Panama Tax System

[bnpsu]

Hello!

I am currently doing some research to move my residency to Panama - is anyone familiar with their tax system here? I know it's territorial for the most part.

I read this:

JustAnotherNomad said:
AFAIK if you use a Panama company for anything, the income will be treated as local Panama income which will be taxed.
You only create the company to get the visa, then you use another offshore company for your operational business. That company then pays out dividends to you as a Panama resident. Only then that income is not taxed in Panama.
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Is it true I should avoid using a Panamanian company to do business, but rather use a passthrough ie USA LLC or another foreign corporation to do business?

Any other tips for navigating Panama?

 

[Martin Everson]

Is there any particular reason why you are looking at Panama? It does not have a good reputation when dealing with banks outside the country but maybe less so in the US.

btw where else have you looked?

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[bnpsu]

Martin Everson said:
Is there any particular reason why you are looking at Panama? It does not have a good reputation when dealing with banks outside the country but maybe less so in the US.

btw where else have you looked?
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I picked it due to the friendly nationals permanent residency, the ease of obtaining it to establish easy residency. other countries need investment or real estate

 

[bnpsu]

@Martin Everson do you see moving funds from in and out of Panama to be a huge issue?

 

[Martin Everson]

You may want to research which banks you can open an account with outside Panama if you became a resident in Panama. That will guide your decision when you see how banks and EMI's react to Panama being mentioned.

I couldn't honestly bring myself to wire money to Panama without possibly sacrificing a banking relationship by attempting to doing so in 2020 😕.

Again find which foreign banks you will have access to if Panama becomes your residency.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[bnpsu]

Martin Everson said:
You may want to research which banks you can open an account with outside Panama if you became a resident in Panama. That will guide your decision when you see how banks and EMI's react to Panama being mentioned.

I couldn't honestly bring myself to wire money to Panama without possibly sacrificing a banking relationship by attempting to doing so in 2020 😕.

Again find which foreign banks you will have access to if Panama becomes your residency.
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Interesting - thanks for the feedback here. Would the banks look at my citizenship (ie. Canada/UK/Australia) or my residency to open banks? Are you saying if I were to wire, let's say $100k from bank of america from my LLC to Panama, this would basically get my account closed?

I heard of good personal banking option in Singapore.

 

[Martin Everson]

bnpsu said:
Interesting - thanks for the feedback here. Would the banks look at my citizenship (ie. Canada/UK/Australia) or my residency to open banks?
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They look at both plus intended activity.

bnpsu said:
Are you saying if I were to wire, let's say $100k from bank of america from my LLC to Panama, this would basically get my account closed?
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Depends where your wiring money too. A few countries would not give a damn but if it comes near EU or more developed regions of the world for example you will have issues. Wires coming from Panama would be scrutinized. It's best to find out and research now and save yourself a lot of heartache in future. After Panama Papers the countries reputation has been shot to pieces.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Tax Cow]

Panama is now semi-territorial. Corporations that render any services from within the territory, even if the client and the source of funds are abroad, there's an obligation to pay 5% tax on foreign-source income. This tax originates from the requirement to obtain a "notice of operation" (Aviso de Operacion or thereabouts in Spanish), as soon as a Panama resident company starts engaging in commercial or business activities from within the territory, even if you have no local clients. You can still use your corporation from the friendly nations visa program as an international IBC without paying that 5% tax, but only if you manage the company elsewhere, outside the country of Panama.

Even if you don't register an SA company in Panama, and work as an individual (digital nomad) for a foreign corporation, without having any local clients, you're liable for tax in Panama because your services are rendered from within the territory. Quite a few snake oil lawyers who stand to gain still tell otherwise in their blogs.

As of now, the only income that's truly taxed on territoriality principles in Panama are foreign investments (royalty, interest, dividend, and commission income). If your income is not from investments, but from active work, you might want to consider other options. For example, Uruguay corps pay tax on foreign-source investment income, but not on foreign-source active income, which is exactly the opposite of Panama.

 

[bnpsu]

xzars said:
Panama is now semi-territorial. Corporations that render any services from within the territory, even if the client and the source of funds are abroad, there's an obligation to pay 5% tax on foreign-source income. This tax originates from the requirement to obtain a "notice of operation" (Aviso de Operacion or thereabouts in Spanish), as soon as a Panama resident company starts engaging in commercial or business activities from within the territory, even if you have no local clients. You can still use your corporation from the friendly nations visa program as an international IBC without paying that 5% tax, but only if you manage the company elsewhere, outside the country of Panama.

Even if you don't register an SA company in Panama, and work as an individual (digital nomad) for a foreign corporation, without having any local clients, you're liable for tax in Panama because your services are rendered from within the territory. Quite a few snake oil lawyers who stand to gain still tell otherwise in their blogs.

As of now, the only income that's truly taxed on territoriality principles in Panama are foreign investments (royalty, interest, dividend, and commission income). If your income is not from investments, but from active work, you might want to consider other options. For example, Uruguay corps pay tax on foreign-source investment income, but not on foreign-source active income, which is exactly the opposite of Panama.
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Interesting, so if you have an entity outside of panama, earn money through there, and don't bring it to panama, how is that taxed?

