Panama Payroll & Tax Overview
A GUIDE TO DOING BUSINESS IN PANAMA 2017
Contents
1.0
Key Country Facts and Public Holidays
3
2.0
Business and Culture in Panama
4
3.0
Visas and Work Permits
5
4.0
Tax and Social Security
6
5.0
Compliance
7
6.0
Statutory Absence/Payments
8
7.0
In-country Payroll Providers
9
8.0
About This Payroll and Tax Overview
© 2017 The Global Payroll Association, Inc.; All Right Reserved
10
1.0 Key Country Facts and Public Holidays
1.1 Official Language
The official Language is Spanish.
1.2 Currency
The official Currency is United States Dollar, Panamanian balboa.
1.3 Country Dial code
The country dial code is +507
1.4 Country abbreviation
The country abbreviation is PA.
1.5 Statutory Filing Payment Methods
Employers must withhold income taxes from all employees using tax tables provided on the ANIP and remittance must be
made by the 30th day of the month following the month of payment/tax withholding..
1.6 National Minimum wage
The minimum wage is calculated by hour and is not set firm at $416. It can range from $349 to $416, and is dependent on three
factors: type of industry, type of profession, and size of the company.
1.7 Filing Deadlines
Employers must remit tax amounts withheld from non-residents within 10 days of withholding.
(Residents generally are considered those who reside in Panama for 183 days or more in a calendar year.)
Employers must file annual returns by May 31 of each year by filing Form 03 with ANIP.
By 31st January each year, Employers must provide each employee with a Certificate of Withholding, detailing amounts
withheld in the previous year.
1.8 Fiscal year
Jan. 1 - Dec. 31
1.9 Time Zone
UTC−05:00
2017
Date
Jan 1
Jan 9
Feb 28
Apr 14
May 1
Nov 3
Nov 5
Nov 10
Nov 27
Nov 28
Dec 8
Dec 25
Holiday name
New Year's Day
Martyr´s Day
Carnival/Shrove Tuesday
Good Friday
Labor Day / May Day
Independence Day
Colon Day
Shout in Villa de los Santos
Day off for Independence from Spain
Independence from Spain
Mother Day
Christmas Day
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2.0 Business and Culture in Panama
2.1 Establishing as an Employer
Your first consideration is to decide what type of business structure to use.
There are 3 normal business entities here in Panama:

Sole Proprietor: Where you and your spouse & family operate a business as sole owners.

Partnership: Where you team up with one or more persons in running the business.

Corporation: Where you register with the government as a company issuing stocks, having a Board of Directors and
corporate officers.
While a sole proprietorship can be an oral agreement between close family members, the other two entities need the
assistance of a Panamanian lawyer. That's because legal documents need to be prepared forming a Partnership or Corporation.
If they are wrongly prepared, they will be legally null and void causing a business legal nightmare for its members.
Once you have either formed a Panamanian Corporation, or a Partnership, or are acting as a Sole Proprietor, you will need to
register your business with the government before opening for business.
2.2 Employment
Under Panama legislation, the principal elements of a labour relationship are:


Legal subordination, which is defined as the employer’s right to control and direct the employee and the employee’s
corresponding duty to obey the employer. Labour legislation provides that legal subordination exists in the powers
that are or may be exercised by an employer or its representative, to direct performance of the work.
Economic dependency. Labour legislation provides that dependency exists where the amount received by the
individual is his or her only source of income, comes directly or indirectly from a person or organisation as a result of
the work or where the individual does not have economic autonomy, and is financially dependent on the work
provided by the employer.
If the service performed is personal, subordinate or economically dependent on the organisation, a labour relationship exists,
even where not provided in the agreement.
The general rule is that a written employment contract must be executed with the employee at the beginning of the labour
relationship and registered at the Ministry of Labour and Labour Development without any cost.
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3.0 Visas and Work Permits
3.1 Visas
Friendly Nations Visa
Officially named the Permanent Residence for Nationals of Specific Countries, this visa opens the door for professionals and
entrepreneurs from 47 countries that “maintain friendly, professional, economic, and investment relationships” with Panama,
which includes the U.S. and Canada.
The visa requires you to open a local bank account with a minimum balance of $5,000, as well as doing one of the following:



purchase real estate, with a minimum required investment of $10,000;
open a business;
find employment in Panama.
Forestry Investor Visa
The forestry investor visa encourages the production and preservation of teak. Basically, the program consists of two options,
dubbed the small forestry investor and the large forestry investor visas. The small forestry investor visa requires a minimum
investment of $60,000, whereas the large forestry investor visa requires a minimum investment of $80,000.
The Small Forestry Investor option has some significant drawbacks:



