Countries › Panama › Guide › 15. Exiting › Taking money out before or at exit: dividend tax, the capital reduction rule and free repatriation

Taking money out before or at exit: dividend tax, the capital reduction rule and free repatriation

Argentina. For full detail on Argentina, go to The Argentine Thread.

Last verified: 2026-10-29 · Status: Stable

Distributions of Panamanian source profits bear a 10 percent dividend tax withheld by the company, and 5 percent applies to foreign source, export or listed exempt profits; treaty rates prevail where a treaty applies. A company may reduce capital only after it has distributed all retained earnings and paid the dividend tax, and loans to shareholders are taxed as dividends at 10 percent. Directors who approve distributions that leave assets below liabilities plus capital are liable to creditors, and repatriation of capital and profits is free by law.

Panama's currency, the balboa (B/.), is at par with the US dollar, which circulates freely as legal tender; the Superintendencia de Bancos states that the balboa's value is on a par with the US dollar (checked 29 October 2026). USD figures therefore equal the balboa figures.

Key facts

Dividend tax on distributions of Panamanian source profits	10 %Código Fiscal art. 733 literal a, as of 2026-10-29 · in force
Dividend tax on foreign source, export or listed exempt profits	5 %Código Fiscal art. 733 literal a, as of 2026-10-29 · in force
Dividend tax for bearer share holders	20 %Código Fiscal art. 733 literal i, as of 2026-10-29 · in force
Minimum distribution to avoid complementary tax (10 percent rate cases)	40 %Código Fiscal art. 733 literal g, as of 2026-10-29 · in force
Dividend tax on loans to shareholders	10 %Código Fiscal art. 733 parágrafo 1, as of 2026-10-29 · in force
Repatriation of dividends and capital	Free, guaranteed by law; no exchange controls textLey 54 de 1998 art. 2, as of 2026-10-29 · in force
Exchange rate used for USD conversions	1 PAB per USDBalboa at par with the US dollar (Superintendencia de Bancos), as of 2026-10-29 · in force

The rule

1. Companies that need an Aviso de Operación, a Colón Free Zone operating code, operate in an oil free zone or other free zone or special economic area, or earn taxable income in Panama must withhold dividend tax of 10 percent on profits distributed from Panamanian source income and 5 percent on profits from income exempt under art. 708 literals f and l, foreign source income or export income.
Cost to do it: 10 percent or 5 percent of the distribution.
Example: B/.500,000 of local profits distributed: B/.50,000 withheld; B/.500,000 of foreign source profits: B/.25,000. / US$500,000 distribution: US$50,000 or US$25,000 withheld.Código Fiscal art. 733 literal a as worded by Ley 8 de 2016 art. 63, art. 733 literal a, 2016-04-04 official text · verified 2026-10-29

2. A company distributing dividends must first exhaust Panamanian source or local profits before distributing profits from foreign, export or exempt income. Treaty rules prevail where Panama has a double taxation treaty with the shareholder's country. Amounts withheld are paid within ten days and are final.Código Fiscal art. 733 literals c, e and j as worded by Ley 8 de 2010 art. 36, art. 733 literals c, e and j, 2010-03-15 official text · verified 2026-10-29

3. If no dividend is distributed, or less than 40 percent of the fiscal year's net profit less taxes paid is distributed, the company pays 10 percent of the difference (20 percent threshold where the 5 percent rate applies): the complementary tax. Holders of bearer shares pay 20 percent.
Example: Net profit after tax B/.1,000,000 and no distribution: complementary tax of 10 percent on B/.400,000, B/.40,000. / US$40,000 of complementary tax.Código Fiscal art. 733 literals g and i as worded by Ley 8 de 2010 art. 36, art. 733 literals g and i, 2010-03-15 official text · verified 2026-10-29

4. Every loan or credit granted by a company to its shareholders bears 10 percent dividend tax, even where the 5 percent rate would apply; amounts already withheld at 10 percent count, and 5 percent withholdings are topped up. Any capital reduction under Código Fiscal art. 1009 may be made only once the company has distributed all retained earnings and paid the corresponding dividend tax.
Cost to do it: 10 percent of shareholder loans; dividend tax on all retained earnings before any capital reduction.
Example: A company with B/.2,000,000 of capital and B/.600,000 of local retained earnings wanting to return B/.1,000,000 of capital must first distribute the B/.600,000 and pay B/.60,000 of dividend tax. / US$60,000 of dividend tax before the US$1,000,000 capital return.Código Fiscal art. 733 parágrafo 1 as worded by Ley 27 de 2015 art. 5, art. 733 parágrafo 1, 2015-05-04 official text · verified 2026-10-29

5. If a dividend or distribution of assets reduces the company's assets below its liabilities including share capital, or capital is reduced, or a false statement or report is made on a material point, directors who consented knowing the effect on capital or the falsity are jointly and severally liable to creditors for the resulting damage. Dividends may be paid only out of net profits or the excess of assets over liabilities.Ley 32 de 1927, arts. 37 and 64, 1927-02-26 official text · verified 2026-10-29

6. Foreign investors are guaranteed free disposal of the resources generated by their investment and free repatriation of capital, dividends, interest and profits.
Cost to do it: No exchange control cost; the balboa is at par with the US dollar.Ley 54 de 22 de julio de 1998, art. 2, 1998-07-22 official text · verified 2026-10-29

Worked example

A Panamanian S.A. owned by a foreign parent has B/.3,000,000 of share capital and B/.800,000 of retained earnings from local operations.
Before winding down, it distributes the B/.800,000: dividend tax at 10 percent, B/.80,000, is withheld and paid within ten days; the parent receives B/.720,000.
Only then may it reduce capital and return B/.3,000,000, which is not a dividend. Total cash to the parent: B/.3,720,000 (US$3,720,000), remitted freely.
If the parent sits in a treaty country, the treaty rate replaces the 10 percent, provided the treaty conditions are met.

Step by step

Classify retained earnings by source: local first, then foreign, export or exempt.
Declare and pay dividends, withholding 10 percent or 5 percent, and remit within ten days.
Check treaty eligibility of the shareholder before applying a reduced rate.
Only after all retained earnings are distributed, approve and register any capital reduction.
Make sure assets still cover liabilities plus capital before each distribution.

Common traps

Upstream loans are not a way around dividend tax: they bear 10 percent.
A capital reduction made while retained earnings remain undistributed breaches art. 733 parágrafo 1.
Argentina has no double taxation treaty with Panama on the DGI list, so the domestic rates apply to Argentine shareholders; see The Argentine Thread guide for the Argentine side.

Sources

← Closing with the DGI and PANAMAEMPRENDE: final return, RUC update and cancelling the Aviso de OperaciónSelling shares of a Panamanian company: 10 percent capital gains tax, the 5 percent buyer withholding and the transfer formalities →

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