Demystifying Panama's tax residency: unraveling the myth from the truth
Panama is more than an attractive destination for business: it’s a great place for those looking for tax residency and low-tax solutions.
However, amidst the allure, several misconceptions about tax residency in Panama have emerged. In this article, we will shed light on common myths surrounding this country’s tax residency and reveal the truth behind them. Whether you're considering the possibility to get tax residency in Panama or are simply curious about the intricacies of the process, this guide will provide you with the essential information.
Myth vs truth about becoming a tax resident in Panama
There are lots of common myths about offshore tax residency. So, if you’re really wondering how to get tax residency, this section will be quite useful.
Myth 1: If I set up Panama as my place of residency, I won't be subject to taxes.
Truth: While it is true that living in Panama exempts you from paying taxes on your income derived abroad, you still must pay taxes for your assets or income located, earned, or received within Panama.
This also applies if you transfer your funds from an account abroad to your local account in Panama. In other words, if you receive your income or part of it in Panama, you won't escape tax. Anyway, escaping taxes is not the goal of financial strategy but to reduce them.
Myth 2: If I get tax residency in Panama, I won't have to pay taxes anywhere else
Truth: When you get tax residency here, this doesn't mean that you're automatically exempted in other jurisdictions. Most countries and nations determine a person's tax residency depending on the number of days they spend in the country within a year.
Usually, it takes only six months for a person to be considered a tax resident. So, keep in mind that one of the most popular misconceptions about tax residency in Panama is automatically revealed as a myth. Having a tax residency certificate in Panama won't exempt you from paying tax in a different country but it will help you if you have businesses or accounts in a place where you don't reside. In such a case, your foreign bank will report to Panama but here you won't pay taxes for that income.
Myth 3: If I obtain Panama residency, I'm automatically a tax resident.
Truth: Obtaining a legal residency brings many advantages but it doesn't make you a tax resident right away. While getting legal residency is a step in the right direction, to get tax residency you need a more substantial commitment. If you talk to people who are interested in these subjects, you'll find that this is one of the most common myths about offshore tax residency. If you want to get tax residency you must live in Panama for a minimum of six months a year and provide supporting documentation that proves that you're actually present in the country physically. There is no specific requirement as to which documents you'll need to submit but, in general, the authorities look for invoices that show tuition fees, transportation expenses, utility bills, grocery purchases, and other relevant documents.
Tax residency application process in Panama
To start the tax residency application process in Panama, first, you must get a legal residency through any of its innovative programs. You can choose from a variety of them. To get information go ahead and check our residency and citizenship section. Once you obtain a legal resident status you can begin your tax residency application process in Panama.
Keep in mind that to get legal residency you'll need to have economic bonds to the country, be in perfect health, and have a clean police record. Then, as we stated above, you can get tax residency by proving your physical presence.
Dealing with double taxation as a resident
Double taxation worries many of our readers. This can be solved by cutting ties with any country that may consider you a tax resident. Another option is to take advantage of the many treaties to avoid double taxation that you can find in Panama. Double taxation treaties usually provide resources such as exemptions or tax credits to prevent you from paying taxes twice on the same income.
Disclaimer: before making any migration or tax residency decision make sure to consult with an expert in the matter. Moreover, look for experts in every country where you have connections such as businesses, residency, or passport.
Misconceptions about tax residency in Panama: final thoughts
For this, Panama offers an excellent landscape with the potential to avoid double taxation and the opportunity to significantly reduce your tax burden legally.
Besides unraveling the myths surrounding tax residency in this beautiful country, we invite you to consider any of its residency programs. Finally, make sure that anything you do is supported by the right professionals as you can't afford to fly solo on such an important decision and transition in your life.
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