How to Leverage Tax Benefits When Starting a Business in Panama

One of the main reasons Panama attracts foreign business owners is its territorial taxation system. Unlike other countries with global taxation systems, Panama only taxes income generated within its national borders. This means that income earned from activities outside the country is exempt from local taxes.

• What does territorial taxation mean?: You only pay taxes on income generated within Panama.
• Advantage for international companies:: Ideal for corporate structures operating globally but with administrative bases in Panama.

This model not only significantly reduces tax obligations, but it also makes Panama an ideal choice for expanding international businesses.

Panama offers various special economic zones that provide unmatched tax and logistical incentives for foreign entrepreneurs. Key examples include:

• Colon Free Zone: The largest duty-free zone in the Americas, perfect for global trade and distribution.
• Panama Pacifico: Tailored for technology, logistics, and global service companies, offering exemptions from specific taxes and expedited immigration processes.
• City of Knowledge: Designed to promote innovation and education, making it ideal for startups and tech ventures.

These zones are designed to foster competitiveness and create an environment conducive to international companies seeking to expand their operations in Central America and beyond.

The SEM regime (Multinational Headquarters Regime) is one of Panama's most attractive tax incentives. This program was created to attract multinational companies to the country by offering exclusive benefits. Key advantages include:

• Tax exemptions: Covers taxes such as VAT and income tax under certain conditions.
• Expedited immigration processes: SEM visas for essential foreign employees and their families.
• Additional incentives: Simplified procedures and access to specialized services in strategic economic zones.

With the support of this regime, companies can optimize their global operations while enjoying the benefits of a favorable tax environment.

Panama’s corporate tax system is designed to be internationally competitive. Here are some key points:

• Corporate income tax: General rate of 25%, but applicable only to income generated within the country.
• Tax exemptions for specific activities: Depending on the sector or the company's location (e.g., special economic zones).
• ITBMS: Similar to VAT, with a rate of 7% applicable to certain goods and services.

With proper planning and legal guidance, businesses can leverage these provisions to keep operational costs low while fully complying with legal regulations.

Panama not only offers tax incentives, but also immigration policies designed to facilitate the arrival of businessmen and key employees, such as:

• Friendly Countries Visa: It allows quick residence and access to work in the country.
• SEM Visas: Designed specifically for employees at multinational headquarters.
• Investor Visas: For those who invest in real estate or local businesses.

These programs highlight Panama's commitment to attracting foreign investment by simplifying legal and administrative procedures.