Guide to Navigate Corporate Tax in Panama with Confidence

Panama has long been recognized as a strategic location for international business operations due to its territorial tax system, investor-friendly laws, and robust financial services sector. Whether you're forming a local enterprise, managing regional subsidiaries, or incorporating an offshore company, understanding corporate tax in Panama is essential for compliance and tax efficiency.

In this in-depth guide, we’ll explain how Panama corporate income tax works, who it applies to, the corporate tax rate in Panama, deductions, filing obligations, and how Panama’s unique tax model benefits foreign entrepreneurs. If you’re exploring the Panama business tax rate as part of your international structuring strategy, this article offers everything you need to know.

Overview: How Corporate Tax in Panama Works

Panama uses a territorial tax system, meaning companies are taxed only on income derived from within Panama. Income earned outside of Panama, even by locally registered companies, is generally exempt from corporate income tax.

This makes Panama an attractive jurisdiction for:

• Offshore companies
• Holding companies
• International trading firms
• Maritime and logistics entities
• Multinational financial structures

Unlike many countries that apply worldwide taxation, Panama provides legal tax relief to businesses with foreign-sourced income, resulting in significant savings and planning flexibility.

Overview of Corporate Tax in Panama

Corporate Tax Rate in Panama (2025)

The corporate tax rate in Panama as of 2025 remains competitive when compared to global standards:

• Panama imposes a flat 25% corporate income tax on Panama‑sourced income.
• Companies with gross revenue exceeding USD 1.5 million must calculate corporate tax under both methods, the standard 25% on net taxable income and 4.67% on gross revenue, and pay whichever amount is higher. This is known as the CAIR method.
• Under Panama's Maquila program for export/manufacturing activities, qualified companies pay a reduced 10% corporate tax, offering significant savings compared to the standard 25% rate.

However, under the territorial tax system, these rates apply only to Panamanian-sourced income. Offshore income (i.e., generated from activities or clients outside Panama) is exempt from local corporate taxation.

Who Must Pay Corporate Tax in Panama?

Corporate tax applies to resident companies earning income from Panamanian sources. Residency is defined by registration, not management control, so even foreign-controlled companies incorporated in Panama may be liable if they generate income within the country.

Taxable Entities Include

• Local Panamanian companies with domestic operations
• Foreign companies doing business in Panama (through branches or permanent establishments)
• International companies deriving income from Panama (e.g., property rentals or local services)

Non-Taxable/Exempt Entities

• Offshore companies generate all their income abroad
• Businesses involved solely in international commerce, where goods do not enter Panamanian territory
• Holding companies managing foreign subsidiaries

Panama Corporate Income Tax: Income Classification

To understand if your business owes corporate tax, you must first determine where your income is sourced.

Panama-Sourced Income (Taxable)

• Sales of goods within Panama
• Services performed inside the country
• Rental income from Panamanian properties
• Local business activities and employment

Foreign-Sourced Income (Exempt)

• Revenue from exporting goods (as long as goods do not enter Panama)
• To qualify as foreign-source, services must be both performed and consumed outside Panama, with no physical or contractual link to Panama.
• Dividends received from foreign subsidiaries
• Interest and royalty income from non-Panamanian sources

Panama Corporate Income Tax

Panama Business Tax Rate for SMEs and Special Regimes

In addition to standard tax rates, Panama provides incentives and exemptions for small businesses and specific industries.

Small Business Tax Regime

• Companies with annual gross income below B/.500,000 may qualify for a simplified regime with reduced compliance obligations.
• The general corporate tax rate is 25%. Some special sectors previously faced higher effective rates, but as of 2025, 25% remains the standard corporate tax rate.

Special Economic Zones (e.g., Panama Pacifico, Free Zones):

• Businesses operating in these zones may enjoy reduced tax rates, exemptions from import duties, and 100% tax holidays depending on the sector (e.g., logistics, aviation, IT services).

These regimes support Panama’s strategy to attract foreign direct investment and bolster economic competitiveness.

Panama Business Tax Rate

Deductible Business Expenses in Panama

To determine your taxable income, deduct eligible business expenses from your gross revenue. In Panama, companies can deduct ordinary and necessary expenses incurred in the course of producing Panama-source income.

Common Deductible Items:

• Salaries and wages
• Rent and utilities
• Office supplies and equipment depreciation
• Professional service fees (legal, accounting)
• Marketing and advertising (within Panama)
• Interest on loans related to domestic operations

Note: Expenses incurred to generate foreign-source income are not deductible, as that income is already tax-exempt.

Corporate Tax Filing Requirements in Panama

All companies registered in Panama, even those earning only foreign income, must maintain proper accounting records and comply with annual filing requirements.

Filing Obligations

• Annual income tax return: Due by March 31 (or within 3 months after fiscal year-end)
• Form 110: Primary tax declaration form
• Accounting books must be maintained and may be requested during audits

Even if your company has no tax liability due to foreign-source income, you are still required to file nil returns or simplified declarations.

Penalties for Non-Compliance

• Late filings can result in fines ranging from B/.100 to B/.1,000
• Repeated non-compliance can lead to suspension or deregistration of the entity

Corporate Tax Filing in Panama

Dividend Tax in Panama: You Should Know

Although foreign-source income is tax-exempt, dividends distributed by Panamanian companies may be subject to withholding tax depending on the income type and destination. Withholding Rates:

• 10% for dividends paid from taxable (Panamanian-source) income
• 5% for dividends paid from tax-exempt (foreign-source) income
• 20% for bearer shares

If your company only earns foreign-source income, distributing profits to shareholders triggers only a 5% dividend tax, making it especially attractive for holding or offshore operations.

Advantages of Panama’s Corporate Tax System

Understanding the unique features of the corporate tax in Panama allows businesses to plan effectively. Here’s why Panama’s tax framework is considered among the most business-friendly worldwide:

1. Territorial Taxation

Only domestic income is taxed. This provides legal tax minimization opportunities for global businesses with offshore revenue streams.

2. No Worldwide Income Taxation

Unlike many jurisdictions, Panama does not tax profits earned outside its borders, allowing reinvestment of earnings elsewhere.

3. Predictable and Transparent System

Panama has a stable regulatory and fiscal environment with no surprise tax hikes or bureaucratic uncertainty.

4. Easy Offshore Structuring

Panama corporations are widely accepted by international banks, brokers, and investors due to their legal clarity and reputational standing.

Final Thoughts: Optimize Your Structure with Panama’s Corporate Tax Advantages

With a straightforward territorial tax system, competitive rates, and no tax on foreign-earned income, the corporate tax in Panama offers one of the most efficient structures for global entrepreneurs and international businesses. Whether you're operating an offshore trading company, managing foreign assets, or launching a holding structure, Panama provides legal tax efficiency without sacrificing transparency or credibility.

From understanding the Panama corporate income tax rates to filing obligations and dividend withholding rules, the country’s regulatory environment supports scalability, protection, and compliance. For companies earning local revenue, the Panama business tax rate remains fair and manageable, with deductions that allow accurate tax planning.

If you're looking to incorporate or relocate your business and want trusted support, Offshore Company Corp provides end-to-end services to help you register, manage, and optimize your Panama-based company with full legal and regulatory alignment.