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Panama: Offshore Legal and Tax Regimes

Tax Treatment of Offshore Operations

See Domestic Corporate Taxation for the general principles of Panama corporate taxation, which also apply to offshore entities.

Income tax is levied only on income derived from operations within Panama. A Panama business entity can direct its offshore activities from Panama without becoming liable for tax. The Fiscal Code (Article 694) excludes the following types of income from the tax net:

  • the profits of re-invoicing external goods or services;
  • the profits of operations that are directed from Panama but carried out externally;
  • the distribution of dividends derived from external income, including the above types of income.

Interest on deposits with Panamanian banks is exempt from taxation whatever the source of the cash.

An entity with both external and Panamanian business activities is taxed only on the Panama-derived income, and is subject to withholding tax only on that income (see Domestic Corporate Taxation).

Panama business entities with only external operations are exempt from the Dividends (Withholding) Tax, the Undistributed Profits Tax, the Business Tax, and from Stamp Duty on contracts executed in Panama to be performed elsewhere.

Companies in the Colon Free Zone, or in Export Processing Zones, are treated in the same way as companies with external operations, as described above. However, a fiscal package introduced in 2005 aimed at reducing Panama's indebtedness included a 1% turnover tax to apply to all operations in the Free Zone, and a 1.4% turnover tax which may apply to some other types of companies.

 

 

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