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Panama: Personal Taxation

Income Tax

Income is defined as the aggregate of income from Panamanian sources after deduction of allowable expenses and losses and ignoring exempt income. Income includes income from employment and from rendering independent personal services, income from business activities, and investment income.

Employment income in respect of work done in Panama is taxable regardless of where the payment is made or received. Dividends are not included in income (they will have been subject to the final withholding tax of 10%.)

Capital gains are included in taxable income. The taxpayer has a choice of methods in computing the taxable gain on sales of real estate; gains on sales of securities issued by Panamanian companies and other personal property are taxable without adjustment; however, gains on the sale of securities listed with the National Securities Commission are exempt from tax.

Individuals have a personal allowance of US$800 (1,600 for a married couple filing together), plus US$250 for each dependent. Mortgage interest is deductible up to US$15,000 per year; medical expenses incurred in Panama are deductible, as are health insurance premiums and some charitable donations.

As of February 2005, employees who are paid what is known as Gastos de Representación (or expense-allowance) are subject to the Income Tax withholding applicable in general terms to salaries and wages. The main difference is that the Income Tax to be withheld from this kind of remuneration will be a fixed rate of 10%. This rule applies to employees from both the public and private sectors.

Individuals will continue to file an Income Tax return including this specific type of remuneration and assessing the tax due at the progressive Income Tax rates provided for in article 700 of the Fiscal Code.

Moreover, fringe benefits such as housing for company executives or the use of cars, recreation or vacation packages, educational costs and others are now included in the text of article 696 (a) of the Fiscal Code, as specific types of gross income for Income Tax purposes. The only exclusion provided in the Law refers to medical insurance provided by employers to their employees.

The rates of tax on taxable income in 2013 were as follows:

Band of Income, US$
Rate of Tax, %
Up to 11,000
11,001 to 50,000
above 50,000



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