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Panama Corporate Tax Guide 2026

Panama applies a territorial tax system: only Panama-source income is taxed at 25%. Foreign-source income is 0%. Free zones offer additional incentives. New companies may benefit from reduced rates for the first 2 years.

Corporate Tax Rate: 25% Territorial

The standard corporate income tax (CIT) rate in Panama is 25%, applied only to Panama-source income. Income from foreign sources (e.g., export sales, foreign services, foreign investments) is not subject to Panamanian corporate tax. This territorial system makes Panama a highly attractive jurisdiction for holding companies and regional headquarters.

Key rate facts:

  • Standard CIT: 25% on Panama-source profits
  • Foreign-source income: 0% (not taxed in Panama)
  • New companies: Reduced rates for first 2 years of operation
  • Free zones: Additional incentives and exemptions

Withholding Taxes (WHT)

Panama imposes withholding taxes on certain payments to non-residents and residents:

  • Dividends: 10% WHT (5% on dividends from legal reserve)
  • Interest: 5% WHT on payments to non-residents
  • Royalties: 12.5% WHT on payments to non-residents
  • Technical services: 12.5% WHT

Free Zone Incentives

Panama's free zones offer significant tax benefits. The Colón Free Zone (Zona Libre de Colón) is the largest free port in the Americas. Other zones include Ciudad del Saber (City of Knowledge) for technology and education, and SEM (Multinational Company Headquarters) regime. Benefits include reduced CIT rates, customs duty exemptions, and simplified administrative procedures.

Deductible Expenses

Allowable deductions include ordinary and necessary business expenses: salaries, rent, utilities, marketing, depreciation, interest (no thin cap rules — Panama has no thin capitalization rules), and other expenses incurred to generate Panama-source income. Non-deductible items include personal expenses, fines, penalties, and capital expenditure (depreciated over useful life).

Filing and Payment

Corporate tax returns must be filed by March 31 following the end of the tax year. The tax year is the calendar year (January–December). Monthly advance payments are required based on the previous year's tax liability. Late filing penalties apply: 10% of tax due for the first month, plus 2% per additional month.

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