Aug 8, 2019

Ownership of real estate in Panama: how does it lead to tax residence in the country?

Paying taxes is one of the two things you cannot possibly avoid. However, there are possibilities to make your tax burden a bit less heavy.

It used to be popular with international business companies to relocate to offshore jurisdictions that offer preferential taxation conditions to foreign investors. But the economically strong states have always been annoyed with offshore zones and for a good reason. No government likes to see capital flow out of the country and less come in taxes to the state budget. Thus, a serious campaign against offshore countries has been launched.

The international tax authorities are putting high pressure on the banks making them deny services to clients whose companies are registered in a jurisdiction with ‘an aggressive tax policy’. Today banks simply refuse to accept payments that come from an offshore account. Therefore, registering your company in a jurisdiction that the world financial authorities dislike is not a good idea anymore.

But taxation in the first world countries is heavy indeed. Do the new strict financial regulations mean that businesses cannot relocate anywhere anymore and have to carry the weight in any case? Actually, they do not.

Many countries that used to be offshore jurisdictions choose to submit to the heavy machine of European and American national administrations rather than try to fight back. They adapt their legislations to the new requirements in order to become ‘transparent’ to the world financial authorities. Once they succeed at that, they are scratched from all sorts of ‘black lists’ and ‘grey lists’ and are considered law-abiding states again. This gives a clear signal to the international banks that it is okay to work with companies located in these states and accept payments from business corporations registered there.

One of such states is Panama, the country that bridges North and South Americas.

If you have an international business company or have international partners, then relocating to Panama will let you, first, lessen your taxes, second, find new commercial opportunities, and third, reside in a very comfortable environment. 

Below are only a few of the advantages that Panama tax residency will bring:

  • Profits made from international business deals are not taxable in Panama.
  • A Panamanian resident permit allows traveling to a great number of countries without a visa.
  • Panama is a politically stable country and its economy is steadily growing.
  • It is a perfect country for the climate it has: summertime all the year round.
  • Panamanian banks will give you access to the world finances. Freedom of capital is guaranteed in this country and there are no financial restrictions whatsoever.
  • The legislation in Panama will effectively protect your assets from unlawful encroachments of any third party.
  • Permanent residence in Panama during five years will make you entitled to apply for Panamanian citizenship.
  • Panama does not have laws similar to CFC (Controlled Foreign Corporation).

This is only a part of the benefits that acquiring residence in Panama will bring. Relocation to this wonderful country will make your business life easier and your personal life happier.

How you can obtain tax residence in Panama

Every country applies its own rules when taxing its residents. As far as physical entities, that is, private individuals are concerned, most countries will consider them tax residents if they reside on their territories for over 183 days a year.

With some other countries, their citizenship will automatically make the person taxable there. A US citizen, for example, has to pay taxes to the state budget regardless of where he receives income – at home, in another state of the United States, or abroad.

Sill other national states will take into consideration the presence of the person’s family accommodation in the country as well as other property and/ or financial interests.

As far as legal entities, that is, business corporations are concerned, many national governments believe that the company physical presence in the country or its business activities there should determine the taxation principles.

One of the immigration programs that Panama offers is called ‘Business Investor’ program. The applicant to this program will receive a permanent resident status on the condition that he or she establishes a business company in Panama. Acquiring a legal residence in this country will automatically lead to tax residence as well. You can read more about the Economic Investor visa program be clicking here.

Panama has been off all the ‘black lists’ or ‘grey lists’ for a long time now and it is not an offshore jurisdiction. This country is among those that exercise territorial taxation systems. Tax exemptions on income made abroad apply to both citizens of Panama and its legal foreign residents.

Both Panamanian Government and local people are quire friendly to foreigners. Foreign residents enjoy almost the same rights in Panama as local do. There are some exceptions, of course, including the right to elect and be elected, the right to take certain positions and engage in certain professions, and the right to purchase land closer than 10 kilometers (a bit more than 6 miles) to the Columbian and Costa Rican borders. There are no other restrictions in Panama so a foreign resident can freely do international business from this country and live a life of ease there.

In order to acquire tax residency in Panama you have to use one of the numerous immigration programs that provide for the legal resident status. In comparison to many other countries, the immigration laws and regulations are quite simple and clear in Panama.

If you are not applying for Panamanian residence “for family reunification” and you are not marrying a citizen of Panama, you will be expected to prove to the authorities your economic solvency and the presence of economic interests in Panama. If you can, you will be granted permanent residence permit.

Purchasing some real estate in the country, you kill (at least) two birds with one stone. First, ownership of real property in Panama will serve as a secure legal foundation for applying for residency. Any foreign national can freely buy real property in Panama.

Second, Panamanian real estate will be your tangible asset whose price is stably growing. If you want to, you can sell it in an instant. In case you do it after a few years of ownership, the price of your property is likely to be considerably higher.

