Figuring out how to pay taxes in Panama is one of the main considerations for expats planning to move to the South American country. Panama operates a territorial tax system, meaning foreigners are taxed on only income earned in Panama. So, foreign-earned income such as offshore investments returns and salary from abroad are not subject to income tax in Panama. This makes the country very attractive for foreign investors and entrepreneurs.
This guide will serve as a complete resource for everything you need to know about taxes in Panama. It will answer questions such as, who is liable? What taxes exist in Panama? How to pay taxes in Panama? etc., and many more.
Taxes in Panama – Key Takeaways
Overview of Taxes in Panama
| Category | Details |
|---|---|
| Tax year | 1st January – 31st December |
| Tax authority | Dirección General de Ingresos (DGI) |
| Who is taxable? | Tax residents and non residents |
| Taxable income? | Only Panama-sourced income |
| Double Taxation Treaties? | Yes, with Latin American countries and Spain |
| Personal Income Tax | Up to 25% (progressive) |
| Corporate Tax | 25% |
How do taxes in Panama work?
Panama operates a territorial tax system, taxing only income earned in Panama. This means, foreign-sourced income is not subject to taxation, making it a very attractive tax environment for expats living in Panama. The Panamanian tax year runs from 1st January to 31st December and is overseen by the Dirección General de Ingresos (DGI). Taxpayers in Panama must file a tax return by 15 March of the following year.
Who qualifies as a tax resident in Panama?
You become a tax resident in Panama when you live in Panama for more than 183 days in a calendar year (consecutive or not), or if Panama is your “center of vital interests” (main economic or family ties). You are not considered a tax resident in Panama if you stay in the country for 183 days or less in a year.
What are the different taxes in Panama?
Taxes in Panama are divided into two categories: Individual Taxes and Corporate Taxes. Here are the different taxes in Panama.
Personal income tax
Personal income taxes in Panama are progressive and capped at 25%. This means, the more income you earn in Panama, the higher your tax rate. Certain income sources are not subject to Panamanian income tax, such as any interests earned on Panamanian government securities, fixed time deposits maintained with Panamanian banks and interest on savings accounts.
| Income | Rate |
|---|---|
| Up to $11,000 | 0% |
| $11,001-$50,000 | 15% |
| Over $50,000 | 25% |
Social security tax
Social security tax in Panama is levied at 9.75% for employees. Contributions are set at a progressive rate for employers starting at 13.25% from 1 April 2025, increasing to 14.25% from 1 March 2027, and reaching 15.25% from 1 March 2029. This is levied on salaries and any other compensation paid. There is no maximum limit on the amount that can be taxed.
Capital gains tax
Capital gains in Panama are taxed at a 10% rate on the net gain. However, each tax is collected differently, depending on the asset type.
- Transfer of real estate property: 2% tax plus a 3% income tax advance payment, both calculated on the gross sale price or cadastral value, whichever is higher. The 2% real estate transfer tax does not apply to new construction sales where the seller’s core business is building and selling property.
- Transfer of securities: 5% withholding tax applied by the buyer. The seller can accept this as final or calculate the actual gain at 10% and credit the 5% already withheld, claiming a refund of any excess.
- Fixed asset sales: 10% tax applied on the gain with no withholding applied.
Educational insurance tax
Educational insurance tax is 1.25% for employees and 1.50% for employers on salaries paid. There is no maximum limit on the taxable amount.
Consumption tax
Consumption taxes in Panama are in two categories: Excise tax and Movable goods and services transfer tax (ITBMS).
- Excise tax: This tax is applied to goods such as jewellery, tobacco and services such as mobile and cableTV. The tax rate is calculated based on the import value (including cost, insurance, freight, and import duties) for imported goods, and on the sales price for all other transactions.
- ITBMS: This is the Panamanian Value Added Tax (VAT). This tax rate is 7%.
Panama imposes no tax on inheritance, gifts or wealth/networth.
Corporate income tax
Only Panama-source corporate income is subject to the fixed corporate tax rate of 25% under the territorial system, meaning that Panama companies operating internationally may not have any tax to pay. Basically, if all business activities and income are foreign-sourced (i.e., not connected to Panama), the company pays no Panamanian corporate income tax on those earnings.
Panama-sourced corporate income is subject to taxation whether the business entity is resident or non-resident. A company is considered as a tax resident if it is incorporated in Panama and its central management is located there. There is also a 10% withholding tax (WHT) on profits obtained from local sourced income, 5% on dividends from foreign-source or export income, and 20% on bearer shares.
Note: For companies with taxable income above USD 1.5 million, the tax base is either the net taxable income calculated normally, or 4.67% of the gross taxable income (excluding exempt, non-taxable, and foreign-source income), whichever is greater.
Cryptocurrency tax
If crypto is traded or earned outside Panama, it is not taxed. Only locally-sourced crypto income is taxable. Locally sourced crypto gains are treated as regular income or capital gains and taxed accordingly.
Stamp duty
Stamp duty is charged on only specific commercial contracts and at a rate of 0.10% of the overall contract value.
Operations notice tax
This is an annual tax on equity, set at 2% with a minimum tax amount of USD 100 to USD 60,000. For companies in free zones or special trade areas, the rate drops to 1%, with a range of USD 100 to USD 50,000.
Franchise tax
Corporations in Panama must pay franchise tax annually at a rate of USD 300. Non-profit organisations, cooperatives, and civil partnerships are exempt from this tax.
How to Pay Tax in Panama
The due date for filing annual tax returns in Panama is 15th March of the following year. Tax residents can also get an extension of up to a month from the DGI. To file, residents must register for a RUC (taxpayer identification number) and obtain a NIT (digital access code) to use the DGI’s e-Tax 2.0 online portal. Next, proceed to make payment on the Dirección General de Ingresos (DGI) website, at authorized banks or in person.
Does Panama have double taxation treaties with other countries?
Yes, Panama has double taxation treaties (DTT) with several Latin American countries, United Kingdom, Mexico and Spain, among others. However, it does not have one with the United States or Canada. Double taxation treaties prevent an individual or entity from being taxed twice on the same income by different countries. Panama has existing DTTs with the following countries:
| Barbados | Czech Republic | France | Ireland |
| Israel | Italy | Korea (South) | Luxembourg |
| Mexico | Netherlands | Portugal | Qatar |
| Singapore | Spain | United Arab Emirates | United Kingdom |
| Vietnam |
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