What exactly does it mean that Panama has a territorial system?

That income tax only applies to income produced within Panamanian territory, regardless of the taxpayer's nationality or residence. Invoicing from Panama for services performed and taking effect abroad generally does not create Panama-taxable income, but sourcing analysis can be complex — confirm it with a tax advisor.

What is the CAIR and who does it apply to?

The Alternative Income Tax Calculation is an alternative minimum: legal entities with taxable revenue above $1.5 million compute tax both ways — 25% of net income and 25% on a presumptive base of 4.67% of gross taxable income — and pay the higher. If the CAIR causes losses or an excessive effective rate, an exemption can be requested from the DGI for up to 3 years.

Do resident foreigners pay tax on their foreign income?

Not in Panama: pensions, dividends, interest and income generated outside the country are not taxed under the territorial system. However, tax obligations in your country of origin or citizenship remain (e.g. the U.S. taxes by citizenship). Consult advisors in both jurisdictions.

When are the main tax deadlines?

The annual corporate income tax return is due March 31 (extension available); ITBMS is filed monthly within 15 days after month-end; and estimated income tax payments are made during the year. Check the current calendar at dgi.mef.gob.pa.

Panama Tax System 2026 | Territorial Taxation, Rates and Special Regimes

Visa Types

Panama applies a territorial tax system enshrined in the Fiscal Code: only Panama-source income is subject to tax, while income generated outside the country pays no income tax in Panama. On local income, corporate income tax is 25% of net taxable income; companies with taxable revenue above $1.5 million compute tax both ways — 25% on net taxable income and 25% on a presumptive base of 4.67% of gross taxable income (the CAIR, alternative income tax calculation) — and pay the higher of the two (they may petition the DGI for an exemption if loss-making). Personal income tax is progressive: 0% up to $11,000 per year, 15% from $11,000 to $50,000, and 25% above that. ITBMS (the VAT equivalent) is 7% standard (10% for alcoholic beverages and hotels, 15% for tobacco). Dividends are taxed at 10% on local-source profits and 5% on foreign-source or exempt income distributions; capital gains are generally taxed at 10%; real estate transfers pay a 2% transfer tax plus a separate 3% advance income-tax payment on the gross sale price (creditable against capital gains tax); and property tax exempts the primary residence (patrimonio familiar tributario) up to $120,000 with progressive rates of 0.5%-0.7% above that. Special regimes significantly reduce the burden: SEM (reduced 5% rate), EMMA, free zones and the City of Knowledge.

Legal Disclaimer

This information is general guidance and does not constitute legal, tax or financial advice. Panama's Fiscal Code rates, thresholds and rules change through periodic reforms; always verify current rules with the DGI (dgi.mef.gob.pa) and consult a licensed Panama attorney or tax advisor before making decisions. Last verified: July 2026.

Ready to get started?

Our team is available to help you at every step of the process.

Applicable Incentives

SEM EMMA Zonas Francas