About Panama Personal Taxes
For individuals, the income tax calculation shall be based on a progressive rate as follows:
- Income from USD11,000 to USD50,000: 15%.
- Income above USD50,000: a fixed amount of USD5,850 for the first USD50,000 plus 25% on the excess.
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.
The tax residency certificate is only applicable to residency of countries with which Panama has subscribed double taxation avoidance treaties. The legal entity may prove its tax residency in two ways: that it has means of directions and administration in the Republic of Panama and that it has a notice of operations in force. In addition, a tax residency is considered a foreign legal entity if the person has means of directions and administration in the Panamanian territory.
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:
- Celebrate business meetings about means of directions and administration with the board of directors in Panamanian territory.
- 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.
- 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.
Double Taxation Treaties
Double taxation treaties are an instrument designed so that the resident taxpayers of a country who want to make investments in a different country can have the confidence that they will not be taxed twice for the same income. Panama has signed several double taxation treaties with the purpose of cooperating in the implementation of regulations against international tax evasion.
Contact Kraemer & Kraemer for answers to your tax questions and to learn how you can file your return or obtain your tax resident certificate.