Ultimate Guide to Taxes in Panama to Create Your Business

In Panama, taxable taxes for companies vary depending on the economic activity and business structure you choose. Here are the main taxes you should consider:

• Income Tax: The standard corporate tax rate is 25% on net profits generated in Panama. However, activities generated outside the national territory are generally exempt, thanks to the territorial income system.
• ITBMS (Transfer Tax on Movable Property and Services): Equivalent to VAT in other countries, this tax is 7% for most goods and services. Some products such as medicines, basic foods, and books are exempt.
• Dividend Tax: Companies pay a 10% tax on dividends distributed when profits come from activities in Panama, and 5% if they come from foreign or exempt income.
• Real Estate Tax: If your company owns real estate, this tax varies between 0.0% and 1.0%, depending on the cadastral value of the property and the applicable deductions.
• Specific taxes for activities such as tourism, casinos or banking may also apply.

Limitless Legal Tip: Choosing the right business structure from the start (Limited Company, Limited Liability Enterprise, etc.) can optimize your tax burden. Our experts can guide you through this process.

One of the main reasons why Panama is an attractive destination for entrepreneurs is its focus on land rent and the multiple tax exemptions available. Here are some key points about tax benefits:

• Exclusion of foreign income: If your business generates income outside Panamanian territory, these are not subject to taxes in Panama. This is a great incentive for international trade and digital services companies.
• Exemptions for strategic sectors: Panama offers tax incentives for industries such as tourism, technology, agriculture, and manufacturing, including periods exempt from income taxes or the ITBMS.
• Dividends and interest: Interest earned on Panamanian bank accounts, certificates of deposit and securities issued by the Panamanian government is exempt from personal and corporate taxes.
• Real Estate Taxes: There are private deductions and exemptions for properties intended for social housing or projects with government incentives.

Important Note: Taking advantage of these exemptions requires strict compliance with current regulations. Limitless Legal experts can help you identify and take advantage of available tax opportunities.

Optimizing your tax burden also involves taking advantage of the allowable deductions and understanding which services are exempt from taxes:

• Deductible Costs and Expenses: Deductible business expenses include salaries, production costs, commercial real estate rental and basic services.
• Exporting services and goods: If you operate a business with services or products intended only for the foreign market, those activities may not be subject to the ITBMS or income tax.
• Non-taxable activities: Certain services such as education, some medical expenses, and exports are categorized as not taxable under Panamanian laws.
• Commercial leases: In some cases, certain rentals focused on specific residences or commercial properties may have exemptions or reduced rates.
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With Limitless Legal, we help you identify all the deductions and benefits that apply to your company, ensuring compliance with legislation while optimizing your tax results.

Although Panama offers a friendly tax system, ignoring or violating tax regulations can result in significant penalties:

• Fines: Delays in paying taxes or incorrect returns can result in fines ranging from 5% to 25% of the amount due.
• Interest on tax debts: The interest that accompanies any unpaid tax is 1% per month.
• Tax Audits: The Directorate General of Revenue (DGI) can carry out inspections and audits of companies that show inconsistencies in their reports.
• Loss of exemptions: Failure to comply with legal requirements may also prevent you from obtaining exemptions or specialized benefits in the future.

Professional Recommendation: Keeping detailed records and working with a reliable legal and tax team, such as Limitless Legal, is essential to be in full compliance.

These are the essential steps when setting up your company and adjusting to the Panamanian tax framework:

1. Define your business structure: Decide if a Public Limited Company, EIRL, or a foreign branch is right for you, based on your tax goals.
2. Business Registration and Licensing: Make sure you register with the DGI and obtain valid business licenses to operate in Panama.
3. Choosing a Chartered Public Accountant (CPA): Most companies need to file annual and monthly tax returns supervised by a CPA.
4. Comply with the ITBMS and Income Tax: Make sure to report these taxes periodically according to the fiscal calendar required by the DGI.
5. Consult with tax advisors: Keeping up to date on tax changes or reforms can prevent non-compliance and take advantage of exemptions.