It doesn’t grant you permanent residency after two to three years, like the other permits mentioned here.
It is a temporary resident permit, and you must spend more time and money to re-apply every year for six years.
Only on the seventh application will you be able to apply for permanent residency.
The Large Forestry Investor visa is granted provisionally for two years. After that, you may renew and apply for a permanent
residency permit. Five years after obtaining permanent residency, you may apply for Panamanian citizenship.
If you have a different type of investment in mind, note that Panama offers many different visa alternatives; those listed above
represent just a few of the more popular options.
For more information on the Forestry Investment visas and potential profits on this investment, contact Robert Kroesen of
United Nature.
Professional Residence Permit
This option is open to foreigners who would like to work in Panama, provided they do not choose professions reserved for Panamanian nationals (examples include medical professions, accounting, real estate, and law).
Applicants must have a university education, and unlike other visas, must make two applications, two years apart. When filing
the final application, applicants must show that they have been employed in Panama for the last nine months and have been
paying local social security.
Tourist Visa
If you are from the U.S. or Canada you do not need a visa for tourist visits of up to 90 days. Tourists may stay for up to 90 days
and, in general, extensions are not available unless you can prove you need more time because you are changing your status
from that of tourist…for example, if you entered Panama as a tourist and then decided to apply for residency.
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4.0 Tax and Social Security
4.1 Tax
Panama has a territorial tax system, meaning that it exempts all income earned outside Panama. This zero taxation policy of
foreign income applies to resident individuals residing in Panama as well as Panamanian companies. As an individual, you can
become a resident of Panama in several ways. Let’s have a look at three of the most important residence schemes available in
Panama.
Scope of the personal income tax
Individuals are subject to tax only on their Panamanian-source income, irrespectively of their residence. As a consequence, foreign-source income is not subject to tax. Because of this, the concepts “resident” and “non-resident” is not defined in the Tax
Code. Individuals are subject to income tax at progressive rates on their taxable income.
Rates of the personal income tax
The taxable income of individuals is subject to income tax at progressive rates. Taxable net income up to PAB 11,000 is exempt
from income tax. Taxable net income between PAB 11,001 and PAB 50,000 is subject to a tax rate of 15%. Taxable net income
over PAB 50,000 is subject to a tax rate of 25%.
The taxable income
The taxable income includes all Panamanian-source income, such as salaries, compensations for personal services, income from
investments, income from commercial, industrial or agricultural activities, and expenses paid by an employer on behalf of an
employee (e.g. educational expenses, rental payments and entertainment expenses).
The following categories of income are exempt from tax: (1) taxable net income not exceeding PAB 11,000 per year; (2) employment income not exceeding PAB 10,400 per year derived by individuals which is their only source of income; (3) dividends
and other profit distributions paid by small or medium-sized enterprises to their shareholders or partners; (4) payments of up
to PAB 5,000 made to employees upon termination of employment; (5) gains from public lotteries, games or bets; (6) inheritances, legacies and gifts; (7) income of individuals engaged in farming, provided that the annual gross income does not exceed
PAB 250,000; and (8) dividends on nominative preferred shares when certain conditions are met.
4.2 Tax Registration
Registration has to be completed as detailed in 2.2 Employment
4.3 Social Security
The social security system in Panama was created to protect permanent workers and covers them for sickness, maternity, disability and old age. The system is run by the Ministry of Social Development and also provides services to those in povertystricken areas.
The social insurance system covers employees and employers in both private and public sector workers as well as those in domestic services. Those who are self employed can make voluntary contributions. Expats are covered under this system provided
they have been working in Panama for a company based there. Those who work for international companies on a contract issued in another country are not eligible.
Under the social insurance system the worker contributes 6.75% of their gross pay provided they earn a minimum of 100 balboas or if they are on the pension of 175 balboas which is paid out by the social security fund. Those who are self employed can
contribute 9.5% of their declared earnings and the minimum amount of earnings must be 300 balboas. The employer will contribute 2.75% of the worker’s earnings. The government contributes 1.04% of the wage as well as adding the proceeds of a
number of taxes to the social insurance fund.
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5.0 Compliance
5.1 Employer Registration
Employers must register with CSS within the first six days of beginning operations.
Employers complete an application for an employer's registration card, a professional risks registration form and a description
of business operations among other documents, and additional requirements apply to domestic employers and employers in
