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HMRC internal manual

Double Taxation Relief Manual

Panama: Treaty Summary

The table summarises the provisions of the treaty as they relate to income beneficially owned by UK residents. The rate shown is the ‘treaty rate’ and does not reflect taxes chargeable under domestic law before relief is given under the provisions of the treaty. The ‘treaty rate’ is the maximum rate at which Panama is permitted to tax income in the relevant categories under the treaty. Rates chargeable under domestic law may be higher or lower.

In all cases other conditions for relief (e.g. beneficial ownership) will have to be met before relief is due under the treaty. The text of the treaty itself should be consulted for the full details. The text of the treaty can be found on gov.uk.

Portfolio dividends 15% (Note 1) Article 10
     
Dividends on direct investments 0% Article 10
Conditions for lower rate on dividends on direct investments Conditions apply per Note 2 Article 10
Property income dividends 15% Article 10
Interest 5% (Notes 3 and 4) Article 11
Royalties 5% Article 12
Government pensions Taxable only in the UK unless the pension arises in Panama Article 17
Other pensions Taxable only in the UK unless the pension arises in Panama Article 17
Arbitration No (Note 5) Article 23

 

Note 1: Dividends beneficially owned by a pension scheme, the UK government or any of its political subdivisions and local authorities are taxable only in the UK.

Note 2: The conditions for exemption from withholding tax on dividends from direct investments are complex, and the text of paragraph 3 of Article 10 of the treaty should be consulted before any claims are made. To summarise, dividends are taxable only in the UK if they are beneficially owned by UK resident companies holding directly at least 15% capital of the paying company provided also that:

  1. the shares of the UK company are regularly traded on a recognised stock exchange;
  2. at least 50% of the shares of the UK company are owned direct or indirectly by individuals resident in either the UK or Panama;
  3. at least 50% of the shares of the UK company are owned direct or indirectly by one more companies regularly traded on a recognised stock exchange that are:
    1. residents of either the UK or Panama; or
    2. resident elsewhere but entitled to an equivalent benefit under a treaty between Panama and their state of residence;
  4. the UK company is engaged in the active conduct of a trade or business in the UK.

Note 3: The rate of 5% applies only where the beneficial owner of the interest is an individual, a company whose shares are regularly traded on a stock exchange or a bank which is not connected to the payer of the interest.

Other companies can only claim the 5% rate if they can show that their establishment, acquisition or maintenance was not to secure such treaty benefits.

The 5% rate is also due if the payer of the interest is the Panamanian government, a bank or if the interest arises on a quoted Eurobond.

Note 4: Interest is exempt from tax in Panama if it is:

  1. beneficially owned by the UK government, the Bank of England or any of the UK’s political subdivisions or local authorities;
  2. paid in relation to the sale on credit of merchandise or equipment to a UK enterprise;
  3. paid to other entities or bodies (including financial institutions) as a result of financing provided by such institutions or bodies in connection with agreements concluded between the UK and Panamanian governments; or
  4. beneficially owned by a pension scheme.

Note 5: The competent authorities of the UK and Panama may agree on other forms of resolution, including arbitration, when a mutual agreement cannot be reached.