Personal Taxes in Panama

Tax residence certificate

The residential tax certificate is the document that accredits a person, being a natural or legal person, as a tax resident of the Republic of Panama and it is only issued by the General Directorate of Revenues (DGI) based on article 762, subsection N of the Tax (Fiscal) Code, Executive Decree 958 of 2013 and regulatory resolutions.

To obtain this certificate, eligibility does not depend exclusively on the existence of a treaty; rather, this document certifies that the individual or company meets the national regulatory requirements to be considered a tax resident in Panama. A legal entity may prove its tax residency in two ways: by demonstrating it has means of direction and administration in the Republic of Panama, and by having a valid notice of operations. Additionally, a foreign company can be considered a tax resident in Panama if it has means of direction and administration within Panamanian territory.

Regarding the benefits of the Double Taxation Treaties, these will only be applicable when the taxpayer can demonstrate that they are a tax resident of Panama and comply with the provisions of the respective treaty. To prove tax residency in Panama, a certificate issued by the General Directorate of Revenue (DGI) is required. In situations where residency in the other treaty country must be proven, an official certificate from the foreign tax authorities, properly translated and legalized, will be required.

Based on the article 11 of the Executive Decree No. 985 of August 7th, 2013 stipulated that without prejudice that affects the process to determine if a legal entity has means of directions and administration in the Panamanian country, the following evidence has to be considered to be determined as a tax residency:

1. Celebrate business meetings about means of directions and administration with the board of directors in Panamanian territory.
2. If the decisions about means of directions and administration are taken by a third party living in the Panamanian territory that has been empowered by members of the board of directors.
3. Legal Entities doing business activities in Panamanian territory as long as the main office is located in the Republic of Panama.

The basic requirements established by the DGI for the issuance of the Tax Residence Certificate in the Republic of Panama are the following, in addition to the criteria that underlie the analysis.

Petition addressed to the DGI containing:

• Clear and express identification of the applicant.
• Specification of the tax treaty or agreement to which it wishes to be allocated, when applicable.
• Original Public Registry Certificate, in the case of legal persons.
• Copy of identity card or passport of the applicant or the Legal Representative.
• Power of attorney, in case of legal persons.
• Other relevant evidence.