Perspectives

Offshore Companies in Panama: Tax Regime and Current Obligations

Mgter. Liz A. Prestán O.September 7, 2026Corporate

Incorporating a company in Panama to conduct business abroad does not mean operating without obligations. Panama’s tax system is based on territoriality, but the entity retains corporate, accounting and transparency duties. The source of its income must also be determined by the actual activity, not by the label “offshore” or the place where funds are received.

What is an offshore company in Panama?

“Offshore” is not a separate corporate form recognised by Panamanian law. In practice, the term describes a company incorporated in Panama whose activities, clients, assets or income are primarily located outside the country.

The company may be used to centralise investments, hold assets, procure international services or coordinate group operations. Its treatment depends on what it actually does, where its transactions are completed, who directs its activities and the type of income it receives.

Incorporation in Panama establishes the company’s legal existence. The source and nature of each item of income determine its tax treatment.

The territorial principle of income taxation

Article 694 of Panama’s Tax Code subjects income produced within Panamanian territory to income tax, regardless of where it is collected. The same provision identifies circumstances that are not considered income produced in Panama, including certain sales of goods moving exclusively abroad and transactions directed from a Panamanian office that are perfected, completed and produce their effects outside the country.

A Panamanian company may therefore receive foreign-source income. That conclusion does not arise automatically merely because the client, bank or contract is outside Panama. The full set of facts must be reviewed:

where the services are performed or the income-generating activities take place;
where the relevant assets or rights are located and used;
where the transaction is perfected, completed and produces its effects;
which functions are performed in Panama;
whether there is a local office, personnel, licence or activity;
whether the income falls within a category subject to special source rules.

Foreign-source income does not mean an absence of compliance

A company with no taxable income in Panama must register with the General Directorate of Revenue (DGI) in order to meet obligations that include payment of the annual franchise tax. Depending on the activity and profile registered in e-Tax 2.0, it may also be necessary to update the taxpayer registration, file forms or close obligations that no longer apply.

The absence of local operations should not be assumed to eliminate an annual filing automatically. The entity’s active obligations, the income obtained during the period and any prior activity registered with the DGI must first be verified.

Dividends derived from foreign-source income

Article 733 of the Tax Code governs dividend withholding and distinguishes the source of distributed profits. In general terms, companies that require a Notice of Operation, hold a licence to operate in a special zone or area, or generate taxable income in Panama are subject to the withholding rules established in that provision.

When a company does not require a Notice of Operation and its profits derive exclusively from foreign sources, the treatment may differ. Before making a distribution, the following should be confirmed:

the accounting and tax origin of the profits;
the existence of reserves or retained earnings from different sources;
whether a Notice of Operation, licence or special registration is required;
any taxable income earned in Panama;
the legally applicable order of distribution.

The accounting records must clearly distinguish profits from Panamanian, foreign and exempt sources. A distribution without that traceability may make it difficult to defend the treatment applied.

Electronic invoicing: review the transaction, do not assume

Panamanian law requires certain transfers, sales and services performed by persons resident in the territory to be documented by an invoice or equivalent document. The DGI recognises Panama’s Electronic Invoicing System and other authorised methods as compliance mechanisms.

For a company with foreign operations, the answer depends on its activity, tax residence, physical presence, DGI registration and the manner in which it renders its services. Foreign-source income alone should not be used to conclude that invoicing is never required. The entity’s profile and the specific transaction must be reviewed before issuing or ceasing to issue invoices.

Accounting records and supporting documentation

Law 52 of 2016, amended by Law 254 of 2021 and currently regulated by Executive Decree 177 of 2024, imposes duties to retain and make accounting records available for Panamanian legal entities, including those operating abroad or exclusively holding assets.

The records must clearly identify the entity’s transactions, assets, liabilities and equity and permit financial statements to be prepared when required. Supporting documentation must be retained for at least five years.

The required content depends on the type of activity:

Type of entity	Information it must be able to support
Asset-holding entity not engaged in commercial acts	Value of assets, income generated and related liabilities
Entity conducting commercial acts outside Panama	Records reflecting its transactions and permitting its financial position to be determined, including journals and ledgers where applicable
Inactive entity	Information enabling the resident agent to document that status under the regulations in force

If records are maintained outside the resident agent’s office, the custodian’s details and the place where they are kept must be reported. The entity must also provide the information required for the resident agent to comply with its reporting obligations on time.

