Representation expenses: how income tax is withheld
In Panama, representation expenses are part of the pay certain managerial or executive roles receive, separate from base salary. The key point for payroll: they have a different income-tax withholding than salary.
The income-tax withholding
Representation expenses don't use the salary's progressive table. A separate withholding applies:
| Annual amount | ISR |
|---|---|
| Up to B/.25,000 | 10% |
| On the excess over B/.25,000 | B/.2,500 + 15% |
In other words, the first B/.25,000 pays 10% (B/.2,500), and from there the excess pays 15%.
The 100% limit
Representation expenses cannot exceed 100% of the worker's salary. They are reported in the Caja de Seguro Social payroll along with the rest of the pay.
Why it matters for payroll
If you pay representation expenses, your system must separate that portion and apply its own withholding, not the salary's. Mixing them leads to over- or under-withholding.
Frequently asked questions
How much income tax is withheld on representation expenses in Panama?
Do representation expenses have a limit?
Source: Panama Tax Code and Dirección General de Ingresos (DGI) rules. Reference only; amounts and rules can change — confirm with your accountant or advisor.
nominaHQ separates every item.
Salary, representation expenses and their tax, never mixed.