What dividend tax rate applies in Panama?
Dividends paid out of Panama-source income bear 10% withholding. Dividends paid out of foreign-source or export income bear 5%. The rate follows the source of the profit being distributed.
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Detailed Explanation
## Two rates
A 10% withholding tax applies to dividends distributed from Panama-source, locally taxed income. A reduced 5% rate applies to dividends distributed from foreign-source income and from export income.
## Why there are two
The two rates follow from the territorial tax system. Foreign-source income is exempt from income tax at the company level, so the dividend rate on it is lower.
## Deciding the rate
Before a dividend is declared, establish how much of the underlying profit was Panama-source and how much was foreign-source or export income. A dividend drawn from mixed profit needs a documented split.
## Keep the evidence
Keep the split of income by source in the books, with contracts and invoices that show where work was done and used. That supports the rate if the DGI asks.
## What Finn does
Finn asks about the source of profit when you plan a dividend, calculates the withholding at the matching rate and records it as a liability. You remit and file through the DGI.
Source: https://dgi.mef.gob.pa/
Real-World Examples
Foreign-source profit
A company distributes profit that came entirely from foreign-source income. The 5% rate applies.
Panama-source profit
A company distributes profit from sales to customers in Panama. The 10% rate applies.
Mixed profit
A company has both kinds of profit. The dividend is split by source and each part bears its own rate.
Common Mistakes to Avoid
- Quoting 10% without checking the source of the profit
- Not keeping a record of income by source
- Treating the dividend as a deductible expense
- Declaring a dividend before the profit source is worked out
Frequently Asked Questions
What is the normal dividend withholding rate?
10% for dividends from Panama-source income.
When is the rate 5%?
For dividends from foreign-source income and from export income.
Is a dividend tax-deductible for the company?
No. A dividend is a distribution of profit and not an expense.
Who decides the source?
The facts of each transaction decide it. A contador p煤blico autorizado should confirm borderline cases.
Does Finn remit the tax?
No. Finn calculates the amount and you remit and file.
Practical Tips
- Split income by source every month
- Decide the source of profit before declaring a dividend
- Record the withholding as a liability
- Keep contracts that prove where work took effect
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