Panama corporate tax - guide for international expansion

Are you considering expanding your business to Panama? Understanding the country's corporate tax landscape is essential for making informed decisions about this strategic Central American location.

Panama offers unique advantages as a business hub, connecting North and South America with access to both Atlantic and Pacific markets. From competitive tax rates to special economic zones, the country provides various opportunities for international businesses looking to establish operations in the region.

Whether you're planning to set up a subsidiary, acquire a local company, or simply understand your tax obligations, getting familiar with Panama's corporate tax system is crucial for success. Wise Business can help streamline your international payments and banking needs as you navigate this exciting market opportunity.

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This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Panama Corporate tax rate in 2025

Panama's standard corporate income tax rate is 25% for most businesses operating in the country. This rate applies to both resident and non-resident companies on their Panama-sourced income, making it competitive within the Central American region.¹

However, Panama offers several reduced rates for specific types of businesses and activities. Companies operating under the Multinational Headquarters (SEM) regime can benefit from a reduced rate of 5% on qualifying income.³ Additionally, businesses in certain Free Trade Zones may qualify for complete tax exemptions for specified periods, typically ranging from 10 to 20 years, depending on the zone and investment level.²

The country also maintains special rates for financial institutions, with banks and other financial entities subject to a 30% corporate tax rate. For companies with annual taxable income exceeding $1.5 million, Panama applies an alternative minimum tax calculation of 4.67% on gross income, with companies paying whichever amount is higher.¹

Panama operates on a territorial tax system, meaning only income generated within Panama is subject to local corporate income tax. This makes it particularly attractive for international businesses using Panama as a regional hub, as foreign-sourced income is generally not taxable in Panama.¹

Read more about Corporate Tax Planning best practices

How to pay corporate tax in Panama

Corporate tax payments in Panama are managed through the Dirección General de Ingresos (DGI), the country's tax authority. All corporate tax obligations must be paid in US dollars, as Panama uses the US dollar as its official currency alongside the Panamanian balboa.¹

Companies must file their annual corporate income tax return within 90 days after the end of the fiscal year. The tax year in Panama typically runs from January 1st to December 31st for most businesses, though companies can request approval for different fiscal year periods.⁴

Panama operates on a pay-as-you-earn system with three advance payments required during the tax year. These payments are due in June, September, and December, with the final payment due when filing the annual return. Each advance payment represents approximately one-third of the expected annual tax liability.⁴

Late payments in Panama generally incur interest plus a surcharge. Companies that fail to file corporate tax returns by the deadline may also face additional fines.⁵

Let's calculate the annual tax due for a company with a turnover of $1.5 million. Assuming a profit margin of 10%, the taxable profit would be $150,000. At Panama's standard corporate tax rate of 25%, the annual tax liability would be:

$150,000 × 25% = $37,500

However, for companies with taxable income over $1.5 million, Panama applies an alternative calculation. The company would also calculate 4.67% of gross income ($1.5 million × 4.67% = $70,050) and pay whichever amount is higher. In this case, the alternative calculation would result in a higher tax burden.¹

When expanding your business to Panama, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to manage international finances. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

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Tax Compliance in Panama

To remain compliant with Panama’s tax regulations, companies should pay close attention to:

Understand Panama’s tax system: Panama applies a territorial tax regime with a 25% corporate income tax on earnings generated. Foreign-sourced income is exempt. Most goods and services are subject to a 7% VAT (ITBMS), though exemptions apply to essentials such as food and medicines. Companies operating in special economic zones like the Colon Free Zone or Panama Pacifico may qualify for exemptions from income tax, VAT, and import/export duties.

