Tax
Territorial taxation with 7% ITBMS
Panama taxes only Panamanian-source income, which is the foundation of its offshore sector. Corporate income tax is 25%, ITBMS (VAT) is 7%, and there is an alternative minimum calculation (CAIR) for larger companies. Dividends from foreign-source income are not taxed.
Key rules
- Only income from Panamanian sources is taxable, regardless of the taxpayer's residence.
- Corporate rate is 25%; the CAIR alternative applies to companies with income above USD 1.5 million.
- ITBMS is 7%, with higher rates on alcohol, tobacco and hotel services.
- Dividend withholding is 10% on Panamanian-source profits and 5% on foreign-source or free-zone profits.
- Electronic invoicing through the SFEP is being made compulsory across taxpayer categories.
Governing law
- Código FiscalIncome tax, ITBMS and procedure.
- Ley 76 de 2019Tax procedure and the Tribunal Administrativo Tributario.
- Ley 57 de 2018Economic substance requirements.
In practice
Even a company with no Panamanian income usually has filing obligations and must pay the annual franchise tax. Economic-substance reporting applies to entities benefiting from preferential regimes.