Panama Global Payroll & Tax Information Guide

August 22, 2022 | 5 Mins Yana Todorova

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Payroll in Panama – 2022 Updates

On 13th of July 2022 a resolution was published, announcing deadlines for employers to file 2022 declarations on withheld taxes which includes:

    1. setting the September 30 extended deadline for the single cumulative tax declaration for January 2022 to May 2022

    2. setting the September 30 deadline for the June 2022 tax declaration

    3. requiring employers to file tax declarations for July 2022 to December 2022 within 60 days after the end of each month


Panama Payroll – Basic Facts

The official currency in Panama are the Panamanian Balboa (PAB) and the US dollar (USD). The official language is Spanish. The payroll cycle can be monthly, every 2 weeks, weekly, daily, or even hourly. The 13th salary is paid out in 3 installments in April, August, and December.

Paying employees in Panama is not the same as paying workers in your own country. Employees have to be paid using Panama’s employment and payroll standards.

Income Tax

The tax year in Panama runs from January 1st through to December 31st. Residents are taxed on income from Panamanian sources. Non-residents are taxed only on income from Panamanian sources. Tax rates for residents are progressive and based on total income, ranging from 0% to 25%. Non-residents are taxed at 15%, plus the educational tax rate of 2.75%.

Income range (USD)
Tax rate (%)

0 – 11 000

0%

11 000 – 50 000

15%

50 000 +

25%

Social Tax

- Employee contributions: 9.75%
- Employer contributions: 12.25% of the total remuneration of the employee

Education Tax

In Panama the employer must pay educational insurance tax of 1.5% of an employee remuneration.

Corporate Tax

The standard CIT rate is 25%.

Branch Remittance Tax

The branch tax rate is the corporate income tax rate plus 10% branch remittance tax.

Capital Gains Tax

The capital gains tax rate is 10%.

Withholding Tax

- Dividends: for resident companies and individuals - 5%/10%/20%; for non-resident companies and individuals - 5%/10%/20%/40%.

- Interest, royalties, and fees for technical services: for resident companies and individuals – 0%; for non-resident companies and individuals – 12.5%.

Value Added Tax

The standard VAT rate in Panama is 7%

Compensation and Benefits

Minimum Wage

Panama has a government-mandated minimum wage. The Panama minimum wage rate ranges from US$275 to US$971.28 per month, depending on the region and sector.

Overtime

Working on a national public holiday is paid at double the normal pay rate by the employer. Employees cannot work more than 3 hours of overtime per day or a total of 9 hours per week.

Hours of Work

The standard workday is 8 hours, and a full-time work week is up to 48 hours. After 8 weeks of shift work, each team works the 8-hour weekday shift for two weeks. This pattern repeats for about 40 weeks. The weekday shifts help employees catch up on administrative tasks and are useful for employee training programs.

Normal daytime workdays run from 6 am to 6 pm. Sunday is usually the weekly day of rest.

Holidays

There are 13 paid public holidays in Panama in 2022.

Leaves

Employees are entitled to 30 days of paid annual leave following the commencement of 12 months of employment. They are also entitled to 18 days of paid sick leave.

Maternity leave is totally 14 weeks and starts 6 weeks before the expected date of delivery and ends 8 weeks after delivery. Adoptive parents are entitled to 28 days of paid leave.

Fathers are entitled to 3 days of paid leave. In case of termination of employment, employees should be made a payment for the vacation period not taken in cash at the rate of 1 day for every 11 days of work.

Foreign workers in Panama

Visa Requirements

Foreigners who intend to stay in Panama for up to 90 days can obtain a tourist visa, but this visa does not allow the holder to work. To live and work in Panama, foreign employees will need to get an immigration visa and establish residence before applying for a work permit. In Panama, it’s the employer’s responsibility to obtain a work permit on behalf of any foreign employees. However, the employee cannot get a work permit until the National Immigration Service grants them permanent residence status.

Taxes

Non-residents are taxed only on income from Panamanian sources, and the tax on any type of income paid to a non-resident must be withheld by the payer. Non-residents are taxed at 15%, plus the educational tax rate of 2.75%.

For more information about how our Global Payroll Control Platform integrates with local payroll providers in Panama, contact us today.

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