Panama’s tax framework distinguishes sharply between income generated locally and income earned abroad, offering a mix of low rates for domestic activity and near‑zero treatment for offshore earnings.
Personal income tax
- Local income (e.g., services performed in Panama, sales made under a Panamanian name, rental income from Panamanian property) is taxed at 15 %.
- Offshore income (services rendered, trades, or capital gains earned outside Panama) is not taxed provided the activity is performed entirely abroad.
- Residents must still declare offshore earnings, but no tax is due on them.
Corporate income tax
- Local corporate profit is subject to a 25 % tax on net taxable income.
- Offshore corporate profit is taxed at 0 % when the business activities are conducted outside Panama.
Dividend tax
- Dividends paid from offshore‑source profits incur a 5 % withholding tax.
- Dividends from local‑source profits are taxed at 5 %–10 %, depending on the specific activity.
Note: While offshore corporate profits escape income tax, the 5 % dividend tax applies when those profits are distributed to shareholders.
Becoming a Panamanian taxpayer
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Taxpayer Identification Number (RUC)
- Available once you obtain temporary residency.
- Application takes 3–6 weeks.
- Required documents: passport, residency card, and any additional paperwork requested by the tax authority.
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International Tax Residency Certificate
- Needed for treaty‑based benefits (e.g., double‑taxation relief).
- Mandatory 183 days of physical presence in Panama to qualify.
- Whether you need this certificate depends on:
- Your previous tax residency and citizenship.
- The “center of vital interests” (banking, property, business ties, driver’s license, phone contract, etc.) you maintain in Panama versus other jurisdictions.
- In some cases, demonstrating that you pay taxes elsewhere and have stronger ties to Panama may suffice without a formal certificate.
Practical considerations
- Structuring offshore income correctly is essential to keep it outside the scope of Panamanian tax.
- Expense deductions and other tax‑planning tools can further reduce the effective tax burden, but the dividend withholding tax remains applicable on profit distributions.
- Residency planning should account for the 183‑day rule if treaty benefits are desired; otherwise, a flexible “tax‑home” approach may be viable for frequent travelers with strong Panamanian connections.
Understanding these distinctions helps high‑net‑worth individuals and businesses decide whether Panama’s regime aligns with their overall tax strategy.
