Verified Facts
The tax rates in Panama range from 0% to 25% for individuals and 25% for corporations, with various deductions and incentives available for both residents and non-residents.
Tax laws change frequently. Always consult a qualified tax professional for advice specific to your situation. This is a general guide only.
Quick Facts
Tax System Overview
Panama has a territorial tax system, meaning that only income earned within the country is subject to taxation. However, residents are also taxed on foreign-earned income, with some exceptions. To be considered a tax resident in Panama, an individual must have a permanent home in the country, be present in the country for more than 183 days in a calendar year, or have a Panamanian spouse or child. Non-residents are only taxed on income earned from Panamanian sources.
The tax system in Panama is designed to encourage foreign investment and economic growth. The country has a relatively low tax burden compared to other countries in the region, and it offers various incentives for businesses and individuals. The tax authorities in Panama are responsible for collecting taxes, and they have implemented a number of measures to improve tax compliance and reduce evasion.
Personal Income Tax
| Income Bracket (PAB) | Tax Rate |
|---|---|
| 0 - 11,000 | 0% |
| 11,001 - 50,000 | 8% |
| 50,001 - 75,000 | 15% |
| 75,001 - 100,000 | 20% |
| 100,001 and above | 25% |
Individuals in Panama are entitled to various deductions and allowances, including a personal exemption of PAB 11,000, and deductions for mortgage interest, charitable donations, and medical expenses. Tax returns must be filed by May 31st of each year, and taxpayers can choose to file online or through a tax professional. It's worth noting that tax rates and brackets are subject to change, so it's always a good idea to consult with a tax professional to ensure compliance with current tax laws.
Corporate & Business Tax
- The corporate tax rate in Panama is 25%, and it applies to all companies, regardless of their size or type.
- Small businesses with annual revenues of less than PAB 1.5 million may be eligible for a reduced tax rate of 10% or 15%, depending on their industry and location.
- Panama has several free zones, including the Panama Pacifico and the Colon Free Zone, which offer tax incentives and other benefits to companies that operate within these zones.
- Companies must register with the tax authorities and obtain a tax identification number before commencing operations.
- Companies are required to file annual tax returns, and they must also make quarterly advance tax payments.
VAT / Sales Tax
- The standard VAT rate in Panama is 7%, and it applies to most goods and services.
- A reduced VAT rate of 5% applies to certain basic necessities, such as food, medicine, and housing.
- Some goods and services, such as education and healthcare, are exempt from VAT.
- Tourists may be eligible for a VAT refund on certain purchases, such as hotel stays and tourist activities.
For Expats & Foreign Workers
- To be considered a tax resident in Panama, an individual must meet one of the residency tests, such as having a permanent home in the country or being present in the country for more than 183 days in a calendar year.
- Panama has double taxation treaties with 17 countries, which can help to reduce or eliminate tax liabilities for individuals and companies with international income.
- Foreign workers in Panama are required to contribute to the social security system, which provides benefits such as healthcare and pension payments.
- Expats may be eligible for a special Pensionado visa, which offers discounts and incentives on things like housing, transportation, and healthcare.
- Remittances from abroad are not subject to tax in Panama, but they must be reported on the individual's tax return.
- Foreign workers may be required to obtain a work permit and register with the tax authorities before commencing employment.
Crypto & Investment Income
- Investment income, such as dividends and interest, is subject to a withholding tax of 10% or 20%, depending on the type of income and the recipient's tax status.
- Capital gains from the sale of securities and other assets are subject to a tax rate of 10%, or they may be included in the individual's taxable income.
- Cryptocurrency transactions are subject to VAT, and they may also be subject to capital gains tax.
- The tax treatment of cryptocurrency and other digital assets is still evolving in Panama, and taxpayers should consult with a tax professional to ensure compliance with current tax laws.