Information exchange and double taxation treaties in Panama
Panama has become an attractive destination for international investment and business due to its favorable tax structure and its position as an international financial center.
However, in an increasingly regulated and connected world, financial transparency and international tax cooperation are becoming more important in preventing tax evasion and money laundering. To meet these international standards, Panama has established information exchange agreements and double taxation treaties with other countries.
Panama has three purposes through these treaties and agreements:
- To cooperate in the implementation of regulations against international tax evasion.
- To comply with international requirements with the Organization for Economic Cooperation and Development in order to be considered a sanctuary against international tax evasion.
- To avoid double taxation of citizens or foreign companies domiciled in Panama and their countries of origin.
Double Taxation Agreement
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 another country.
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 OECD (Organization for Economic Cooperation and Development) 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.
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 tax 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 Common Reporting Standard (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. Panama has a list of 71 reportable jurisdictions, which means that banks and other financial institutions in Panama must automatically report to tax authorities about financial accounts maintained by citizens and entities from these nations.
|Antigua and Barbuda||Argentina||Australia|
|Czech Republic||Check Republic||Denmark|
|Federal Republic of Nigeria||Finland||France|
|Principality of Andorra||Republic of Kazakhstan||Republic of Peru|
|Russia||San Marino||Saudi Arabia|
|Sweden||Switzerland||The Cook Islands|
|The Isle of Man||United Kingdom of Great Britain and Northern Ireland||Uruguay|
|Antigua and Barbuda||Argentina||Australia||Austria|
|Costa Rica||Croatia||Cyprus||Czech Republic|
|Faroe Islands||Federal Republic of Nigeria||Finland||France|
|Poland||Portugal||Principality of Andorra||Republic of Kazakhstan|
|Republic of Peru||Russia||San Marino||Saudi Arabia|
|The Cook Islands||The Isle of Man||United Kingdom of Great Britain and Northern Ireland||Uruguay|
Contact Kraemer & Kraemer to obtain answers to your questions regarding tax matters and to learn more about Information Exchange and Double Taxation Treaties.