Corporate - Deductions

Last reviewed - 23 January 2024

Taxable income is determined by deducting from the Panamanian-source income all costs, expenses, and non-taxable income applicable and permitted by law. The deductibility of costs and expenses depend on the relation of such costs and expenses with the generation or preservation of income source. Special restrictions apply to the following:

  • Depreciation.
  • Bad debt.
  • Charitable contributions.

Costs and expenses related to non-taxable income are not considered as deductible. Thus, the taxpayer must split the expenses and costs related to taxable transactions from those related to non-taxable transactions. The expenses and costs allocated to taxed transactions may not exceed the amount from multiplying the portion of taxable income from the total income by the total costs and expenses.

Example: Taxable Non-taxable Total
Income 100 50 150
  66.7% 33.3% 100%
Costs and expenses 83.38 41.62 125

Depreciation and depletion

The straight-line and sum-of-the-years-digits methods of depreciation are allowed, as well as any other method.

Assets Straight-line (%)
Buildings 3⅓ as maximum
Machinery and equipment 33 as maximum
Furniture and fixtures 33 as maximum
Vehicles 33 as maximum

In the case of mines, depletion will be deductible during the useful life or depending on the state contract methodology.


Goodwill expenses are deductible only when the transferring agent declares them as income.

Start-up expenses

Start-up expenses are deductible through the amortisation process, over a maximum term of five years.

Interest expenses

Interest expenses are deductible only in cases where the interest relates to the generation or conservation of taxable income from a Panamanian source. No thin capitalisation rules are in force.

Bad debt

A taxpayer may deduct bad debts by opting for one of the following options:

  • Deducting gains and losses annually to the value of such accounts in the fiscal year.
  • Charging an annual profit and loss figure for the establishment of a reserve to meet contingencies of this nature.

Charitable contributions

Donations made in cash or in kind to the government, charitable or educational institutions, activities to promote HIV disease awareness, or political parties are deductible, with certain restrictions and limited to 1% of taxable income.

Fines and penalties

Fines and penalties are not deductible.


The national and municipal taxes that affect capital, sales, and other operations related to taxable income producing activity are deductible.

Net operating losses

Losses incurred by common taxpayers may be carried forward and deducted from taxable profits for the following five years, at a rate of 20% each year, but limited to 50% of taxable income. Loss carrybacks are not allowed, and losses are not allowed for estimated income tax purposes.

Payments to foreign affiliates

A payment to a foreign entity (including affiliates) in a foreign country will be subject to WHT anytime it represents a deductible cost or expense for the payer. The tax base will be 50% of the remittance, and the income tax rate applicable is 25%.