Countries › Panama › Guide › 6. Taxes › Panama's tax system: territorial income tax, 25 percent corporate rate, 10 percent dividend tax, 7 percent ITBMS and the 2027 substance rules

Panama's tax system: territorial income tax, 25 percent corporate rate, 10 percent dividend tax, 7 percent ITBMS and the 2027 substance rules

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

Panama taxes only income produced inside its territory: profits from billing or directing deals from a Panamanian office that are consummated abroad are not Panamanian source. Companies pay 25 percent income tax, with an alternative minimum computation once taxable revenue exceeds B/.1,500,000, shareholders bear a 10 percent dividend tax withheld by the company, and sales and services carry the 7 percent ITBMS. From fiscal year 2027 multinational group entities must prove economic substance in Panama or pay 15 percent on 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

Corporate income tax general rate	25 %Código Fiscal art. 699 (Ley 8 de 2010 art. 9), as of 2026-10-29 · in force
Top individual income tax rate (above B/.50,000)	25 %Código Fiscal art. 700 (Ley 8 de 2010 art. 10), as of 2026-10-29 · in force
Dividend tax on Panamanian source profits (all shareholders)	10 %Código Fiscal art. 733 literal a (Ley 8 de 2016 art. 63), as of 2026-10-29 · in force
ITBMS standard rate	7 %Código Fiscal art. 1057-V parágrafo 6 (Ley 8 de 2010 art. 76), as of 2026-10-29 · in force
Rate on foreign passive income of non qualified multinational group entities (from fiscal year 2027)	15 %Código Fiscal art. 707-D (Ley 526 de 2026), as of 2026-10-29 · pending
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. Income tax applies to taxable income produced from any source inside Panama, wherever it is received; the taxpayer is any individual or legal person, Panamanian or foreign, who earns that income (art. 694). Income is not produced in Panama when an office in Panama invoices goods that move only abroad for more than the price invoiced to it, directs from Panama transactions that are completed or take effect abroad, or distributes dividends from entities that need no Aviso de Operación or earn no Panamanian taxable income when those dividends come from foreign source income (art. 694 parágrafo 2). Taxable income is gross income less foreign source income, exempt and non taxable income and deductible costs (art. 695).Código Fiscal art. 694 as worded by Ley 1 de 2014 and art. 695 as worded by Ley 8 de 2010 art. 5, art. 694 and art. 695, 2010-03-15 official text · verified 2026-10-29

2. Legal persons pay income tax at a general rate of 25 percent from fiscal year 2011; electricity, telecommunications, insurance, reinsurance, regulated finance companies, cement, gaming, mining and banking were stepped down from 30 percent to 25 percent from 1 January 2014, and companies more than 40 percent owned by the State pay 30 percent (art. 699). Individuals pay nothing on the first B/.11,000 of net taxable income, 15 percent on the excess up to B/.50,000 and B/.5,850 plus 25 percent above B/.50,000 (art. 700).
Example: An individual with B/.60,000 of net taxable income pays B/.5,850 plus 25 percent of B/.10,000, so B/.8,350. / US$60,000 of net taxable income bears US$8,350 of income tax.Código Fiscal art. 699 and art. 700 as worded by Ley 8 de 2010 art. 9 and art. 10, art. 699 and art. 700, 2010-03-15 official text · verified 2026-10-29

3. Companies withhold a 10 percent dividend tax on distributions of Panamanian source profits and 5 percent on distributions of exempt, foreign source or export income; holders of bearer shares pay 20 percent (art. 733 literals a and i). Branches of foreign companies pay 10 percent of their Panamanian taxable income less income tax paid on it (art. 733 literal f).Código Fiscal art. 733 as worded by Ley 8 de 2010 art. 36, literal a as worded by Ley 8 de 2016 art. 63, art. 733, 2016-04-04 official text · verified 2026-10-29

4. The ITBMS, Panama's value added tax on transfers of movable goods and services, is 7 percent from 1 July 2010, 10 percent on alcoholic beverages and lodging and 15 percent on tobacco products (art. 1057-V parágrafo 6). Producers, traders and service providers with annual gross income below B/.36,000 are not ITBMS taxpayers, and the tax is filed and paid monthly within 15 calendar days after the month ends (parágrafos 9 and 10).Código Fiscal art. 1057-V parágrafos 6, 9 and 10 as worded by Ley 8 de 2010 art. 76, 84 and 86, art. 1057-V, 2010-03-15 official text · verified 2026-10-29

