What is Dividend Tax (Panama)?
Dividends paid out of Panama-source income are subject to a 10% withholding tax. Dividends paid out of foreign-source income or export income are taxed at a reduced 5%.
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Current Rate (Applies when a dividend is distributed)
10% on dividends from Panama-source income, 5% on dividends from foreign-source and export income
Example
A company pays a dividend drawn entirely from foreign-source profit. The 5% rate applies. If the same dividend were drawn from Panama-source profit, the rate would be 10%.
How Dividend Tax (Panama) works in Panama
The two dividend rates are a direct result of the territorial system. The rate depends on the source of the profit being distributed, not on who receives it.
Before a dividend is declared, Finn asks what share of the distributable profit was Panama-source and what share was foreign-source or export income. That answer sets the withholding rate and the amount to remit.
Dividend withholding is separate from the annual ISR return and from the tasa única. Keep the split of income by source in the books so the rate can be supported if the DGI asks.
Related terms
Panama taxes only Panama-source income. Foreign-source income, meaning activities, contracts or transactions completed or having effect outside Panama, is exempt from Panamanian tax even when it passes through a Panamanian company.
Impuesto Sobre la Renta (ISR) is Panama's corporate income tax. It is a flat 25% on net taxable Panama-source income for resident companies such as the S. de R.L. and the S.A.
The S. de R.L. is Panama's LLC-equivalent, with no minimum capital requirement and managed by one or more gerentes (managers). It is the common choice for small and medium businesses.
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