the
work entails which is withheld from an employee's salary.
Educational Tax: An additional 1.25% of an employee's
wages are withheld as an educational tax while the
employer pays 1.5%.
Non-Residents: Employers are required to withhold income
taxes from non-residents who earn Panama source income. The
Panama Income Tax rate for individuals is used without
deductions. However, if the non-resident earns income outside of
Panama, but the Panama employer wants to deduct these wages from
his income tax, the non-resident will only have 50% of the total
amount paid subject to the withholding tax.
The employer is required to pay the withheld amounts within 10
days following the payment to the Panama tax authorities.
Panama Capital Gains
The Panama Capital Gains Tax rate differs by the type of
property being transferred. Only properties located in Panama
are subject to the capital gains tax. The standard rate is 10%
of the realized gain from the sale.
Transferring of Panama Corporation Shares
Transfer of shares of Panama corporation which obtains Panama
source income requires the buyer to withhold 5% of the purchase
price for the tax office within 10 days. This is considered an
advance of the seller's capital gains tax. The seller can
declare the 5% to be the total Panama capital gains tax or if
the amount exceeds the normal 10% rate of the actual gain, the
seller can claim a tax credit for the excess amount when the
annual tax return is filed.
A Panamanian entity whose exclusive income is obtained from
non-Panama sources (outside of Panama) is exempt from the
capital gains tax.
Transferring Shares of Panama Corporation via Stock Exchange
Transfer of shares from Panama corporation that are registered
with the Panama National Securities Commission through a
licensed stock exchange are exempt from paying the Panama
capital gains tax even if the Panama corporation obtains Panama
Therefore, selling shares through the stock exchange is exempt
from the Panama capital gains tax.
Mergers and reorganization of Panama corporations registered
with the Panama National Securities Commission and listed on the
stock exchange involving transfer of shares are also exempt from
the Panama capital gains tax if they meet specific requirements.
Tender offers as defined by the securities regulations are not
exempt and the purchaser must withhold 5% of the total purchase
price as the Panama capital gains tax.
Panama Dividends Tax
There is 10% Panama dividends tax imposed upon entities that
have commercial operations permit and have Panama source income.
The Panama dividends tax is only 5% if the earnings come from
foreign sources, is export related, or other specific laws
exempting the income.
Companies located in the free trade zones pay a 5% dividend tax
for all income. The entity providing the dividend withholds the
tax and pays the tax authorities. There is no income tax on
those receiving dividends. Panama dividends paid to holders of
bearer shares must pay a 20% Panama dividends tax.
Panama Retained Earnings Tax
If no Panama dividends are paid or paid Panama dividends are
less than 40% of the current Panama sources after tax earnings;
there is a 10% tax on the difference between the 40% and what
was paid. If no Panama dividends are paid or paid dividends are
less than 20% of foreign source income or specific exempt
income, there is a 10% tax on the difference between the 20% and
what was actually paid.
This tax is known as the complimentary tax (impuesto
complementario) is credited towards future Panama
dividends and can be seen as an advance of the Panama dividends
tax in relation to the 40% or 20% of the current earnings.
Registered subsidiaries of foreign corporations pay this tax on
their total current earnings without regard if any distribution