Contents of this guide
- Tax map in one table
- Income tax: 25% and the alternative calculation
- ITBMS: Panama’s 7% VAT
- Dividends and the complementary tax
- Notice of Operation and flat annual fee
- Payroll charges
- Property, municipal taxes and withholding on non-residents
- What a company with no local operations pays
- A company’s tax calendar
- Frequently asked questions
- Sources
Tax map in one table
| Tax | Rate | Base | When it is paid |
|---|---|---|---|
| Income tax (legal entities) | 25% | Net taxable Panamanian-source income | Annual return by 31 March; estimated tax in three instalments |
| Alternative calculation (CAIR) | 4.67% of taxable revenue | Only if revenue exceeds 1.5 million dollars; the higher amount is paid | With the annual return |
| ITBMS | 7% (10% alcohol and lodging, 15% tobacco) | Sales of taxable goods and services | Monthly, form 430, first 15 days of the following month |
| Dividends | 10% Panamanian source, 5% foreign or exempt source, 20% bearer shares | Distributed profits | Withheld on distribution, remitted within 10 days |
| Complementary tax | 4% (10% on 40% of profit) | Undistributed profits | With the income tax return |
| Notice of Operation | 2% of the company’s capital, minimum 100 and maximum 40,000 dollars | The company’s capital | Annual, with the income tax return |
| Flat annual fee | 300 dollars (corporations) | Fixed | Annual, according to registration date |
| Social Security Fund | 13.25% employer, 9.75% employee | Gross salary | Monthly |
| Education insurance | 1.5% employer, 1.25% employee | Gross salary | Monthly |
Income tax: 25% and the alternative calculation
Legal entities are taxed at 25% on net taxable income, that is, Panamanian-source revenue minus deductible costs and expenses. Companies with taxable revenue above 1.5 million dollars must also calculate the tax by the alternative method, 4.67% of gross taxable revenue, and pay the higher of the two; if the alternative turns out disproportionate because of losses or thin margins, the company can ask the Directorate General of Revenue not to apply it. Natural persons, including independent professionals, are taxed by brackets: exempt up to 11,000 dollars a year, 15% between 11,000 and 50,000 and 25% on the excess.
ITBMS: Panama’s 7% VAT
The Tax on the Transfer of Movable Goods and the Provision of Services levies 7% on the sale of goods and services in Panama, with rates of 10% for alcoholic beverages and lodging and 15% for tobacco. Anyone invoicing more than 36,000 dollars a year must register as a taxpayer; below that figure it is neither charged nor declared. The company deducts the ITBMS paid on its purchases from the ITBMS charged on its sales and settles the difference each month with form 430 in e-Tax 2.0. Exports, medicines, basic foodstuffs and education and health services are exempt or not taxed. Radar Panamá offers an ITBMS calculator to estimate the tax on each transaction.
Threshold
36,000 dollars in gross annual revenue to become an ITBMS taxpayer.
Tax credit
The tax paid on purchases is subtracted from the tax charged on sales; only the difference is paid in.
Deadline
Monthly return within the first 15 days of the following month.
Withholding
The State and large companies withhold 50% of the ITBMS from their suppliers; the rest is credited.
Dividends and the complementary tax
When the company distributes profits it withholds the dividend tax: 10% if they come from Panamanian-source income, 5% if they come from foreign-source, exempt or export income, and 20% for bearer shares. If it decides not to distribute, the Tax Code presumes a minimum distribution and charges the complementary tax: 10% on 40% of net profit, that is, an effective 4%, which is later credited when the dividend is actually paid. Loans from the company to its shareholders are treated as dividends and pay the 10%.
Notice of Operation and flat annual fee
Every company carrying out commercial or industrial activity in Panama needs the Notice of Operation, obtained online at Panamá Emprende, which generates an annual tax of 2% of the company’s capital, with a minimum of 100 and a maximum of 40,000 dollars; companies in free zones pay a reduced rate. Separately, every corporation pays a flat annual fee of 300 dollars to remain in good standing at the Public Registry, with surcharges and eventual suspension if it falls behind; private interest foundations pay 350 the first year and 400 thereafter. The full incorporation and Notice of Operation process is in the guide to opening a company in Panama.