 

[bnpsu]

What if a Panamanian runs a Cayman Islands corporation and operates it within panama?

 

[Martin Everson]

xzars said:
Panama is now semi-territorial. Corporations that render any services from within the territory, even if the client and the source of funds are abroad, there's an obligation to pay 5% tax on foreign-source income.
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Sounds logical and not unexpected. Even with no CFC rules you can't expect to live there and control a business based abroad and pay no taxes locally. In a way it is then technically a CFC tax even with no CFC rules...lol.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Tax Cow]

Panama is becoming the "Malta of the LATAM region". Instead of going with 1 + 1 = 2, they go with 0.2 +1 + (1 * 1 * 1 * 1.1) - 0.3 = 2

Just look at this and laugh: https://www2.deloitte.com/content/d...uments/Tax/dttl-tax-panamahighlights-2019.pdf

@bnpsu Based on what Deloitte says under "Residence" section, a corporation is resident in Panama if it's incorporated in Panama, and if company's central management and control takes place in Panama. Meanwhile, there are no CFC provisions. [Insert a joke about muddy waters]

I believe that they will decide based on their gut feel if it comes to a dispute, and not based on the law, which enables rulings in either direction. Just make sure that your Cayman corp does not have any visible presence (don't have a HQ, don't hold board meetings), and you should be okay. Use the lack of CFC provisions as your defending argument if you get in trouble.

 

[bnpsu]

xzars said:
Panama is becoming the "Malta of the LATAM region". Instead of going with 1 + 1 = 2, they go with 0.2 +1 + (1 * 1 * 1 * 1.1) - 0.3 = 2

Just look at this and laugh: https://www2.deloitte.com/content/d...uments/Tax/dttl-tax-panamahighlights-2019.pdf

@bnpsu Based on what Deloitte says under "Residence" section, a corporation is resident in Panama if it's incorporated in Panama, and if company's central management and control takes place in Panama. Meanwhile, there are no CFC provisions. [Insert a joke about muddy waters]

I believe that they will decide based on their gut feel if it comes to a dispute, and not based on the law, which enables rulings in either direction. Just make sure that your Cayman corp does not have any visible presence (don't have a HQ, don't hold board meetings), and you should be okay. Use the lack of CFC provisions as your defending argument if you get in trouble.
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I see, interesting. I was thinking of a USA LLC + Panamian tax residency structure..

1. What if a Panaminain runs a USA LLC and doesn't bring the money into Panama?
2. What would happen about capital gains tax if the Panamanian sells an asset from the USA LLC and gets a capital gain?

Last edited: Jan 31, 2020

 

[Tax Cow]

bnpsu said:
I see, interesting. I was thinking of a USA LLC + Panamian tax residency structure..

1. What if a Panaminain runs a USA LLC and doesn't bring the money into Panama?
2. What would happen about capital gains if the Panamanian sells an asset from the USA LLC and gets a capital gain?
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1. It has nothing to do with anything. Panama does not have remittance-based exceptions. However, they probably won't know about your LLC if you keep the proceeds abroad. This is operating under the radar, and not by the law. If you declare honestly, then your active income earned through the LLC is taxable in Panama on an individual level (up to 25% over 50K). Your investment income is exempt. Presence of your US LLC is ignored in tax calculations.
2. Nothing to worry about. Foreign capital gains are never taxed in Panama, whether earned through your US LLC or personally.

 

[bnpsu]

xzars said:
1. It has nothing to do with anything. Panama does not have remittance-based exceptions. However, they probably won't know about your LLC if you keep the proceeds abroad. This is operating under the radar, and not by the law. If you declare honestly, then your active income earned through the LLC is taxable in Panama on an individual level (up to 25% over 50K). Your investment income is exempt. Presence of your US LLC is ignored in tax calculations.
2. Nothing to worry about. Foreign capital gains are never taxed in Panama, whether earned through your US LLC or personally.
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I took a look at the Deloitte document, it says:


Personal taxation:
Basis ”“ Residents and nonresidents are taxed on their Panama-source income.

How were you able to define what is meant by Panama-source income?

 

[Tax Cow]

bnpsu said:
I took a look at the Deloitte document, it says:


Personal taxation:
Basis ”“ Residents and nonresidents are taxed on their Panama-source income.

How were you able to define what is meant by Panama-source income?
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If your a*s is located in Panama while the client abroad pays for the services you render, it is Panama-source income. All services and other work rendered from within the territory fall in the scope, regardless of where the client is. Consult a professional for an elegant answer.

 

[bnpsu]

xzars said:
If your a*s is located in Panama while the client abroad pays for the services you render, it is Panama-source income. All services and other work rendered from within the territory fall in the scope, regardless of where the client is. Consult a professional for an elegant answer.
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Interesting - is this the same case for other popular territorial countries like Thailand?

 

[happyjohn]

Thailand may have different rules but in Europe it is the exact same I can say.