5. Ley 526 de 2026 adds articles 707-A to 707-Ñ to the Código Fiscal: Panamanian entities of multinational groups that earn foreign source dividends, interest, royalties, capital gains, real estate income or other movable capital income must report them in the annual return and prove economic substance in Panama, failing which that income is taxed at a single 15 percent rate on net taxable income. The law applies from fiscal year 2027 (art. 6).Ley 526 de 28 de mayo de 2026, art. 1 (Código Fiscal art. 707-A to 707-Ñ) and art. 6, 2026-05-28 official text · verified 2026-10-29 · changed: New from fiscal year 2027: foreign passive income of multinational group entities without substance in Panama is taxed at 15 percent; until then Panama's territorial principle leaves such income untaxed.

6. Since 1 June 2024 the Código de Procedimiento Tributario governs procedure between the Dirección General de Ingresos (DGI) and taxpayers, including limitation periods, audits, interest and appeals to the Tribunal Administrativo Tributario; Ley 401 de 2023 set that date by rewriting article 392 of Ley 76 de 2019.Ley 76 de 2019 art. 392 as worded by Ley 401 de 2023 art. 30, art. 392, 2023-10-05 official text · verified 2026-10-29 · changed: Ley 401 de 2023 moved the general entry into force of the procedure code from 1 January 2024 to 1 June 2024.

Tax	Rate	Base	Rule
Corporate income tax	25 percent	Panamanian source net taxable income	Art. 699
Alternative minimum computation	25 percent of 4.67 percent of taxable revenue, if higher	Taxable revenue above B/.1,500,000	Art. 699
Dividend tax	10 percent (5 percent foreign, exempt or export profits; 20 percent bearer shares)	Distributions	Art. 733
Complementary tax	10 percent of the shortfall	Distribution below 40 percent of after tax profit	Art. 733 literal g
Withholding on payments abroad	25 percent on 50 percent of the payment (12.5 percent effective)	Services, royalties, interest	Art. 694, 701 literal h, 733 literal k
Capital gains on shares	10 percent of the gain; buyer withholds 5 percent of the price	Panamanian source securities	Art. 701 literal e
ITBMS	7 percent (10 and 15 percent special)	Goods, services, imports	Art. 1057-V
Aviso de Operación tax	2 percent of capital, B/.100 minimum, B/.60,000 maximum	Capital of the business	Art. 1004
Foreign passive income without substance	15 percent from 2027	Net foreign passive income	Art. 707-D

Panama's main taxes for a company and its foreign owners, with the governing article of the Código Fiscal (verified 29 October 2026).

Worked example

A Panamanian S.A. owned by a foreign parent earns B/.1,000,000 (US$1,000,000) of Panamanian source net taxable income and revenue below B/.1,500,000, so the ordinary computation applies.
Income tax at 25 percent is B/.250,000. Paying out the remaining B/.750,000 as a dividend triggers 10 percent dividend tax, B/.75,000, withheld by the company, leaving B/.675,000 (US$675,000) for the parent.
The combined Panamanian burden is 32.5 percent. If the same company only directed from Panama trades completed abroad, that income would not be Panamanian source and would bear neither tax, subject from 2027 to the substance rules for passive income.

Step by step

Register with the DGI and obtain a RUC before invoicing; the Aviso de Operación and its annual tax apply to businesses operating in Panama.
Map every income stream as Panamanian source, foreign source or exempt; only the first is taxed, but it must be documented.
File the annual income tax return by 31 March for companies (15 March for individuals) together with the estimated return for the next year (art. 710).
File ITBMS monthly within 15 days after month end if annual gross income reaches B/.36,000.
Withhold and remit dividend tax and withholding on payments abroad within ten days of withholding.
From fiscal year 2027, if the company belongs to a multinational group and earns foreign passive income, keep substance evidence and report it in the return.

Common traps

Territoriality is not a blanket exemption: services that benefit someone in Panama and are deducted there are Panamanian source, even if rendered from abroad (art. 694 literal e).
Revenue above B/.1,500,000 can make the 4.67 percent alternative computation bite even in loss years; relief requires a DGI application.
Undistributed profits do not escape: the complementary tax charges 10 percent on the shortfall below a 40 percent payout.
The 2027 substance regime applies to multinational group entities only, but the report is mandatory even for entities that do meet substance.

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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