Foreign tax credit
Foreign tax credits are applicable only with countries with which Panama has signed a DTT (see the Withholding taxes section for a list of countries with which Panama has signed a DTT).
Entities established in free zones may enjoy exemption from import duties on goods, income tax, sales tax, export tax, and selective consumption tax derived from royalties on exportation and re-exportation activities. Aside from trading activities, the following businesses may also apply for the regime: higher education centres, scientific research centres, specialised centres for health services, high technology businesses, assembling businesses, semi processed or finished products processing businesses, services businesses, environmental service businesses, general services, logistics services businesses, and manufacturing businesses.
Tourism, industry, and agriculture allowances
The Incentive Law for Tourism Development grants several tax benefits (e.g. exemption from import duties on certain tourism services and related goods for companies dedicated to tourism), but only for those corporations with a signed tourism agreement with the government. Income tax exemptions may apply in special cases.
In general, income from individuals or corporations that engage in agricultural production activities will be exempted from income tax if annual gross income is lower than USD 250,000.
Forestry plantations were totally exempted from income tax payment until 2018 if the lot planted had been duly registered at the Forestry Registry of the Environmental National Authority and resolution with approval from this authority had been issued.
The Panamanian government has enacted special laws regarding tax exemptions for certain activities performed in Panama, such as call centres (Law No. 54 of 2001), and tax exemptions for certain appointed areas, such as the Panama Pacific Economic Zone (Law No. 41 of 2004) and Law No. 41 of 2007, which creates a special regime for the establishment and operation of regional headquarters in Panama (SEM Regime).
To become a more competitive and appealing country for direct foreign investment and given the success of the SEM Regime, as well as the need for multinational companies to carry out manufacturing activities, the government of Panama enacted Law No. 159 of 31 August 2020. Said law creates the Special Regime for the Establishment and Operation of Multinational Companies for the Provision of Services Related to Manufacturing, best known as the EMMA Law or EMMA license granting tax, labour, and immigration benefits.
By means of Law No. 8 of 2010, Real Estate Investment Societies may deduct the profits distributed to their shareholders, provided that these Real Estate Investment Societies:
- raise long-term funds in a securities market
- are registered in the National Securities Commission
- distribute no less than 90% of their free cash flow
- register in the General Direction of Revenues, and
- withhold 20% of the profits distributed as an income tax advance payment on behalf of the shareholder, which may be deemed the definitive tax to be paid by the shareholder.