Meet filing and reporting obligations: Businesses must register with the Public Registry and obtain a Taxpayer Identification Number (RUC). Annual income tax declarations, monthly VAT filings, and social security contributions to the CSS are required. Companies must also maintain accounting records for at least five years under Law 52 of 2016, while Ultimate Beneficial Ownership data must be kept up to date in the SSNF registry.⁶

Be aware of penalties: Late filings can result in progressive fines, often starting at USD 500, while inaccuracies may trigger audits or penalties under transfer pricing rules. Ensuring timely compliance avoids penalties and strengthens corporate credibility in Panama’s growing business environment.⁷

International Expansion to Panama

Panama has long been recognised as one of the world's most strategically important business destinations. The Panama Canal, one of the world’s most vital waterways, handles around 1,000 ships monthly and connects more than 180 sea routes, 170 countries, and 1,900 ports. It is an essential hub for companies expanding into the Americas and beyond. In addition, Tocumen International Airport, known as the Hub of the Americas, connects travellers to over 90 global cities and served nearly 18 million passengers in 2023.⁸

Moreover, the country’s economic appeal is reinforced by its U.S. dollar-based currency, stable democratic government, and consistent growth, averaging above 5% annually for the past 15 years.⁸ Having a population of 4.2 million and a GDP per capita of USD 14,740 (2022),⁸ Panama ranks among the highest in the region. It is also a magnet for foreign investment, recording over USD 2 billion in FDI inflows in 2023, mainly targeting construction, telecommunications, reinsurance, and engineering.⁹

For businesses, Panama offers access to more than 1.6 billion consumers through 23 free trade agreements, including those tied to the Colon Free Zone, Panama Pacifico, and the City of Knowledge. As a digital and logistics hub, the region processes 100% of regional internet traffic and 97% of voice traffic, supported by eight fibre-optic cables.⁸

The favourable Panama corporate tax rate and incentives, such as tax relief on specific sectors, are an added perk in this jurisdiction. Companies must consider rules around corporate capital gains tax, proper management of a corporate tax account, and compliance to avoid penalties linked to corporate tax avoidance.

Here are the steps to follow when you start a business in Panama:¹⁰

1. Conduct market research.
2. Develop a tailored business plan.
3. Choose a legal structure and register with the Public Registry.
4. Obtain a Tax Identification Number (RUC).
5. Comply with labour and social security regulations.
6. Open a local bank account.

Staying compliant with government policies helps businesses avoid penalties, protect resources, and plan for sustainable growth. This is especially important when factoring in broader operational considerations, including the cost of living in Panama, which can shape both business and employee decisions.

Discover the top 5 best Corporate Tax softwares

Incorporation of Business in Panama

Setting up a business in Panama is a simple process that’s flexible for both local entrepreneurs and international investors. The country’s corporate framework is attractive due to its favourable regulations, ease of incorporation, and access to corporate tax credits that support long-term growth.

Key Steps to Incorporation

To establish a company in Panama, the following steps are required:¹¹

• Choose the entity type: Panama offers several business structures depending on the nature of operations and tax planning needs.
• Appoint directors and officers: Corporations must have at least three directors who may also act as president, secretary, and treasurer. Directors can be individuals or legal entities and do not need to be residents of Panama.
• Draft Articles of Incorporation: This document outlines the company’s name, purpose, share capital, and governance. It must be prepared in Spanish and filed with the Public Registry. Companies often recommend a minimum authorised capital of USD 10,000, though no mandatory minimum is required.
• Register with the Public Registry: Filing the Articles of Incorporation legally establishes the entity.
• Appoint a resident agent: A licensed Panamanian attorney or law firm must be a local representative.
• Acquire a registered office: A local address is required for official correspondence.
• Open a corporate bank account: Banks typically require the Articles of Incorporation, identification documents, and board resolutions.
• Pay incorporation fees: Public Registry fees, resident agent fees, and an annual government tax of USD 300.

Business Entity Types in Panama¹²

• International Business Corporation (IBC): Popular for local and international activities, IBCs provide strong privacy protections, limited liability, and no residency requirements for directors or shareholders.
• Limited Liability Company (LLC / S. de RL): This structure requires at least two partners and no minimum capital. It offers flexibility, liability protection, and the option to convert into an IBC.
• Partnership Company: This structure is simple and typically chosen by licensed professionals such as lawyers or accountants, but partners remain personally liable for company obligations.

