Panama Cross-Border Tax Guide 2026

Territorial Taxation

The cornerstone of Panama's tax system is the territorial principle. Only income derived from activities carried out within Panamanian territory or from assets located in Panama is subject to tax. All foreign-source income — including foreign dividends, interest, royalties, capital gains, rental income, and business profits — is completely exempt from Panamanian tax.

This means a Panamanian resident company or individual can receive foreign income without any Panamanian tax liability. No foreign tax credit is needed because the income is simply not within the scope of Panamanian tax.

No CFC Rules

Panama does not have Controlled Foreign Corporation (CFC) rules. This means that a Panamanian resident who owns shares in a foreign company is not subject to tax on the company's retained earnings. Only actual dividends received are potentially taxable (and only if from Panama sources; foreign dividends are exempt).

No Thin Capitalization Rules

There are no thin capitalization rules in Panama. Companies can structure their financing with any level of debt without adverse tax consequences. Interest payments are generally deductible (subject to arm's length principles) without the restrictions found in many other jurisdictions.

Double Taxation Treaties

Panama has signed over 20 Double Taxation Treaties (DTTs), including with: UK, France, Germany, Italy, Mexico, Netherlands, Qatar, Singapore, South Korea, Spain, UAE, Czech Republic, Finland, Greece, Ireland, Luxembourg, Norway, Portugal, Sweden, Switzerland. These treaties provide reduced WHT rates on cross-border dividends (typically 5-10%), interest (5%), and royalties (10-12.5%), as well as dispute resolution mechanisms.

Withholding Taxes to Non-Residents

Payments from Panama to non-residents are subject to withholding tax: dividends 10%, interest 5%, royalties 12.5%, technical services 12.5%. Treaty rates may reduce these amounts.