Beneficial owners and the resident agent

Law 129 of 2020 created the private and centralised beneficial ownership registry for legal entities. The company must provide complete information to its resident agent and keep it updated whenever ownership or control changes.

The resident agent does not replace the company’s management and does not automatically prepare its records. The role requires sufficient information to meet the duties assigned by law. Failure to cooperate may lead to reports, resignation of the agent and consequences for the entity’s ability to operate.

Annual franchise tax and corporate standing

Every Panamanian company must keep its annual franchise tax current. The DGI states that companies pay B/.300.00 per year and that the deadline depends on the semester in which they were incorporated. Late payment generates a surcharge and, after three unpaid periods, may result in suspension of corporate rights.

A suspended company faces restrictions on conducting business, disposing of assets and exercising rights. Lack of activity is therefore not a reason to abandon its corporate and tax calendar.

Economic substance from fiscal year 2027

Law 526 of 2026 introduces income-tax and economic-substance rules for certain categories of foreign-source passive income. The law takes effect for fiscal year 2027 and modifies the traditional framework for entities and income categories within its scope.

Not every company with foreign income is automatically subject to the same requirements. The income category, substantial activities, management, resources and any statutory exception must be reviewed. For a detailed explanation, see our analysis of Law 526 of 2026 and Panama’s new economic substance regime.

Obligations in other jurisdictions

Panamanian treatment does not determine what happens in the country where the company operates, manages investments, holds assets or renders services. Another jurisdiction may conclude that the company has tax residence, a permanent establishment, registration duties, withholding obligations or local tax liability.

The structure must be reviewed in a coordinated manner. Income that is foreign-source for Panama may nevertheless be fully taxable and reportable in the country where the underlying activity is conducted.

Annual checklist

Classify income. Separate Panamanian-source, foreign-source and exempt income with contractual and accounting support.
Review the taxpayer registration. Confirm that active obligations in e-Tax 2.0 correspond to the company’s current circumstances.
Maintain accounting records. Retain records and supporting documents for the statutory period and provide them to the resident agent when required.
Update beneficial ownership information. Report changes in ownership or control without delay.
Pay the annual franchise tax. Meet the applicable deadline to avoid surcharges and suspension.
Review dividends. Identify the source of profits before approving a distribution.
Assess invoicing. Confirm the required method and obligation based on the activity and tax registration.
Prepare for 2027. Determine whether Law 526 affects the entity’s foreign passive income.
Coordinate other jurisdictions. Verify residence, presence and obligations outside Panama.

Frequently asked questions

Does an offshore company pay income tax in Panama?

It depends on the source of its income. As a general rule, Panama taxes income produced within its territory. Each activity must be characterised according to its facts and any special rules that apply.

Must the company register with the DGI even if it does not operate locally?

Yes. The DGI states that a company registered in the Public Registry must obtain a taxpayer identification number, among other reasons, to keep its annual franchise tax current.

Can accounting records be kept outside Panama?

The law permits records to be kept in Panama or abroad, but requires the resident agent to be informed of who holds them and where they are located, and requires their timely delivery under the applicable rules.

Is an inactive company exempt from keeping records?

That should not be assumed. The regulations in force require information supporting the entity’s inactive status to be provided to the resident agent.

Does Law 526 apply from 2026?

No. Law 526 was enacted in 2026 but takes effect for fiscal year 2027.

Conclusion

An international structure works when its legal form, actual activity and documentation tell the same story. The territorial principle may exclude certain foreign-source income from Panamanian income tax, but it does not eliminate the annual franchise tax, accounting records, beneficial ownership transparency or obligations arising from activities in other jurisdictions. An annual review prevents a formally active company from accumulating unseen operational or tax risks.

Official sources consulted

This article is provided for general legal, tax and accounting information and analysis only; it does not constitute legal, tax or accounting advice for any particular matter. The source of income and applicable obligations must be verified in light of the activity, documentation and law in force in each relevant jurisdiction.