Countries › Panama › Guide › 6. Taxes › Tax incentives in Panama: multinational headquarters (SEM) and EMMA at 5 percent, free zones and the Colón Free Zone, and the MSME schedule

Tax incentives in Panama: multinational headquarters (SEM) and EMMA at 5 percent, free zones and the Colón Free Zone, and the MSME schedule

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

Licensed multinational headquarters (SEM) and multinational manufacturing services companies (EMMA) pay income tax at 5 percent on net income from their services, with a 2 percent floor where foreign tax credits apply, and EMMA companies are exempt from dividend, complementary and branch taxes. Free zone and Colón Free Zone companies pay no income tax on exterior operations and 5 percent dividend tax, and small companies registered with AMPYME use a 7.5 to 22.5 percent schedule. All special regime companies stay inside transfer pricing and, from 2027, the substance rules for foreign passive income.

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

Income tax rate for licensed multinational headquarters (SEM)	5 %Ley 41 de 2007 art. 21 (Ley 57 de 2018), as of 2026-10-29 · in force
Income tax rate for EMMA licensed companies	5 %Ley 159 de 2020 art. 20, as of 2026-10-29 · in force
Minimum income tax of SEM companies when foreign tax credits apply	2 %Ley 41 de 2007 art. 21, as of 2026-10-29 · in force
Dividend tax for free zone companies	5 %Ley 32 de 2011 art. 32, as of 2026-10-29 · in force
MSME company income tax rates (schedule)	7.5 to 22.5 %Código Fiscal art. 699-A, 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 holding a Licencia de Sede de Empresa Multinacional pay income tax at 5 percent on net taxable income from the services rendered, and may deduct the remuneration of all their employees; they may credit foreign tax and Panamanian withholding on services to non residents but must pay at least 2 percent of Panamanian net taxable income, without carryforward or refund of credits. Licensed SEM companies obtained after the reform enjoy legal stability under Ley 54 de 1998 automatically (art. 15-A).Ley 41 de 2007 art. 21 and art. 15-A as worded and added by Ley 57 de 2018 art. 4 and art. 5, art. 21 and art. 15-A, 2018-10-24 official text · verified 2026-10-29 · changed: Ley 57 de 2018 set the 5 percent SEM rate, the 2 percent minimum and automatic legal stability, and subjected SEM companies to transfer pricing from fiscal year 2019.

2. A Panamanian taxpayer that receives services from a SEM company withholds 5 percent of the amount remitted, if deducted against Panamanian source income; a SEM company paying a non resident for services or interest withholds 5 percent on 50 percent of the amount, unless the recipient registered with the DGI.Ley 41 de 2007 art. 23 as worded by Ley 57 de 2018, art. 23, 2018-10-24 official text · verified 2026-10-29

3. Companies holding an EMMA licence for manufacturing related services pay income tax at 5 percent on net taxable income from their services, with a 2 percent floor when foreign tax credits apply (art. 20); they are subject to transfer pricing (art. 21); they are exempt from dividend tax, complementary tax and branch tax whatever the source of income, without applying art. 733-A of the Código Fiscal (art. 22); gains on their shares are taxed at 2 percent with a 1 percent buyer withholding that may be final (art. 25); and payers withhold 5 percent on services they buy from them (art. 27). They need no Aviso de Operación for the licensed services and are outside the Aviso tax of Código Fiscal art. 1004 (art. 24).Ley 159 de 31 de agosto de 2020, art. 20 to 27, 2020-08-31 official text · verified 2026-10-29

4. Companies established in the Colón Free Zone or any other free zone pay full income tax on domestic operations, meaning sales to buyers in the Panamanian customs territory, but no income tax on profits from exterior operations from 1 January 1997.Código Fiscal art. 701 literal d as worded by Ley 62 de 1996 art. 2, art. 701 literal d, 1996-09-19 official text · verified 2026-10-29

5. Under the free zones law, manufacturing, service, high technology, research, higher education, health and environmental services companies and centers in free zones are exempt from income tax on exterior operations and operations among themselves; free zone companies pay 5 percent dividend tax whatever the source and 2 percent complementary tax if they do not distribute profits, and pay income tax and ITBMS on local leasing operations.Ley 32 de 5 de abril de 2011, art. 32 and art. 33, 2011-04-05 official text · verified 2026-10-29

6. Companies in the Colón Free Zone, oil free zones, other free zones and special economic areas withhold 5 percent dividend tax on distributions of local, foreign, export or exempt profits.Código Fiscal art. 733 literal b as worded by Ley 8 de 2016 art. 63, art. 733 literal b, 2016-04-04 official text · verified 2026-10-29

7. Micro, small and medium companies registered with AMPYME with revenue up to B/.500,000, owned by individuals and not part of a group, pay 7.5 to 22.5 percent according to revenue and no 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

Regime	Income tax	Dividend tax	Law
Multinational headquarters (SEM)	5 percent on service income, 2 percent floor with credits	Under Ley 41 de 2007	Ley 41 de 2007 as amended by Ley 57 de 2018
EMMA manufacturing services	5 percent on service income, 2 percent floor with credits	Exempt	Ley 159 de 2020
Free zones	Exempt on exterior operations	5 percent; 2 percent complementary	Ley 32 de 2011
Colón Free Zone	Exempt on exterior operations	5 percent	Código Fiscal art. 701 d and 733 b
AMPYME registered MSME	7.5 to 22.5 percent schedule	No complementary tax	Código Fiscal art. 699-A

Main income tax incentive regimes in Panama (verified 29 October 2026).

Worked example

A regional services hub licensed as a SEM earns B/.2,000,000 (US$2,000,000) of net taxable income from services to group companies abroad.
Income tax at 5 percent is B/.100,000 (US$100,000), against B/.500,000 at the 25 percent general rate. If it credits foreign taxes, it still pays at least 2 percent, B/.40,000.
It must price its services at arm's length under the transfer pricing rules and, from 2027, test substance for any foreign passive income it earns.

Step by step

Choose the regime that fits the activity: SEM for regional headquarters services, EMMA for manufacturing related services, free zones for logistics and manufacturing for export.
Apply for the licence or free zone registration with the competent authority before starting operations.
Keep separate accounts for domestic and exterior operations where the regime requires it.
Prepare transfer pricing documentation, since special regimes are inside the transfer pricing rules.
Track the 2 percent minimum and the limits on foreign tax credits.

Common traps

Sales into the Panamanian customs territory from a free zone are domestic operations taxed at the general rate.
Leasing and services within free zones to local parties are taxable.
Art. 733-A can switch off withholding exemptions where the recipient can credit Panamanian tax at home (EMMA dividends are carved out).
Incentive companies of multinational groups still face the 2027 substance regime 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

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