Panama is known for its low tax rates and business-friendly regulations, which is why many foreign companies looking to optimize their cost structure seek to join the Panamanian corporate tax system.
Clients considering operations in Panama frequently inquire about corporate taxes to better understand the cost of doing business. Let’s discuss the 2 main tax burdens and a few others to keep in mind.
Corporate income tax
Panama has a flat corporate income tax rate of 25%. This applies to all types of businesses, including sole proprietorships, partnerships, and corporations. However, there are a few exemptions and deductions available to certain types of businesses.
One such incentive is the Maquila program, which allows companies engaged in the manufacturing or assembly of export-oriented products to receive a reduced tax rate of just 10%. This program is designed to encourage foreign investment and boost the country’s export sector.
Income taxes are filed once a year, usually on March 31st. This is also the deadline to pay any outstanding balance and avoid penalties.
Value-added tax (VAT)
Panama has a standard value-added tax (VAT) rate of 7%, which applies to the sale of most goods and services. There are a few exceptions, such as basic necessities such as food and medicine, which are taxed at a lower rate of 5%.
All collected VAT needs to be reported to the DGI on a monthly basis, by the 15th of the following month.
Municipal Taxes, payroll, and more.
In addition to the corporate tax, companies operating in Panama are required to pay a municipal tax, which ranges from 0.5% to 1% of their net income. This is also paid once a year, usually when filing income taxes.
Panama also collects other taxes on corporations, including property taxes, payroll taxes, and customs duties. The rate of these taxes depends on the specific type of tax and the business’ circumstances.
Consider Panama for Business
It is important to note that Panama has signed a number of double tax treaties with other countries such as USA, Canada, Portugal, Spain and more, which could reduce the taxation burden for businesses operating in either countries.
Overall, Panama’s corporate tax system is relatively simple, transparent and straightforward, with low rates and few exemptions. This makes Panama an attractive option for foreign corporations looking to optimize their cost structure and increase profits or cash flow.
Contact us
The Kraemer & Kraemer team can provide the support you need for operations in Panama and Offshore. Contact us or email us at info@kraemerkaw.com.
