Panama company tax is based on a territorial tax system, meaning only income earned within Panama is subject to taxation.
The corporate tax rate for Panama-sourced income is 25%, and businesses must also pay an annual franchise tax of 300 US dollars (USD) to maintain good standing.
Panama does not tax foreign-sourced income, making it a favorable jurisdiction for international entrepreneurs and offshore operations.
This article explores:
- What is Panama corporate tax?
- Is Panama a tax haven country?
- What is the best business structure to minimize taxes in Panama?
- What are foreigners’ common mistakes when it comes to Panama company tax?
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La información contenida en este artículo es meramente orientativa. No constituye asesoramiento financiero, jurídico o fiscal, ni una recomendación o solicitud de inversión. Algunos hechos pueden haber cambiado desde el momento de su redacción.
Can a foreigner own a business in Panama?
Yes, a foreigner can fully own a business in Panama.
There are no nationality or residency restrictions on company ownership.
Foreigners can incorporate entities like Sociedades Anónimas (SA) or Panama Private Interest Foundations through local law firms without being physically present in the country.
Foreign investors commonly choose corporations or offshore companies for protección de activos, international trade, and tax efficiency.
However, certain local trades (like retail businesses or domestic transport) may be restricted to Panamanian nationals.
Do foreigners pay tax in Panama?
Foreigners only pay tax in Panama on income that is sourced within the country.
If a foreigner owns a Panama company that earns revenue outside Panama, for example, consulting, online services, or offshore trading, the income is not taxable in Panama.
However, if the business generates income from activities inside Panama such as leasing property, providing services locally, or contracting with Panamanian clients, it will be taxed under the Panama corporate tax regime.
Residency status does not automatically determine tax liability; source of income does.
What are the taxes for companies in Panama?
- Corporate Income Tax:
Panama-sourced income is taxed at a flat rate of 25%. If a company operates locally, the profits from those activities are subject to this rate. - Territorial Tax Exemption:
Income earned from activities conducted outside Panama is exempt from corporate tax. This is a key reason Panama is attractive for foreign-owned businesses focused on international operations. - Dividend Tax:
- Dividends from Panama-source income are taxed at 10%, rising to 20% if paid on bearer share.
- Dividends paid out of foreign‑source or export income are taxed at a 5% withholding rate
- Annual Franchise Tax:
All corporations must pay a flat USD 300 annually to stay in good standing, regardless of whether the company generates income. - Value Added Tax (ITBMS):
Companies selling goods or services within Panama may need to charge and remit 7% VAT, unless exempt.
Is Panama low in taxes?
Yes, Panama is considered a low-tax jurisdiction, especially for offshore businesses.
The territorial system means no tax on foreign-source income, no capital gains tax on offshore investments, and minimal reporting requirements.
Compared to high-tax jurisdictions, Panama offers legal tax avoidance options, making it especially appealing for digital entrepreneurs, consultants, trading companies, and asset protection structures.
Is Panama a territorial tax country?
Yes, Panama uses a territorial tax system.
This means that only income earned within Panamanian borders is subject to taxation.
Foreign-source income regardless of the owner’s citizenship or where the company is incorporated, is not taxed in Panama.
This sets Panama apart from countries like the US or UK, which tax citizens or residents on worldwide income.
How to Structure Your Company to Benefit from Panama’s Tax System
- Set up an SA (corporation) that conducts international business only. Panama’s “Sociedad Anónima” structure allows foreign owners to establish a legal entity that does not require operations within Panama, making it ideal for international services or holding assets abroad.
- Use nominee directors to maintain privacy while meeting legal requirements. Panama requires three directors, but foreign owners often appoint nominee directors to preserve anonymity and protect ownership information. Only directors’ names appear in public records.
- Operate from abroad or conduct client transactions outside Panama. To preserve foreign-source income status, ensure that contracts, sales, and client work take place outside Panama’s borders even if the company is legally domiciled there.
- Avoid maintaining a physical office or hiring local staff unless necessary. Having a permanent establishment or local employees could trigger Panama-source taxation. Minimizing physical presence helps avoid local tax liabilities.
Common Mistakes Foreigners Make with Panama Company Tax
- Generating income inside Panama unknowingly: For example, renting out local property or signing contracts performed locally.
- Failing to maintain good standing: Skipping the USD 300 annual fee or not renewing the resident agent can lead to penalties.
- Improperly mixing local and offshore activities: This can expose the entire income to taxation if not structured carefully.
Working with an experienced Panama law firm or tax advisor helps avoid these pitfalls.
Conclusión
Panama’s territorial tax system offers significant advantages for foreign-owned companies especially those earning income from international clients or operating offshore.
By structuring your business correctly and staying compliant, you can legally minimize tax exposure while benefiting from Panama’s stable, business-friendly environment.
Always seek professional advice to ensure you meet all legal and tax obligations.
Preguntas frecuentes
Can a Panama corporation operate abroad but be tax-exempt in Panama?
Yes. As long as all commercial activity, services, or trade takes place outside Panama, the company’s income is not taxed locally.
Do I need to file tax returns in Panama if my income is foreign-sourced?
Technically, yes. Panama corporations are required to file annual reports and tax declarations even if they owe zero tax due to foreign-source income. This helps maintain legal compliance.
Does Panama report foreign-owned companies to other countries?
Panama has signed onto some global information-sharing agreements, but it is not part of the CRS (Common Reporting Standard).
However, UBO (Ultimate Beneficial Owner) declarations may be required privately with your law firm.
Can I live in Panama and still claim foreign-source income through my company?
Possibly. But once you become a tax resident or operate locally, some income may be reclassified as Panama-sourced. Consult with a tax advisor before becoming resident.
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Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.
