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Location and infrastructure

The Republic of Panama is the southernmost country of Central America and the whole of North America. Located on the isthmus connecting North and South America, Panama is bordered by Costa Rica to the west, Colombia to the southeast, the Caribbean to the north and the Pacific Ocean to the south.

The capital is Panama City.


At the end of 2012 Panama had a population of 3,802,281 people, which represents an increase of 61,999 people compared to 2011.

The CIA World Factbook gives the following statististics for the population: "mestizo (mixed Amerindian and white) 70%, Amerindian and mixed (West Indian) 14%, white 10%, Amerindian 6%".


The culture, customs, and language of the Panamanians are predominantly Caribbean and Spanish. Spanish is the official and dominant language. About 93% of the population speak Spanish as their first language, though many citizens speak both English and Spanish or native languages, such as Ngäbere.


The Panamanian currency is officially the balboa, fixed at parity with the United States dollar since independence in 1903. In practice, however, the country is dollarized; Panama has its own coinage but uses U.S. dollars for all its paper currency.

Tax system

Corporate income tax

Panamanian income tax is levied based on the territoriality principle. Panamanian-source income is subject to taxation whether it is received by a resident or non-resident entity. Residency is only relevant to determine if the entity is subject to withholding tax (WHT) or not.

Corporations are subject to income tax at a fixed rate of 25%. Certain businesses and the related parties that render services to them are subject to a 27.5% tax rate. As of 1 January 2014, this tax rate will be reduced to 25%.

The higher tax rate (i.e. the 27.5% rate) applies to either the generation or distribution of energy, telecommunication services in general, insurance, reinsurance, financial institutions regulated by Law No. 42 of 2001, cement industries, the operation and management of gambling games, mining in general, and entities dedicated to banking activities in Panama.

For companies in which the state owns more than 40% of the stock, the tax rate is 30%.

Other taxes

  • Movable goods and services transfer tax (ITBMS)

The movable goods and services transfer tax (Impuesto de Transferencia de Bienes Muebles y Prestación de Servicios or ITBMS) is the Panamanian value-added tax (VAT). The general tax rate is currently 7%. Alcoholic beverages and hotel accommodation are taxed at 10%, and tobacco and tobacco-derived products are taxed at 15%.

Exports are not taxed, and the ITBMS paid to generate the exports may be refunded. The sale of goods such as medicines, foods, and certain products for babies are not taxed and may allow the supplier to recover the ITBMS as an exporter if certain criteria is met.

Medical services and transportation among other services are not taxed but do not produce ITBMS credit for the supplier.

  • Stamp duty

Stamp duty is charged at a rate of USD 0.10 per USD 100 (or fraction thereof) only on certain commercial contracts.

  • Capital gains tax

The transfer of real estate property and securities is subject to WHT on the gross transactions amount, but the taxpayer may make a special income tax assessment to pay the capital gain and may request a rebate of the difference between the WHT and the capital gain.

In the case of the transfer of real estate property, a 2% real estate transfer tax plus a 3% income tax advance payment must be remitted (calculated over the gross transaction amount or the cadastral value, whichever is greater). The 3% may be deemed definitive; contrariwise, the tax will be assessed at 10% of the gain and the 3% of the advance payment will be credited. Any amount in excess may be subject to rebate.

The rates as described in the table below will be applicable to the transfer of real estate if:

  • the transferor's core business is the sale of real estate with new constructions
  • it is the first transfer of the real estate after the new construction is built, and
  • the construction permit was issued after 1 January 2010.


New housing construction

Rate (%)

Up to USD 35,000


From USD 35,000 up to USD 80,000


Greater than USD 80,000


New commercial construction



When transferring new housing real estate, the real estate transfer tax (2%) does not apply if the transfer occurs within the next two years after an Occupancy Permit is issued.

The transfer of securities is subject to a 5% WHT, and the tax rate on capital gain is 10%. The law establishes the application of a 5% WHT that will be applied by the buyer. The seller may accept the WHT as definitive or perform the calculation of the gain, apply the rate of 10%, and deduce the applied WHT. In case the WHT is superior, the taxpayer can choose to claim the return of payments made in excess.

The sale of fixed assets is subject to 10% on the capital gain, and there is no WHT.

  • Franchise tax

Franchise income tax must be paid by all corporations on an annual basis (USD 300 per year). The deadline for payment depends on the date of incorporation of the company. If the company was incorporated on any date during the first six months of the year, the due date for payment will be on 15 July of each year. If it was incorporated in the last six months, the due date will be 15 January of each year.

Non-profit organisations, cooperatives, and civil partnerships are not subject to franchise tax.

  • Operations notice tax

The notice of operations is an annual tax on equity at a rate of 2%, with a minimum tax amount of USD 100 and a maximum tax amount of USD 60,000. In the case of free zones or special trade areas, the tax will be calculated at a rate of 1% up to a maximum tax amount of USD 50,000.

The tax base is the outcome from total assets less total liabilities (excluding liabilities with related parties abroad). Special considerations apply under certain DTTs.

Special Tax Incentives – Free Zones

Entities established in free zones may enjoy exemption from import duties on goods, income tax, sales tax, export tax, and selective consumption tax derived from royalties on exportation and re-exportation activities. Aside from trading activities, the following businesses may also apply for the regime: higher education centres, scientific research centres, specialised centres for health services, high technology businesses, assembling businesses, semi processed or finished products processing businesses, services businesses, environmental service businesses, general services, logistics services businesses, and manufacturing businesses.

Double tax treaties

Panama has signed double tax agreements with: Barbados, France, Ireland, Korea, Luxembourg, Mexico, The Netherlands, Portugal, Quatar, Singapore, Spain, United Kingdom, UAE, Czech Republic.

Legal system

The law of Panama is based on civil law with influences from Spanish legal tradition and Roman law. For the first several years of its existence, Panamian law depended on the legal code inherited from Colombia. The first Panamanian codes, promulgated in 1917, were patterned on those of Colombia and other Latin American states that had earlier broken away from the Spanish Empire; therefore, Panama's legal heritage incorporated elements from Spain and its colonies. Nevertheless, several features of Anglo-American law have also been accepted in Panama.


The banking system is the largest part of the republic's financial sector that contributes a sizable 8 percent to Panama's GDP. Panama's banking industry is the most modern and most successful in Latin America, second only to Switzerland in the world.

With the restructuring of the banking system in 1998, the Superintendent of Banks that supervise and the central banking functions of the country. Panama's banking system meets most international standards. They have one of the strictest banking and financial laws in the world, adopt internationally-accepted standards for accounting and auditing, adhere to the Basel Committee guidelines, and employ up-to-date, state-of-the art security systems.

Panama is also a foreign exchange center partly because there are no valuation or conversion concerns. Its currency, the balboa, is equal in valuation to the U.S. dollar. Panama is the only independent country that has this exclusive right.

Types of companies

  • Panama Corporation (Sociedad Anonima)
  • Panama Foreign Corporation
  • Panama General Partnership
  • Panama Limited Partnership
  • Panama Civil Partnership
  • Panama Commandite Company
  • Panama Foundation
  • Panama Trusts

Changes to the tax laws and other applicable rules in various countries covered by this publication may be proposed. Therefore, readers should contact local specialized firms to obtain further information.