# Panama Tax System

> Panama applies a territorial tax system: only Panama-source income is taxed (Fiscal Code). Corporate income tax is 25% of net taxable income (companies with taxable revenue over $1.5M compute tax both ways — 25% on net taxable income and 25% on a presumptive base of 4.67% of gross taxable income, the CAIR — and pay the higher). Personal income tax: 0% up to $11,000, 15% from $11,000 to $50,000, 25% above. ITBMS (VAT) 7% standard. Dividends 10% local-source / 5% foreign-source. Capital gains generally 10%. Special regimes: SEM (5%), EMMA, free zones, City of Knowledge.

[Canonical page](https://investpanama.biz/en/guides/tax-system)

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.

## Benefits

### Territorial Principle

- **0% on Foreign-Source Income** (0%) — Income generated outside Panama (services rendered abroad, foreign dividends, interest on foreign deposits) is not subject to Panamanian income tax.
  - _Source: Código Fiscal, art. Art. 694 (principio de territorialidad)_
### Rates on Panama-Source Income

- **Corporate Tax 25% (with CAIR)** (25%) — 25% on net taxable income. Companies with taxable revenue above $1.5 million compute tax both ways — 25% on net income and 25% on a presumptive base of 4.67% of gross taxable income (the CAIR) — and pay the higher amount; they may request a CAIR exemption from the DGI if it causes losses or an excessive effective rate.
  - _Source: Código Fiscal, art. Art. 699_
- **Progressive Personal Tax 0-25%** (0-25%) — 0% up to $11,000 per year; 15% on the bracket from $11,000 to $50,000; 25% on the excess over $50,000.
  - _Source: Código Fiscal, art. Art. 700_
- **ITBMS (VAT) 7%** (7%) — Standard 7% rate on the transfer of goods and services; 10% for alcoholic beverages and lodging; 15% for tobacco. Basic foods, medicines and certain services are exempt.
  - _Source: Código Fiscal, art. Art. 1057-V_
- **Dividends 10% / 5%** (10% / 5%) — 10% withholding on dividends paid out of Panama-source profits; 5% when distributing foreign-source or exempt income (applicable to companies with an operations notice).
  - _Source: Código Fiscal, art. Art. 733_
- **Capital Gains 10%** (10%) — Panama-source capital gains (sale of local shares or real estate) are generally taxed at 10%, with advance withholding mechanisms (e.g. 5% of the price on share sales and 3% on real estate, creditable or final depending on the case).
  - _Source: Código Fiscal, art. Art. 701_
- **Real Estate: 2% Transfer Tax and Primary Residence Exemption** (2% / 0.5-0.7%) — Real estate transfers pay a 2% transfer tax on the higher of the price or updated cadastral value, plus a separate 3% advance income-tax payment on the gross sale price (creditable against capital gains tax). Property tax exempts the primary residence registered as patrimonio familiar tributario up to $120,000; progressive rates of 0.5% to 0.7% apply above that (other properties: $30,000 exemption, then progressive rates of 0.6%, 0.8% and 1.0%).
  - _Source: Código Fiscal y Ley 66 de 2017 (impuesto de inmuebles)_
### Special Regimes

- **SEM, EMMA, Free Zones and City of Knowledge** (5% (SEM)) — Multinational Company Headquarters (SEM) are taxed at a reduced 5% rate; EMMA offers similar benefits for manufacturing; free zones and the City of Knowledge grant income, ITBMS and import exemptions for qualifying activities. See our dedicated guides for each regime.
  - _Source: Ley 41 de 2007 (SEM), Ley 159 de 2020 (EMMA), leyes de zonas francas_

## Frequently asked questions

### 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.

_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._