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Establish your tax residency in Panama, the best jurisdiction in Latin America
The dilemma, then, is how to find the best option. To save you the trouble of researching, here is the answer: Panama, without a doubt, is the leading country in terms of economy in Latin America and the right place for your new business.
It is an ideal tax residency for American and European businesspeople seeking for a transparent, beneficial, and secure jurisdiction to set their tax residency.
Panama is one of the financial small giants of the planet. This tiny country located in Central America is one of the business hubs of the world thanks to the Canal and its attached free zone and its top financial and banking system.
Of all the countries in South and Central America, Panama stands out for its stability and excellent economic and financial offer. It is on a par with great powers such as the United States and Switzerland.
This is why it has become an ideal destination for investors and executives; you will not only benefit from the country's enormous economic growth (the fastest the continent has experienced in the last ten years). You will also be able to do so while enjoying a tropical climate, indigenous culture and customs, avant-garde buildings, and very warm people willing to receive foreigners.
Thanks to its deep interest in economic development, the Government of Panama consistently offers programs that seek to attract foreign investment that will enhance the state's projects.
Among the advantages of having a tax residence in Panama, you'll find:
- Taxes are limited to local income. If you receive an amount of money in the country, you will have to pay taxes for it. However, if you receive money from abroad (regardless of the amount, nature of the income, or place), no payment of any kind of taxes is required.
- It is relatively easy to obtain a Panamanian residency (little bureaucracy involved). There is even a list of 47 countries that are guaranteed permission without any investment involved.
- The reporting of your overall income will remain in Panama only. This is due to the country's banking and privacy laws, which provide legal protection for both the resident and the depositor.
- You will be exempt from paying income taxes in other countries, with the sole exception of the United States. However, the first $160,000 will not require any type of tax, which is one of the best benefits Americans can receive tax-wise abroad.
- You will be able to protect your income by sending it to a foundation within Panama. In this way, your assets will be safe from creditors and foreign governments.
- International banks in Europe and the United States will accept UBO (Ultimate Beneficial Owner) accounts without any inconvenience, since Panama is not considered an offshore jurisdiction.
Tax residency in Panama
After seeing all these benefits, you're probably wondering what's the criteria for tax residency in Panama.
As the name suggests, you must have some form of residence in the country. The general rule in Panama and other nations is that a person will be considered a tax resident if he or she has stayed in the country for more than 183 consecutive or alternate days in the fiscal period in which the request is made.
Companies are considered Panamanian tax residents if they've been incorporated in Panama and if Panama is its main management center.
Panama has a territorial tax system for both companies and individuals. That means you only pay taxes for your Panama-sourced income, so if you're a Panamanian tax resident, your income deriving from foreign sources can be completely tax-free as long as you have a Certificate of Tax Residency.
To receive one as an individual, you'll need to showyou have spent the necessary time in Panama. Documents such as utility bills, food receipts, and rental agreements will help prove that you have family and economic ties to the country. To receive one as a company, documents of the meetings of the board of directors, bills, and similar may help you show Panama is your main business center.
This means you'd need to have some kind of temporary or permanent residency in Panama.
Panama has one of the best immigration policies for investors and skilled workers in the planet. It has a wide array of possible residency options. Here we'll sum up the most important and the one we consider the best (however, if you wish to know them in detail, please check our country focus )
Friendly nations visa
It is one of the most sought visas as it is incredibly affordable and very easy to obtain. The main requirement is to be a citizen of one of the almost 50 territories that are considered as "friends" of Panama, such as Argentina, Brazil, Canada, Denmark, France, Greece, Hungary, Israel, Japan, Luxembourg, Malta, Netherlands, and others.
To receive the residency, you must have a bank account in Panama in which you will deposit a minimum of 5,000 USD for the applicant and at least 2,000 USD for each dependent. With this, you will demonstrate that you are in the capacity of being economically solvent.
We can help you open a Panamanian bank account remotely. Check out our banking article right here and discover how.
Of course, it is essential to demonstrate that you expect to establish an economic and labor link with Panama, either through the establishment of a new company (it cannot be a retail company) or through a work permit.
Thanks to the friendly nations visa, you and your dependents will obtain permanent residence upon approval of the application.
This visa is perfect for those who receive any kind of pension or monthly payment of at least 1,000 USD. Although it may seem that it is only available for pensioners (senior citizens), the reality is that there is no maximum or minimum limit to apply, just having reached the age of majority (18 years).
You can even apply together with a spouse. In this case, the pension amount is required to increase to $1,250. However, if you both receive the benefit, you can pool your monthly amount to meet the basic requirement of $1,000.
Panama is the ideal country for retirement: the quality of life can be very similar to that of the United States, but with much more affordable prices. Besides, by obtaining the pensioner visa, you will also get discounts such as 20% less in medical consultations and 50% in entertainment (which includes movies and events).
Economic solvency visa
Through this visa, you will demonstrate to the government entities of Panama that you have sufficient resources to support yourself (without the need for a pension or a labor certificate) and that, on the contrary, you are willing to participate and improve the Panamanian economy.
The minimum investment, in this case, will be 300,000 USD. However, there are three options:
- Buy a property for that amount with a holding period of three years
- Invest in a certificate of deposit in a Panamanian account for three years
- Combine both options
In any case, it is crucial to consider that for each dependent, an amount of 2,000 USD must be added to the total, in addition to proving that you can support your family group.
