Since 2000, Panama's corporate tax rate has been at a flat rate of 30%, eliminating the 34% bracket in place during the late 1990s. For companies registered in Panama's increasing number of tax-free processing zones (TFTZs), which are modeled after the longstanding Colón Free Trade Zone (CFTZ), a 15% corporate tax imposed in 1996 (up from 8%) has been removed in favor of a much-vaunted 0% rate on all profits arising outside of Panama. The 0% corporate tax rate goes with an exemption from all export and import duties on reexports. All businesses pay a license tax of 1% of the company's net worth up to $20,000. Companies in TFPZs have tax liability only for sales within Panama's fiscal jurisdiction which, by statute, can make up no more than 40% of their business. Beginning with the OECD's report on harmful tax practices in 1998, Panama has come under increasing pressure to revise its banking secrecy practices, guaranteed in the Panama constitution.
Income tax in Panama in 2002 was taxed according to a progressive schedule which, since 2000, has had 12 brackets: 0%, 2% (added in 2000), 4%, 6.5%, 11%, 16.5%, 19%, 22%, 27%, 30%, 33% (as reported) and 30%. The 0% rate applied up to 3,000 Balboa (pegged to equality with the US dollar), but there are also fixed deductions (800 Balboa for singles, 1600 Balboa for married couples and 250 Balboa for each child) and targeted deductions (for mortgage interest, loans to pay school fees, medical expenses, health insurance, and donations to charity among others) that reduce taxable income for individuals. Gifts were taxed at rates between 0% and 33.75% depending on the amount unless they were between linear descendants, which was tax-exempt. There is a 2.75% education tax; 1.25% is taken from gross salaries paid. A real property tax ranges from 1.4% to2.1% of assessed valuation. Property improvements are tax-exempt for the first five years.
The main indirect tax is Panama's value-added tax (VAT) with a standard rate of 5%, and a reduced rate of 0% applied to basic foodstuffs, trade and medical services. An increased 10% rate on cigarettes has been removed. Other levies include license fees, and stamp taxes.