Guide · Taxes
Panama's Territorial Tax System
How territorial taxation and income tax work in Panama: which income is taxed, what other taxes exist and what changes if you move from another country.
- System
- Territorial
- Companies
- 25 % income tax
- ITBMS (VAT)
- 7 %
- Updated
In short
Panama applies a territorial tax system: it taxes Panamanian-source income and, as a general rule, not income generated outside the country. That does not mean paying no taxes: what you do in Panama is taxed, and your home country may continue to tax your income under its own law.
What is Panamanian-source income?
It is income from activities carried out, assets located or capital invested in Panama. What matters is where the income is generated, not where it is paid or the nationality of the person who earns it. A Panamanian company that provides services from Panama to clients abroad may have Panamanian-source income: each activity has to be analyzed.
What taxes are paid in Panama?
The main one is income tax, paid by individuals and companies on their Panamanian-source income. It is administered by the tax authority (Dirección General de Ingresos, DGI), whose procedures are done online through its e-Tax platform; to file a return you must be registered as a taxpayer (see RUC and NIT for foreigners).
- Personal income tax, with progressive rates on Panamanian-source income.
- Corporate income tax: 25 % on net taxable Panamanian-source income.
- Dividend tax, withheld by the company when it distributes dividends.
- ITBMS (Panama's value added tax): 7 % as a general rule.
- Property tax, with an exemption for your main home up to USD 120,000.
- The annual flat fee for corporations and the business license for anyone carrying on a commercial activity.
Does Panama share tax information with other countries?
Panama exchanges tax information with other countries, and its banks report the accounts of non-residents to their countries of residence. Tax planning must be done with legal structures and real activity: never to hide income.
Frequently asked questions
Is it true that Panamanian companies pay no taxes?
They pay tax on their Panamanian-source income. Income from activities carried out outside Panama is generally not taxed there, but where the service is provided or the business is managed is decisive.
Do I have to declare in Panama what I earn abroad?
In general, foreign-source income is not taxed in Panama. It may be taxed in your home country under its law and any applicable treaties; it is one of the points we review in the consultation.
Does Panama have treaties to avoid double taxation?
Yes, with several countries. If there is a treaty with your country, it determines where each type of income is taxed (see double tax treaties).