Panama is a popular destination for foreigners looking to reduce their tax liability. One of the ways to do this is to obtain a tax residency certificate in Panama. A tax residency certificate is a document issued by the Panamanian government that confirms that you are considered a tax resident of Panama for the purposes of taxation.
In this process, the burden of proof is on the applicant. Other relevant documents may be submitted to strengthen your application. In addition, the tax residency certificate must be reapplied every year.
This program is based on article 762-N of the Tax Code, executive decree 958 of 2016, issued by Dirección General de Ingresos.
In recent years, the Panamanian tax office, Dirección General de Ingresos or DGI, has begun offering residents the opportunity to request tax residency certificates. These documents can be used to prove your tax status as a resident in Panama to other nations. The tax residency certificate can be a beneficial tool and is especially powerful for citizens of countries which have conventions for the avoidance of double taxation with Panama.
The tax residency certificate program was primarily designed for use in countries which Panama has signed agreements for the avoidance of double taxation (DTAAs). Such nations include Mexico, Spain, France, the Netherlands, the United Kingdom, Germany, Singapore, and the United Arab Emirates. The conventions vary some. However, many citizens of these nations will find that residency in Panama combined with a tax residency certificate will help to reduce their tax burden significantly.
Even though the tax residency certificate program was created for use with DTAAs, these certificates are available to all residents of Panama and individuals from any country can request the tax residency certificate.
A Tax Residence Certificate could help reduce your tax burden
Ways To Qualify for Tax Residency in Panama
- Physical presence test: You must spend at least 183 days in Panama in a calendar year, then you will need to show evidence of your time. The 183 days do not need to be consecutive.
- Economic ties test: You must have significant economic ties to Panama, such as owning property, running a business, or having a job in Panama.
If you meet either of these criteria, you can apply for a tax residency certificate in Panama. To do this, you will need to submit the following documents to the General Directorate of Revenue (DGI):
- Full copy of passports (notarized).
- Proof of address in Panama, such as a utility bill, rental contract or lease.
- Evidence of economic activity that generates income in Panama, such as contracts or employment.
- Evidence of residency status.
- Details of the tax treaty to be applied.
- Tax year for which the certificate is requested.
Process to Obtain The Tax Residency Certificate
The process to request and obtain a tax residency certificate can be relatively simple, depending on how you meet the requirements. It takes a period of 3 to 5 months.
The tax residency certificate is typically valid for 12 months from the date of issuance.
- Taxation: Panama taxes only local income. Foreign-sourced income, regardless of the amount, nature, or location, is not taxed.
- Residency: Obtaining Panamanian residency is relatively easy. There is even a list of 50 countries whose citizens are guaranteed residency without any investment. Learn more about friendly nations’ visas.
- Banking and privacy: Your overall income will only be reported in Panama. This is due to the country’s strict banking and privacy laws, which provide legal protection for both residents and depositors.
- Foreign income tax exemption: You will be exempt from paying income taxes in other countries, with the sole exception of the United States. However, the first $160,000 of your foreign income will not be taxed, which is one of the best benefits Americans can receive tax-wise abroad.
- Asset protection: You can protect your income by sending it to a foundation in Panama. This will make your assets safe from creditors and foreign governments.
- UBO accounts: International banks in Europe and the United States will accept UBO (Ultimate Beneficial Owner) accounts from Panamanian residents without any inconvenience. This is because Panama is not considered an offshore jurisdiction.
Obtaining a tax residency certificate in Panama can be a great way to reduce your tax liability and gain access to the many benefits that Panama has to offer. If you are interested in learning more about how to obtain a tax residency certificate in Panama, contact Kraemer & Kraemer. Our experienced team of attorneys can help you navigate the process and ensure that you are properly prepared to apply for a tax residency certificate.