Company Formation & Tax in Panama
The Americas' connectivity hub — a genuinely territorial tax system where foreign-source income is untaxed, anchored by the Canal, a dollarised economy and one of the region's largest logistics free zones.
Panama taxes on a strictly territorial basis: only income earned from activity within Panama is subject to income tax, while genuinely foreign-source income is not taxed at all. Local-source corporate profits are taxed at 25%, with a 7% ITBMS (Panama's VAT). Combined with a US-dollar economy, the Canal, the Colón Free Zone and a large shipping registry, this makes Panama a long-standing base for regional headquarters, holding and trading structures.
The headline numbers
| Tax | Rate |
|---|---|
| Corporate income tax (Panama-source) | 25% |
| Foreign-source income | 0% (territorial) |
| ITBMS (VAT) | 7% |
| Dividend tax (local-source) | 10% |
| Dividend tax (foreign/export-source) | 5% |
ITBMS at 7% applies to most goods and services (higher on specific items). A dividend tax and a complementary tax apply to distributions of Panama-source profits, at reduced rates for foreign- and export-source earnings. Companies operating only outside Panama generally have no Panamanian income tax on those profits.
Regimes and substance
- Territoriality — the defining feature: foreign-source income is outside the Panamanian tax net entirely.
- SEM headquarters regime — multinational headquarters companies enjoy preferential income-tax and immigration treatment.
- Colón Free Zone & special zones — customs and tax advantages for re-export, logistics and manufacturing.
- Substance and transparency — Panama has strengthened accounting-records, beneficial-ownership and economic-substance rules; entities must now keep proper records and meet reporting obligations.
Forming the company
The classic vehicle is the Sociedad Anónima (S.A.), incorporated by a resident agent (a Panamanian lawyer or firm) through a public deed registered at the Public Registry; the Sociedad de Responsabilidad Limitada (S. de R.L.) is also available. A minimum of two subscribers and three directors is customary (nominees permitted), with no minimum paid-in capital. 100% foreign ownership is permitted. A resident agent is mandatory, and companies must obtain a RUC tax number and, if operating locally, a notice of operations (aviso de operación).
Frequently asked questions
How does Panama's territorial tax system work?
Only Panama-source income is taxed. Income earned from activity conducted outside Panama is not subject to Panamanian income tax.
What is Panama's corporate tax rate in 2026?
25% on Panama-source corporate profits; foreign-source income is untaxed.
What is the VAT rate in Panama?
ITBMS is 7% on most goods and services, with higher rates on specific items.
Can a foreigner own a Panamanian company fully?
Yes — 100% foreign ownership is permitted. A Panamanian resident agent is mandatory, and beneficial-ownership and accounting-record obligations apply.
Official sources
- DGI — income tax and ITBMS
- Registro Público de Panamá — company registration
- Ministerio de Comercio e Industrias — SEM and investment regimes
This guide is general information prepared by A.R.M. Management and is current as at July 2026. It is not legal or tax advice; territoriality, substance and reporting rules carry conditions and change. Confirm against the DGI, or with an advisor, before acting.
Structure a Panamanian company the right way.
A.R.M. Management advises founders, investors and headquarters structures on Panamanian incorporation, territorial planning, the SEM regime and substance compliance. Begin with a confidential conversation.