Information exchange and double taxation treaties in Panama

Double Taxation Agreements

Double taxation refers to the fact that an individual or company may be subject to taxes in both countries for the same income, which can create an excessive tax burden. In Panama, double taxation treaties are important because they can affect the amount of taxes that an individual or company must pay in Panama and in other countries. If a double taxation treaty applies, the person or company will only pay taxes in one of the countries, or will pay a reduced amount of taxes in each countries.

The basic double taxation treaty includes a list of the classification of taxes recognized by each country and the Republic of Panama. The most important taxes included in each treaty are: dividends, capital gains, rental income, royalties, interest on paid loans, rents, and salaries, among others.

Panama’s network of income tax treaties expanded rapidly, as it aimed to comply with the review process by the Organization for Economic Cooperation and Development (OECD), in order to be removed from its blacklist of tax havens. As of April 2023, Panama had a total of eighteen (18) double taxation treaties in force with different countries.

Information exchange

In Panama, the exchange of information is governed by Law 33 of 2010, which establishes the rules and procedures for the request and exchange of tax information between Panama and other jurisdictions. The law establishes that the exchange of information will be carried out in compliance with the international agreements in which Panama belongs, and that the exchanged information must be kept confidential and used solely for fiscal purposes.

This means that tax authorities from other countries can request financial information from taxpayers in Panama through official channels established by bilateral or multilateral agreements. For example, if a tax authority in another country suspects that a taxpayer has hidden income in Panama, they can file an official request to the tax authorities in Panama to obtain relevant financial information.

The exchange of information helps strengthen Panama’s image as a cooperative jurisdiction in the international fight against tax evasion and the misuse of financial systems, allowing the jurisdiction to maintain and improve its competitiveness within the international financial community while maintaining access to correspondent banking and enabling free flows of financial and monetary transactions.

Panama also complies with the Common Reporting Standard (CRS). The CRS is a global standard developed by the OECD for international tax transparency. The objective of the CRS is to ensure that taxpayers pay taxes where they generate their income, thereby preventing tax evasion and money laundering. Executive decree No 9 of June 28 of 2023 reports a list of jurisdictions with which Panama maintains unilateral or multilateral treaties for information exchange for fiscal purposes. Below is the list of jurisdictions that Panama reports to base on the number 30 of article number 3 of Law 51 of the 27th of October of 2016 and the Executive Decree 124 of May 12th of 2017.

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Contact Kraemer & Kraemer to obtain answers to your questions regarding tax matters and to learn more about Information Exchange and Double Taxation Treaties.