PANAMA Law and Practice Contributed by: Anna Cristina Valdés, Edgar Herrera, José Manuel Motta and Ramón Arias, Galindo, Arias & López
3.3 Passive Income Under Panamanian law, withholding taxes will apply, depending on the nature of the payment and the recipient. Dividends are generally subject to dividend tax at a 10% rate when distributed out of Panamanian-source profits and 5% when distributed out of foreign-source profits. On the other hand, interest and royalties paid to for - eign recipients are generally subject to withholding at an effective rate of 12.5% (25% applied on a deemed 50% base, under the rules described above, applica - ble to corporations). In the case of payments made to individuals, the applicable rate may vary depending on the amount remitted and the total income received by such individual during the relevant fiscal period, in accordance with the progressive rates established under Panamanian law. Applicable tax treaties may reduce the domestic rates, subject to treaty conditions and limitations. 3.4 Capital Gains Income derived from the sale of shares is subject to Panama’s capital gains tax regime at a 10% rate on the net gain. In the case of transfers of securities (including shares) that generate Panama-source income (meaning that the securities are considered economically invested within Panamanian territory), the purchaser is required to withhold 5% of the gross purchase price as an advance payment of capital gains tax. The seller may elect to treat this 5% withholding as the final tax due on the transaction, or alternatively file a tax return calculating the actual capital gain and apply the 10% rate to the net gain. If the 5% withheld exceeds the tax resulting from applying the 10% rate to the actual gain, the seller may request a refund or apply the excess as a tax credit, in accordance with Panamanian tax regulations. For real estate capital gains tax, please see 3.1 Income From Immovable Property .
3.5 Employment Income Employment income is taxed under the general indi - vidual income tax regime and, consistent with Pan - ama’s territorial system, only Panamanian-source employment income is subject to tax (that is, compen - sation attributable to services performed in Panama), regardless of the individual’s nationality, residence or domicile. The applicable progressive rates are: • 0% up to USD11,000; • 15% on the excess from USD11,000 to USD50,000; and • 25% on amounts above USD50,000. The employer is generally required to withhold and remit the corresponding income tax, including where the recipient is not tax resident in Panama. With respect to short-term assignments or cross- border employment, Panama does not have a spe - cial domestic short-term exemption rule. Taxation depends primarily on whether the services are physi - cally performed in Panama. However, relief may be available under an applicable double tax treaty, sub - ject to meeting the treaty conditions. For corpora - tions, remote work arrangements may raise perma - nent establishment considerations, depending on the level of activity and degree of permanence in Panama. 3.6 Other Income Other than the territorial sourcing principle and the associated withholding mechanisms, there are no specific categories of income subject to a materially different treatment that would require separate treat - ment for purposes of this chapter. 4. OECD/G20 Global Tax Reform 4.1 Pillar One – Amount B Panama has not implemented Amount B in its domes - tic legislation. 4.2 Pillar One – Amount A Panama has not yet taken formal or publicly announced steps to implement Pillar One Amount A within its domestic tax framework. Hence, the country has not formally confirmed its position on such.
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