Business Investor Visa
Ideal for those who wish to establish their own business in Panama, although you will need to apply for a commercial business license. The requirement is that the basic investment is 160,000 USD and can provide employment for five Panamanians (with their respective social security benefit and payment of at least the minimum wage). It is also possible to invest in the establishment of a new company with the same requirements.
As in the previous visa, you must increase 2,000 USD for each dependent you wish to include in your application.
Specialist worker visa
A very common option around the world that allows you to obtain a job in Panama with a temporary residency of at least a year.
In the case of Panama, foreigners working for a Panamanian company as professionals can become residents of Panama after two years of employment. A university degree is also required to support your expertise.
Panama's tax system
The main reason why Panama has become so popular in terms of alternatives for tax residencies is that it has a territorial tax system; that is, international transactions are tax-free.
This makes it easier for a person to set up a business under the Panamanian tax residency and manage it from abroad, so he would be generating his income outside the territory and, therefore, this capital would be tax-exempt. Also, companies based on the many FTZs in Panama don't pay income tax on the import of products and services destined for exportation. This means you can assemble products with imported parts and export them completely tax-free.
Do you want to know how to establish an FTZ company in Panama? Check out our article about our corporate services in Panama .
We could group the tax exemptions in Panama in the following way:
- Income from operations that are managed in Panama, but are performed abroad.
- Income from re-invoicing of foreign goods or services.
- Distribution of dividends derived from foreign income (including the above mentioned).
In addition, being a tax resident of Panama grants other valuable advantages:
- High level of protection for beneficiaries thanks to Panama's strict banking legislation and high levels of privacy. It is considered one of the most effective banking systems in the world.
- Possibility to protect your capital even more thanks to the creation of a Panamanian foundation. Thus, you can protect your assets from creditors and even foreign governments.
A territorial tax system
Due to pressures from the CRS and FATCA (Common Reporting Standards and Foreign Account Tax Compliance Act, respectively), it is essential to have a genuine and legally validated tax residency, which applies to businesspeople and entrepreneurs who obtain their income from international sources.
Panama is one of the best tax residency options because only territorial taxes apply. Individuals and companies with fiscal residence in Panama will have zero taxes on transactions from abroad (anywhere in the world). This is where it stands out from so many other countries. You will have the opportunity to establish your business in Panama (at least a fiscal residence) and work with international clients. You will be able to receive payments and profits legally, and at no time will you have to lose money in taxesas long as the income comes from outside Panama.
You just have to present your Panamanian documentation and will be exempted from virtually any personal income tax. The biggest exception is the United States, which always taxes the worldwide income of its citizens, whether they reside in the US or not. Nevertheless, the first 160,000 USD will not be taxed, which is a significant advantage. Moreover, even in this case, you can run a Panamanian company and keep the profits within the company and not pay taxes until you pay the dividends to yourself. This is known as tax deferral, which is perfectly legal and is implemented by the largest corporations in the US.
The territorial system means, for example, that you can legally have an income of $5,000 per month generated in Panama (salaries, dividends, rental income, etc.) and pay taxes on it while receiving hundreds of thousands of dollars from abroad without having to pay any taxes. This is the reason why many investors and high net worth worldwide choose Panama as their tax residency destination.
Although Panama is not considered an offshore banking destination, it enjoys all these advantages (and more) in an onshore jurisdiction.
Among the numerous benefits of investing money in Panama, you will find that, in general, the tax rates are much more affordable than in other territories, allowing the development of small and medium enterprises that will eventually benefit the same nation.
All income of Panamanian origin is taxable. In the case of a company, an income tax of 25% is required on net taxable income. If the state owns part of the capital of the company (40% or more), the rate is 30%. It should be noted that these amounts have been decreasing in recent years to allow business formation to be maintained; for example, companies engaged in agriculture have an even lower percentage.
25 % may not sound too different from what you find in some OECD countries, but remember that you'd only pay taxes on your Panama-sourced income. Also, if you establish your company in an FTZ, all products and services imported for exportation services are wholly tax-free.
For smaller companies, it is recommended that they make a combination of individual and business tax rates (however, if the gross income is less than $1,500,000, this will not be possible).
Personal income taxes
As usual, Panama applies a progressive income tax. The brackets go as follows:
- Income under $11,000 a year is tax-free.
- Income between $11,000 and $50,000 is taxed at a 15% rate.
- Income over $50,000 is taxed at a 25% rate.
In the case of married couples, a deduction of 800 USD is charged along with a joint tax return. This declaration is made once a year (before every March 15th). Those who receive income through a single salary are not obliged to submit a joint return (the one that's employed would be responsible).
Who are we, and what can we do for you?
In Mundo,with our partner firm NTL, we have more than two decades helping high net worth individuals and investors around the world, keeping their money safe and finding new investment opportunities.
We work with an unparalleled network of experts to offer the best of the best in asset protection, investment, corporate solutions, banking, and immigration.
We have our main headquarters in Panama because we believe it's one of the best jurisdictions on the planet from a banking, corporate, financial, asset protection, and tax perspective. We have our own legal and financial team in Panama, ready to offer the best services for you. We can help you move your tax residency in Panama and use it as your main tax optimization vehicle.
Our experts can offer the best tax advice for you in Panama. All you need to do is get in touch with us, and we'll find a tailor-made solution for you. Enquire now!
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