Corporate taxes in Panama

Overview

The main taxes applicable in Panama for incorporated business are as follows:

• Income tax, either as a direct tax or as a withholding tax.
• Dividend tax and complementary tax.
• Busienss License Tax.
• Franchise tax.
• ITBMS (tax on transfers of movable goods and rendering of services).

Corporations are subject to an income tax of 25% on net taxable income. Some businesses will be subject to 30% corporate income tax on net taxable income, due to different activities and incomes.

Incorporated businesses whose annual taxable income is larger than USD 1.5 million may perform two different calculations and the payable tax will be the net taxable income calculated on the normal basis at 25%, or 4.67% over the gross taxable income, whichever is the higher quantity. Professional services fees, interest and royalties paid to a non-resident entity are subject to withholding tax of 25% on 50% of the amount remitted abroad (I.E. an effective tax rate for corporations of 12.5%).

Dividends paid out of local taxable income trigger a 10% dividend tax, withheld at source. If dividends are not distributed during a fiscal year, the company must pay a complementary tax. This complementary tax must be withheld over 40% of the net income, after taxes, as an advance on dividend tax if total period earnings are not distributed or if the total period earnings distributed are less than 40% of net income. This results in an effective rate of 4% over the total net income, after taxes. When these dividends or profits are divided, the remaining six percent (6%) will be paid.