Dividends paid out by Panamanian companies
are subject to 10% withholding tax; the
rate is 20% for dividends on bearer shares.
Dividends paid to a Panamanian holding
company however are not subject to withholding.
If less than 40% of taxed income is distributed,
then Undistributed Profits Tax of 10%
becomes payable on the undistributed balance;
this therefore amounts to a maximum of
4% tax. In effect this is an advance withholding
tax, and it is creditable against the
10% tax on later distributions of the
taxed income.
Branches
of foreign corporations pay the 10% 'deemed
dividend tax' on their full taxed income
(making their effective taxation rate
equal to 37%); but they are not subject
to withholding tax on eventual distributions.
Interest
paid or credited to the account of a foreign
lender is subject to a 6% withholding
tax. Interest on bonds, notes and other
registered securities is subject to a
flat 5% withholding tax unless traded
on a registered exchange in Panama. Royalties
paid to a foreign movie or television
production company or distributor also
are subject to a 6% withholding tax.
The
fiscal reform package introduced in 2005
includes a rule (Paragraph 1-B of article
694 of the Fiscal Code) that all payments
remitted abroad to beneficiaries not resident
in the Republic of Panama shall be subject
to withholding if the payments are related
to the generation of income within Panamanian
territory or the conservation of a source
of income located within Panamanian territory
and are considered to be deductible expenses
by the payer operating from Panama. As
examples, a non-exhaustive list of payments
subject to the new rule has been inserted,
including fees and income relating to
intellectual property rights, royalties,
know-how, technological or scientific
knowledge and the like.
The
taxable base for application of the withholding
tax (at income tax rates) is 50% of the
payment involved.
Individuals
or legal entities engaged in “international
business activities” and carrying
out operations outside Panamanian territory
are however exempted from the tax, ie
payments caught by the law are not considered
to be Panamanian source income. The definition
of 'international business activities'
is not very clear at this stage.
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Panama 