Investors should consider how each entity aligns with Panama’s tax rules and available incentives. Guidance from international tax advisors can help optimise efficiency, particularly for cross-border operations.

International corporate tax best practices

Managing corporate tax obligations across multiple jurisdictions requires strategic planning and adherence to international standards. Here are key practices that can help businesses operating internationally, including in Panama.

Stay compliant with local and international tax laws by ensuring proper registration in every jurisdiction where your business operates. File all required tax returns on time to avoid penalties, and maintain up-to-date knowledge of local tax regulations. This is particularly important in Panama, where tax laws can change and special regimes may have specific compliance requirements.

Understanding and leveraging double taxation treaties is crucial for international businesses. Panama has signed double taxation agreements with several countries, which can help prevent the same income from being taxed twice. These treaties often provide reduced withholding tax rates on dividends, interest, and royalties, making cross-border transactions more tax-efficient.

Maintain transparent and up-to-date financial records to ensure accurate tax reporting and compliance. This includes proper documentation of transfer pricing for related-party transactions, which is increasingly important as tax authorities worldwide focus on ensuring profits are taxed where economic activities occur. Good record-keeping also simplifies the audit process and demonstrates good faith compliance efforts.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to Panama efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.

• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.

• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.

• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

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FAQs - Corporate tax in Panama

Who is liable for corporate tax in Panama?

All companies incorporated in Panama are liable for corporate income tax on their Panama-sourced income. This includes both domestic companies and foreign companies with permanent establishments in Panama. Non-resident companies without a permanent establishment are only subject to withholding taxes on specific types of Panama-sourced income, such as dividends, interest, and royalties paid by Panamanian entities.

Are there any tax incentives for businesses in Panama?

Yes, Panama offers several tax incentive programmes. The Multinational Headquarters (SEM) regime provides significant tax benefits for qualifying companies that serve as regional headquarters. Free Trade Zones offer complete income tax exemptions for periods ranging from 10 to 20 years, depending on the zone and investment level. Additionally, the country has special incentives for tourism, forestry, and renewable energy projects.

What is the tax treatment of dividends in Panama?

Dividends paid by Panamanian companies are generally subject to a 10% withholding tax when distributed from local taxable income. However, dividends paid from foreign-source income or export income are subject to a reduced 5% rate. Companies that don't distribute at least 40% of their after-tax profits must pay a complementary tax of 4%, which serves as an advance payment of future dividend tax.

What is the process for registering for corporate tax in Panama?

Companies must obtain an Operations License to carry out commercial activities in Panama, which automatically grants them a Unique Taxpayer Registration number (RUC). This registration must be completed before commencing business activities and involves submitting incorporation documents and other required paperwork to the relevant authorities.

What are the common pitfalls to avoid regarding corporate tax in Panama?

Common mistakes include failing to understand the territorial tax system and incorrectly reporting foreign-sourced income, missing advance payment deadlines, which can result in penalties, and inadequate documentation for transfer pricing arrangements. Additionally, businesses should ensure they understand the alternative minimum tax calculation for companies with income over $1.5 million, as this can significantly impact tax liability. Companies should also be aware that loans to shareholders are treated as dividend distributions subject to withholding tax.

Sources used in this article:

1. PwC Tax Summaries: Panama Corporate Income Taxes
2. PwC Tax Summaries: Panama Tax Credits and Incentives
3. Kraemer Law: Panama Multinational Headquarters (SEM)
4. PwC Tax Summaries: Panama Tax Administration
5. Dentons: Global Tax Guide to Doing Business in Panama
6. Mirasia: How to Incorporate a Panama Corporation
7. Limitless Legal: Panama Tax Penalties for Non-Declaration
8. PROPANAMA: Investment Guide (PDF)
9. Lloyds Bank Trade: Investing in Panama
10. Biz Latin Hub: Panama Business Investment Opportunities and Challenges
11. Mirasia: Detailed Checklist for Incorporation of a Panama Corporation
12. Kraemer Law: Panama Company Structures Full Guide

Sources last checked 02/10/2025