Panama taxes on a territorial basis: only Panama-source income is taxed, for both individuals and companies. Panama has no Controlled Foreign Company regime - dividends, royalties, capital gains, and active business profits earned through foreign entities can accumulate indefinitely without triggering Panamanian tax, even when the funds are deposited locally. Panama operates a self-assessment system, with the Direccion General de Ingresos (DGI) conducting post-filing review.
The Panamanian tax year is the calendar year. The corporate filing deadline is 31 March of the following year.
Panama's headline corporate income tax (CIT) rate is 25%.
The headline personal income tax (PIT) rate is 25%.
The standard VAT/GST (or equivalent consumption tax) rate is 7% (movable goods and services transfer tax).
Panama operates a pure territorial tax system: income tax applies only to Panama-source income, for residents and non-residents alike, regardless of nationality, domicile, or residence. Because of this, residency has limited practical relevance - mainly affecting withholding requirements and treaty-benefit eligibility. Where residency status is assessed, an individual is generally resident if present in Panama more than 183 days during a fiscal year (or the immediately preceding one) or if Panama is their center of vital interests. A company is generally resident if it carries out commercial activities or a support function from Panama with local employees, though foreign corporations can register for withholding-tax purposes.
A non-Panamanian entity has a Panama permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Panama on the entity's behalf, following the OECD Model Treaty definition as applied under Panamanian domestic law and any applicable tax treaty. Panama has proposed economic substance requirements for entities earning foreign-source passive income (particularly IP royalties) in response to EU blacklist pressure - the territorial framework remains intact, but this is an active development worth monitoring.
Panama has no Controlled Foreign Company rules.
Panama has no thin capitalization rules.
Panama does not use an elective check-the-box classification system; entity classification generally follows the entity's actual legal characteristics. Panama does not have a comprehensive ATAD2-style anti-hybrid regime.
No foreign bank account or foreign financial asset reporting regime exists requiring residents to separately disclose foreign accounts; consistent with Panama's territorial system, foreign-source income falls outside the Panamanian tax base entirely and is not reported on the annual tax return at all.
Panama's territorial system already excludes foreign-source income from the domestic tax base entirely, functioning as a broader substitute for a conventional participation exemption.
Panama's territorial tax system limits the practical role of a foreign tax credit, since foreign-source income is generally outside the Panamanian tax base to begin with.
Panama has 17 double tax treaties in force: Spain, the UK, France, the Netherlands, Luxembourg, Portugal, Mexico, South Korea, Singapore, Israel, Italy, Qatar, the UAE, Vietnam, the Czech Republic, Ireland, and Barbados. Panama signed and ratified the OECD's Multilateral Instrument (ratified by Panama's National Assembly October 15, 2020). Notably, Panama has no comprehensive income tax treaty with the United States or Canada.