the construction industry. Upon registering, CSS grant employers an employer number.
Employers must also register with the Income and Benefits System (SIPE) of CSS in order to make payments online after having
registered with CSS.
All employers must ensure that their employees are registered with social security, (which employees do), within six days of
their start dates. Employers must register employees who aren't registered through SIPE.
5.2 Starters/Registration
The 6 steps provided below are the requirements for registering your business with the national and local governments:
Income Tax Registry
This is called "Registro Fiscal" with the Panamanian government.
The Panamanian government has a website explaining what is necessary to register in Spanish. Go to the government website
at: www.dgi.gob.pa this is the government Revenue (Tax) Service where your company receives its income tax id number called
the Direccion General de Ingresos. You will need to keep records of income and expenses and file an annual income tax (or
corporate tax) return and pay any taxes owed.
Commercial License
Another Panama government website will give you information regarding getting a commercial license in Spanish
at: www.mici.gob.pa This Ministry is called the MINISTERIO de COMERCIO e INDUSTRIAS, translated as the Ministry of
Commerce & Industry. This is otherwise known as your Business License. Every business in Panama is required to have one.
Municipal Taxes
After getting your Panamanian government licenses, you need to register with your local municipality in order to pay your
municipal taxes.
Social Security Number
Then you must go to the Registro Patronal de la Caja de Seguro Social (CSS) to get a Social Security number for your business
and for yourself.
Sanitary Permit
If your business deals with food or beverages, you will need to get Permisos Sanitarios with the Ministerio de Salud. That
translates as a Health Certificate from the Ministry of Health for permission to operate a sanitary business.
5.3 Leavers/De-registration
Employers who terminate employees without justification must provide them with an indemnity commensurate with the
amount of time they've been employed.
For employees who began working after Aug. 14, 1995, the following amounts are due non-progressively:
• employed for more than one year but less than 10 years: 3.4 week's pay for every year worked;
• employed for more than 10 years: one week's pay for every year worked.
For employees who began working after April 2, 1972 and before Aug. 14, 1995, the following amounts are due progressively:
• employed for less than one year: one week's pay for every three months worked;
• employed for more than a year but less than two years: one week's pay for every two months worked;
• employed for more than two years but less than 10 years: three weeks pay for every year worked;
• employed for more than 10 years: one week of pay for every year worked.
Additional amounts are owed to workers who began work before April 2, 1972.
Employers also must make termination payments of one week's salary per year of service to employees on indefinite contracts.
This increase only takes into account the previous five years worked.
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6.0 Statutory Absence/Payments
6.1 Annual Leave
Fulltime employees are entitled to 30 days of paid annual leave each year, (the leave accrues after 11 months of continuous
employment)
6.2 Sick leave
Employers pay employees for 18 days of sick leave per year.
In addition, social security provides up to 26 weeks of payments to those who have used all of their sick leave in a given year.
6.3 Maternity leave
Employers grant pregnant employees with 14 weeks of paid maternity leave, six weeks before the anticipated delivery date and
eight weeks after the delivery date. Employers must pay the difference between the amounts due to employees from social
security and the employees' normal salaries.
© 2017 The Global Payroll Association, Inc.; All Right Reserved
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7.0 In-country Payroll Providers
ITOS is an international service provider offering fully integrated HR and payroll solutions in the
Latin American region that promote collaboration, Connectivity and communication.
+1847 494 4025
[email protected]
www.itos.co
Since 2002, Expaticore has specialised in Local National and Expatriate payroll, Assignment
Management Services and International HR Consulting Services.
+001 212 239 2625
[email protected]
www.expaticore.com
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8.0 About This Payroll and Tax Overview
8.1 Copyright
All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means,
including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the
publisher.
8.2 Disclaimer
Every effort has been made to ensure that all information in this booklet is correct at the time of publication. This information
should be used as reference only and not as a sole source of decision making.
8.3 The Global Payroll Association
Global Payroll Association is the first international payroll association of its kind. We are a central hub for ‘all-things payroll’. A
one-stop-shop supplying comprehensive directories, interactive training and in-depth country resources. We are here to help
you with your global payroll needs, no matter how complex, connecting you with the world’s leading experts and offering a
forum to network with other like-minded global professionals.
Global Payroll Association welcomes international payroll, HR and financial professionals of all levels.
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