Countries › Panama › Guide › 6. Taxes › Tax loss carryforward in Panama: five years, 20 percent of the loss per year, capped at 50 percent of taxable income

Tax loss carryforward in Panama: five years, 20 percent of the loss per year, capped at 50 percent of taxable income

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

A loss can be deducted over the five following fiscal years at 20 percent of the loss per year, and each yearly slice may not reduce that year's net taxable income by more than half. Any part of a yearly slice that cannot be used is lost for good, with no refund. Losses are deducted only in the final annual return, not in the estimated return, and cannot be transferred, even in mergers.

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

Loss carryforward period	5 yearsCódigo Fiscal art. 698-A, as of 2026-10-29 · in force
Cap on loss deduction, share of the year's net taxable income	50 %Código Fiscal art. 698-A, as of 2026-10-29 · in force
Share of the loss deductible each year	20 %Código Fiscal art. 698-A, as of 2026-10-29 · in force
Loss carryback allowed	No textCódigo Fiscal art. 698-A (no carryback provided), 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. Losses suffered in a fiscal year are deductible in the five following fiscal years at 20 percent of the loss per year. The deduction may not reduce net taxable income by more than 50 percent in the year the slice is deducted. The portion of a slice not deducted in a year cannot be deducted later and gives no refund. Deductions are made only in the annual sworn return, not in the estimated return. The right to deduct losses is not transferable, even in consolidations or mergers.
Example: A B/.1,000,000 loss in 2025 gives slices of B/.200,000 for 2026 to 2030. With B/.300,000 of taxable income in 2026, only B/.150,000 is deductible and B/.50,000 is lost. / US$1,000,000 loss, US$200,000 slice, US$150,000 used in 2026, US$50,000 forfeited.Código Fiscal art. 698-A added by Ley 31 de 1991 art. 6, art. 698-A, 1991-12-30 official text · verified 2026-10-29

2. Each year's return is a separate whole as to gross income and deductions (art. 715), and expenses not deducted in their year cannot be deducted later, except those not determinable in that year; deductions owed to directors, officers, shareholders, their relatives and affiliated or subsidiary companies are deductible only when paid (art. 698).Código Fiscal art. 698 as amended by Ley 31 de 1991 art. 5, art. 698 and art. 715, 1991-12-30 official text · verified 2026-10-29

3. Under the alternative minimum computation, a company with taxable revenue above B/.1,500,000 that would incur a loss because of the 4.67 percent computation may ask the DGI not to apply it.Código Fiscal art. 699 parágrafo 1 as worded by Ley 8 de 2010 art. 9, art. 699 parágrafo 1, 2010-03-15 official text · verified 2026-10-29

Year	Slice available	Taxable income before loss	Cap (50 percent)	Deducted	Forfeited
2026	200,000	300,000	150,000	150,000	50,000
2027	200,000	500,000	250,000	200,000	0
2028	200,000	100,000	50,000	50,000	150,000
2029	200,000	600,000	300,000	200,000	0
2030	200,000	400,000	200,000	200,000	0

Use of a B/.1,000,000 (US$1,000,000) loss incurred in 2025 under Código Fiscal art. 698-A.

Worked example

Over 2026 to 2030 the company in the table deducts B/.800,000 of its B/.1,000,000 loss and permanently loses B/.200,000 because of the 50 percent cap.
A company expecting early losses should therefore plan the timing of income and capital expenditure, since an unused slice does not roll forward.

Step by step

Record each year's loss and build a five year schedule of 20 percent slices.
Apply the 50 percent cap in each annual return; do not deduct losses in the estimated return.
Before a merger, assume the target's losses will not survive.
If the CAIR would create or deepen a loss, file the non application request.

Common traps

Unused slices are forfeited each year, unlike many countries that let losses accumulate.
Losses cannot be transferred in mergers or consolidations.
There is no carryback.
Related party expenses are deductible only when paid, which can shift deductions between years.

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

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