Payroll charges
On each worker’s gross salary the employer contributes 13.25% to the Social Security Fund (rate in force since April 2025 under Law 462; it rises to 14.25% in March 2027 and to 15.25% in March 2029) and 1.5% in education insurance, plus the occupational risk premium, which varies by activity. The worker has 9.75% social security and 1.25% education insurance withheld, plus income tax if their salary exceeds 11,000 dollars a year. On top of that come the thirteenth month, an extra salary paid in three instalments in April, August and December, and 30 days of holiday for every 11 months worked.
Property, municipal taxes and withholding on non-residents
- Property tax. Progressive on the cadastral value, with an exempt bracket and rates from 0.5% to 1% depending on whether it is a primary residence or other property; new housing enjoys a temporary exemption. The details are in the guide to buying property in Panama.
- Municipal taxes. Each municipality charges a monthly rate according to activity and sales volume; in the district of Panama it is declared to the Municipal Revenue Directorate.
- Withholding on non-residents. Payments abroad for services, royalties or interest that are deductible in Panama bear income tax withholding calculated on 50% of the amount remitted, unless a double taxation treaty applies.
- Stamp duty, capital gains and property transfer. The sale of a property pays 2% transfer tax and 3% advance on capital gains; the sale of shares, 5% withholding on the price as an advance on the 10% capital gains tax.
What a company with no local operations pays
A Panamanian company whose income is generated entirely outside the country pays no income tax, ITBMS or Notice of Operation, because it does not trade in Panama. Its obligations come down to the flat annual fee, the resident agent’s fees, the beneficial ownership registry and the annual filing of accounting records with the agent, mandatory since Law 254 of 2021. The details are in the guide to setting up an offshore company in Panama.
A company’s tax calendar
- Every month, days 1 to 15: ITBMS return and payment for the previous month; Social Security Fund payroll.
- 31 March: sworn income tax return for the previous year, with Notice of Operation and complementary tax where applicable; extension possible to 30 April.
- June, September and December: three instalments of the estimated tax for the current year.
- 30 April: filing of accounting records with the resident agent for companies with no local operations.
- According to registration date: flat annual fee, in January or July.
- April, August and December: thirteenth-month instalments.
Frequently asked questions
How much income tax does a company pay in Panama?
25% on net taxable Panamanian-source income. If its revenue exceeds 1.5 million dollars, it also calculates 4.67% on gross revenue and pays the higher amount.
What is the ITBMS and how much is it?
Panama’s value added tax: 7% general, 10% for alcohol and lodging and 15% for tobacco. It is declared monthly and only those invoicing more than 36,000 dollars a year are required to charge it.
How much is withheld on dividends?
10% if the profit is Panamanian-source, 5% if it is foreign-source or exempt and 20% for bearer shares. If profits are not distributed, a 4% complementary tax is paid on account.
What is the Notice of Operation tax?
An annual 2% on the capital of a company that trades in Panama, with a minimum of 100 and a maximum of 40,000 dollars.
How much does it cost to keep a corporation in good standing?
The flat annual fee is 300 dollars, plus the resident agent’s fees, which each firm sets.
What social charges does the employer pay?
13.25% Social Security Fund and 1.5% education insurance on gross salary, plus the occupational risk premium according to activity.
Does a company that invoices abroad pay taxes in Panama?
It pays no income tax on its foreign-source income, under the territoriality principle. It does pay the flat annual fee and complies with beneficial ownership and accounting records rules.
When is the income tax return filed?
By 31 March of the following year, with a possible one-month extension, and the estimated tax is paid in three instalments in June, September and December.
Sources
- Income Tax rates, Directorate General of Revenue.
- ITBMS overview, Directorate General of Revenue.
- Tax Code of Panama, articles 694, 699, 733 and following.
- Los dividendos en Panamá: aspectos claves y su tratamiento fiscal, La Estrella de Panamá.
- Social Security Fund of Panama, employer and employee contributions.
- Panamá Emprende, Notice of Operation.
- Image: dollar banknotes, public domain, via Wikimedia Commons.
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