Countries › Panama › Guide › 6. Taxes › Dividend tax and complementary tax in Panama: 10, 5 and 20 percent withholding, the 40 percent payout rule and branch profits

Dividend tax and complementary tax in Panama: 10, 5 and 20 percent withholding, the 40 percent payout rule and branch profits

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

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

A company operating in Panama withholds 10 percent dividend tax on distributions of Panamanian source profits and 5 percent on foreign source, exempt or export profits, and remits it within ten days; bearer shareholders pay 20 percent. If it distributes less than 40 percent of after tax profit, it pays a 10 percent complementary tax on the shortfall. Branches of foreign companies pay 10 percent of their Panamanian taxable income less income tax, and loans to shareholders bear the dividend tax.

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 Panamanian source profits paid to foreign shareholders	10 %Código Fiscal art. 733 literal a, as of 2026-10-29 · in force
Dividend tax on Panamanian source profits paid to resident shareholders	10 %Código Fiscal art. 733 literal a, as of 2026-10-29 · in force
Dividend tax on foreign source, export or exempt profits	5 %Código Fiscal art. 733 literal a, as of 2026-10-29 · in force
Dividend tax for bearer shareholders	20 %Código Fiscal art. 733 literal i, as of 2026-10-29 · in force
Branch profits tax on Panamanian taxable income less income tax	10 %Código Fiscal art. 733 literal f, as of 2026-10-29 · in force
Payout below which the complementary tax applies	40 % of after tax profitCódigo Fiscal art. 733 literal g, as of 2026-10-29 · in force
Combined corporate and dividend tax on Panamanian source profit paid out	32.5 %Código Fiscal art. 699 and art. 733, 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. Except where literals b, d, h and k apply, only companies that need an Aviso de Operación, a Colón Free Zone operating code, operate in an oil free zone, free zone or special economic area, or earn taxable income in Panama must withhold dividend tax: 10 percent of profits distributed when they are Panamanian source, and 5 percent when they come from income exempt under art. 708 literals f and l, foreign source income or exports (literal a). Companies in the Colón Free Zone, oil free zones, other free zones and special economic areas withhold 5 percent on distributions from local, foreign, export and exempt income (literal b).Código Fiscal art. 733 literals a and b as worded by Ley 8 de 2016 art. 63, art. 733 literals a and b, 2016-04-04 official text · verified 2026-10-29

2. Distributions must exhaust Panamanian source or local profits before foreign, export or exempt profits (literal c). Treaty rates prevail over the domestic rates where a double taxation treaty applies (literal e). Branches of foreign legal persons pay 10 percent of 100 percent of their Panamanian taxable income less the income tax paid on it, as a final tax paid with the annual return (literal f). Holders of bearer shares pay 20 percent, withheld as a final tax (literal i). Amounts withheld are remitted within ten days and are final (literal j).
Example: A branch with B/.400,000 of Panamanian taxable income pays B/.100,000 of income tax and then 10 percent of B/.300,000, B/.30,000, as branch tax. / US$400,000 of branch taxable income: US$100,000 income tax and US$30,000 branch tax.Código Fiscal art. 733 literals c, e, f, i and j as worded by Ley 8 de 2010 art. 36, art. 733, 2010-03-15 official text · verified 2026-10-29

3. If no dividend is distributed, or the distribution is less than 40 percent of the fiscal year's net profit less taxes paid by the company, the company pays 10 percent of the difference; where the 5 percent rate applies, the threshold is 20 percent (literal g). This is the complementary tax. Companies need not withhold again on dividends received from companies that already paid or withheld the tax, or that were exempt or paid it abroad (literal h).
Example: After tax profit B/.750,000 and no distribution: complementary tax is 10 percent of 40 percent of B/.750,000, B/.30,000. / US$750,000 after tax profit retained: US$30,000 complementary tax.Código Fiscal art. 733 literals g and h as worded by Ley 8 de 2010 art. 36, art. 733 literals g and h, 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, unless 10 percent was already withheld; bearer shares require 20 percent before the loan. A capital reduction is allowed only once all retained earnings have been distributed and the dividend tax paid (art. 733 parágrafo 1).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. Companies under the micro, small and medium business regime of art. 699-A are exempt from the complementary tax.Código Fiscal art. 699-A as worded by Ley 189 de 2020 art. 1, art. 699-A, 2020-12-17 official text · verified 2026-10-29

Situation	Rate	Literal
Panamanian source profits, ordinary company	10 percent	a
Foreign source, export or exempt profits	5 percent	a
Free zone, oil free zone or special economic area company	5 percent	b
Bearer shares	20 percent	i
Branch of a foreign company	10 percent of taxable income less income tax	f
Payout below 40 percent (20 percent at the 5 percent rate)	10 percent of the shortfall	g
Loan to a shareholder	10 percent (20 percent bearer)	parágrafo 1

Dividend tax rates under Código Fiscal art. 733 (verified 29 October 2026).

Worked example

A Panamanian S.A. earns B/.1,000,000 (US$1,000,000) of Panamanian source taxable income and pays B/.250,000 of income tax, leaving B/.750,000.
Paying the full B/.750,000 to its foreign parent, it withholds 10 percent, B/.75,000, and remits it within ten days; the parent receives B/.675,000 (US$675,000).
Paying only B/.200,000 instead, it withholds B/.20,000 and also owes complementary tax of 10 percent of (B/.300,000 minus B/.200,000), B/.10,000, since 40 percent of B/.750,000 is B/.300,000.
Argentina has no treaty with Panama, so the domestic 10 percent applies to an Argentine parent; the Argentine treatment of the dividend is covered in the Argentine guide.

Step by step

Track retained earnings by source (Panamanian, foreign, export, exempt) so that each distribution carries the right rate and Panamanian profits are paid out first.
Withhold at payment or credit and remit within ten days.
Compute the 40 percent (or 20 percent) payout test each year and pay complementary tax on any shortfall.
For treaty rates, file the treaty memorial with the DGI before the payment (see Tax treaties).
Before a capital reduction or liquidation, distribute retained earnings and pay the dividend tax.

Common traps

Shareholder loans are taxed as dividends at 10 percent even when the profits would carry 5 percent.
Bearer shares still exist only under custody and carry a 20 percent dividend tax.
Branch profits tax applies whether or not the branch remits anything.
Companies with only foreign source income and no Aviso de Operación generally fall outside the withholding duty, but from 2027 group entities must test substance for foreign passive income.

Sources

Related: Panama country profile · live dashboard · central bank and release calendar · our posts on X · where Argentina is involved, see The Argentine Thread guide

← Economic substance and foreign passive income in Panama: Ley 526 de 2026, the 15 percent rate and who must report from fiscal year 2027Withholding on payments abroad from Panama: 12.5 percent effective on services, royalties and interest, and the treaty and registration exceptions →

Get rule changes weekly

Free. One email a week from The LatAm Thread.

One more step after you press the button: we take you to Substack, where your email is already filled in. Confirm there to start. No spam, unsubscribe anytime, we never share your address. By subscribing you agree to the privacy policy.