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Understanding Panama Tax Nexus Rules

Updated 3 months ago

Nexus is the connection between your business and a tax jurisdiction that creates a legal obligation to register and collect tax. In Panama, nexus rules focus heavily on physical presence.

Types of Nexus Kintsugi Monitors for Panama

Kintsugi monitors three types of nexus for Panama:

  1. Physical nexus - based on your business's physical presence in Panama

  2. Economic nexus - based on your annual revenue from Panamanian customers (for local entities)

  3. Collected tax nexus - triggered if your business collected ITBMS in Panama without first meeting physical nexus

Physical Nexus: What counts?

The following situations establish physical nexus in Panama. Once nexus is established and your annual revenue exceeds B/. 36,000, ITBMS registration is mandatory.

Nexus Category

Exposed?

Panamanian incorporated company

Yes

Fixed place of business (office, branch, factory, or workshop)

Yes

Construction or installation project exceeding 183 days in any 12-month period

Yes

Dependent agent who has authority to conclude contracts in Panama

Yes

Warehouse or storage used for core business operations (not purely passive)

Yes

Retail shop or physical store in Panama

Yes

Manufacturing or production facility in Panama

Yes

Representative office (for preparatory or auxiliary activities only)

No

Remote employees performing only preparatory or auxiliary roles

No

Warehouse used solely for storing, displaying, or delivering goods

No

Independent agent (broker or distributor) acting in the ordinary course of their own business

No

Economic Nexus: Who does it apply to?

Economic nexus in Panama applies to local entities and businesses with a permanent establishment (PE). The registration threshold is:

  • Annual gross income exceeding B/. 36,000, OR

  • Average monthly gross income exceeding B/. 3,000 in the previous year

Exempt transactions and marketplace sales where the local entity is the seller of record are included in the threshold calculation.

Non-resident businesses selling digital services remotely to B2C customers are currently not subject to ITBMS, so economic nexus thresholds do not apply to them at this time.

What about collected tax nexus?

If your business collected ITBMS in Panama without meeting the physical nexus criteria, Kintsugi will flag that as a collected tax nexus. This works the same way as collected tax nexus in the US.

Do I need a local fiscal representative?

For resident businesses and those with a permanent establishment, a local agent is not separately required. For non-resident businesses that may become subject to ITBMS once new digital services rules are enacted, the local agent requirement will be clarified when the relevant regulations are published.

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