Can I Claim Costs Linked to Foreign-Source Income as a Business Expense in Panama?
Partially. Panama taxes only Panama-source income, so costs that relate only to exempt foreign-source income need separate treatment. Split shared costs and confirm the split with a CPA.
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What Dirección General de Ingresos (DGI), Ministry of Economy and Finance (MEF) says
Panama operates a territorial tax system. Income from activities, contracts or transactions completed or having effect outside Panama is exempt from Panamanian tax. Finn's Panama rules do not hold a deductibility schedule for this item, so confirm the treatment with a Panamanian contador público autorizado (CPA) before relying on it.
When you can claim
- Costs that relate wholly to Panama-source income
- The Panama-source share of costs shared across both kinds of income
- Overheads allocated on a documented basis
- Costs recorded separately by income source
When you cannot claim
- Costs that relate only to exempt foreign-source income, which are generally not deducted against taxable income (confirm with a CPA)
- Allocations with no documented basis
- Personal costs
- Costs with no invoice
Good to know
Pro tip: Tag each transaction by income source from the start. A split built at year-end is hard to support.
Related expenses
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