Territorial Tax System

The Panama income tax system is based on the “territorial principle” whereby only income generated within PA territory is subject to income tax. Section 694 of the PA Tax Code establishes the following:

“(…) The income tax would be applicable to any income derived from any source, within the Panamanian territory. (…)”

It is not considered as income generated within the Republic of Panama:

1. Invoice from an office established in Panama the sale of goods or products for a sum greater than that for which said goods or products have been invoiced against the office established in Panama, provided that said goods or products move only abroad.
2. Direct from an office established in Panama transactions that are completed, consummated or have their effects abroad.
3. Distribute dividends or participation quotas from legal entities that do not require notice of operation or do not generate taxable income in Panama, when such dividends come from income not produced within the territory of the entity.

Republic of Panama, including income from the activities mentioned in paragraphs a and b.

Furthermore, according to Section 9 of Executive Decree N˚ 170 of 1993 any income generated within Panama would be subject to income taxation regardless of the place where the income is received or the domicile or residence of the taxpayer. Income is deemed derived within the country when it is generated by civil, commercial, industrial, professional and similar activities and any type of services carried out within the Panamanian territory.

SUCRE | ARIAS | REYES provides in-depth analysis for foreign corporations considering doing business in Panama, in order to help them with tax planning.

Our Panama tax services begin with understanding the company’s activities, and the type of structure and legal entities involved with the sale, distribution and delivery of products and services. Whether your company will solely be selling its products and services to customers and clients residing outside of Panama, or to Panamanian citizens, residents and tourists, will make a difference concerning your company’s Panama tax liabilities. Knowing these facts will make it easier for us to recommend the right types of resources to help you minimize your tax liabilities.

Panama Tax Law

Types of Panama Taxes

Types of Panama Taxes

Tax Planning and Advice

Panama is internationally recognized for its territorial tax system and his low tax rates. Income tax for corporations is based on the amount of taxable income produced within the Panamanian territory with a flat 25% rate. VAT (locally known as ITBMS) is imposed on the supply of goods made in Panama, supply of services rendered within the country and on the import of goods.

The following rates apply for VAT purposes

• The standard rate of 7%, which applies to all supplies of goods and services in general.
• The 10% rate, which applies to supplies of alcoholic beverages.
• The 15% rate, which applies to the import and sale of cigarettes.
• The lodging or accommodation service in all types of public establishments that causes a 10% fee.

Our Tax Lawyers in Panama

The experience of our attorneys offering tax advice to a wide variety of individual and business clients can help you to maximize benefits within the law. We remain updated on current developments in tax law to provide clients with customized solutions and information relevant to their unique situation.

Keeping up with taxes is easier when you have the advice of professionals in Panama Tax Law.