PANAMA Law and Practice Contributed by: Rafael Rivera, Malvis Mina, Nicole Pérez and Carolina Lino, BDO Panama
5.2 Taxes Applicable to Businesses Companies operating in Panama may be subject to several taxes, including the following. • Corporate Income Tax: companies must pay a 25% tax on their net taxable income. • Dividend Withholding Tax: when a company distributes dividends or profit shares to its shareholders or partners, it must withhold: (a) 10% if the income is from Panamanian sources; and (b) 5% if the income is from foreign or tax- exempt sources (eg, export activities). • Complementary Tax: if a company is subject to dividend tax but does not distribute at least 40% of its after-tax income, it must pay a 4% complementary tax on its net earnings. If the applicable dividend withholding rate is 5%, and the company distributes less than 20% of its after-tax income, the complementary tax is 2%. • Withholding Tax on Payments to Non-Resi - dents: payments made by Panamanian com - panies to non-residents for services, royalties, licences, or similar charges are subject to a 12.5% withholding tax, provided the expense is deductible for income tax purposes in Panama. • Value Added Tax (VAT): VAT applies to imports, transfers of tangible goods located in Panama, and services rendered within Panama, regardless of where the contract is signed or where the payment originates. The standard VAT rate is 7%. ,Panama has not implemented the OECD’s Pillar Two global minimum tax rules; however, the gov - ernment is currently evaluating their adoption. 5.3 Available Tax Credits/Incentives Panama has a number of special regimes which offer a variety of tax credits and incentives
Income Tax The employer is obligated to withhold income tax on behalf of the employee and remit it to the Panamanian Tax Authorities. The Panama - nian legislation establishes that individuals will be subject to income tax at a progressive rate, as follows. • An employee earning a salary of up to USD11,000 is are exempt from paying income tax. • An employee earning a salary ranging from USD11,000 to USD50,000.00 is subject to a 15% tax rate on the surplus. • An employee earning a salary exceed - ing USD50,000 will be subject to a tax of USD5,850 for the first USD50,000 and a 25% rate on the surplus. Social Security The employer and employee are subject to the paying social security. Employers must contrib - ute 13.25% of the salary of each employee, and employees must contribute 9.75%. With the recent change in law, the percentage of contri - bution by the employer will rise to 15.25% of the salary of each employee. Additionally, the law provides for the payment of professional risk insurance which must be paid by the employer at a rate of 0.56% up to 5.67%. Educational Tax The educational tax is divided between the employer and the employee, with the employ - er being obliged to contribute 1.50% of the employee’s salary and the employee contribut - ing 1.25% of their salary. Both social security and educational tax con - tributions should be withheld by the employer.
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