In addition to the Business Investor visa mentioned above, the following three immigration programs that the Panamanian Government offers will look especially inviting:

  1. Economic Investor visa program

With this immigration program, you can obtain legal permanent residence in Panama if you invest minimum US$ 300,000 into the country’s economy. One way to make this investment is purchase a house or an apartment that costs that much ore more. As an owner of a piece of real estate in Panama, you will qualify for residency. Citizens of all countries are eligible to apply for an Economic Investor visa.

There are other investment options that this program offers and we suggest that you follow this link to read more about it.

  1. Pensionado visa program

With this program anyone older than 18 years of age – and not only pensioners, as the name of the program suggests – can acquire residence permit in Panama if they have a guaranteed monthly subvention of minimum US$ 1,000. They have to conclusively prove to the authorities that they do have such a subvention.

This immigration programs was designed by the Panamanian Government back in the 1980s primarily with the US retirees in mind. Panama has very close ties with the United States and the country’s officials are very much aware of the fact that a US pension normally exceeds the required amount of US$ 1,000. Thus, proving to the Panamanian authorities that they have a stable guaranteed income is easy for American pensioners. (The same goes for Canadian pensioners, as a matter of fact.)

At the same time, citizens of any country can apply for this program bearing in mind that the proof of a steady income is the hardest part of the application process in some instances.

This program has one interesting variation, though. If you buy a house or an apartment in Panama that costs US$ 100,000 or more, you will have to show that your guaranteed monthly subvention is as high as US$ 750. This will also make you eligible for Panama residence.

Please follow this link to find more information about the Pensionado immigration program.

  1. Friendly Nations visa program

There are fifty national states in the world that Panama favors more than other states. (Is it not a sign of discrimination, by the way?) Joking aside, it will take citizens of these fifty nations very little effort and very modest investment to obtain permanent residence permits in Panama. The list of the Friendly Nations generally includes all the well-developed countries of the world. As Panama has good economic, political, and cultural relations with these fifty states, the Government trusts their citizens and provides for an easy access to the country.

If you follow this link, you can learn what countries are on the list and what requirements the Friendly Nations immigration program puts forward.

What makes Panama especially attractive is the possibility to make it the country of your second residence. To become a legal and tax resident of Panama you do not actually have to leave your home country forever. There are no specific requirements in the country’s legislation as to the necessary amount of time that a foreign resident has to spend in Panama in order to retain the residence permit. If you go there for vacation for a week or two once every two years, it will keep the immigration authorities satisfied and they will not want to take your permanent residence permit away. Far from every country offers such luring conditions.

In addition to that, Panama does not require that foreign residents make some irretrievable ‘donations’ to the state budget, which makes it compare favorably with some other countries. All the investments that you will make in Panama are fully recoverable. Of course, you cannot make a bank deposit, obtain the residence permit on these grounds, then withdraw the money from your account straight away, and still keep the permit. You have to remain the owner of the bank account or the residential estate but the money and the property will still remain yours and you can close the account or sell the property after a few years.

You do have to pay some state duties and cover the cost of legal services when your relocate to Panama but these sums are negligible indeed.

Full Panamanian citizenship

The programs described above are most popular with a large number of immigrants to Panama even though other immigration programs are available too. All these programs entitle the successful applicant to apply for full Panamanian citizenship after five years of permanent residence in the country.

It should be borne in mind, however, that permanent residents in Panama do not automatically become its citizens after five years of holding the residence permit. Each applicant for citizenship is considered by the authorities individually. Occasional short visits to Panama will suffice for retaining the permanent resident permit but they will certainly not suffice for obtaining citizenship of the country.

Generally speaking, the more economic substance you establish in Panama, the better are your chances to acquire Panamanian citizenship. If you can show that you own real property in the country, have accounts in the banks, run a business company, participate in development projects, and so on, the immigration authorities will see that you have established ‘close economic ties’ with Panama. In this case, they will gladly grant citizenship to you. Or you can also marry a citizen of Panama. That will certainly solve the problem too.

Apartments in the Ocean Front Tower, Panama City

In case you are already married and have kids, you may want to consider purchasing a luxury apartment for you and your family in the skyscraper called the Ocean Front Tower.

This residential estate is located in a modern Panama City district Costa del Este, in particular, in Balboa Avenue, next to Cinta Costera district. The Ocean Front Tower towers over the coast of the Panama bay.

Costa del Este district is rather far away from the city center. However, if you take the toll road in the south (called Corredor Sur), driving to the “Old City”, the downtown area of Panama City, will not take very long. The same is true for getting to Tocumen international airport via the same road.

Within a five-minute walk from the Ocean Front Tower you will find some twenty restaurants and nightclubs, a large trade center called Multi Centro, a Hilton casino, and a great number of bank offices and business centers. Cinta Costera Boulevard stretches along the Pacific coast and it is loved by local people who will take long evening strolls along the coastline.

Ocean Front Tower is a condominium with round-the-clock security surveillance. The building has an underground car park, an open swimming pool, a fitness center, and free high-speed Wi-Fi. The concierge services includes laundry, dry-cleaning, house cleaning, and other services. Looking out of the windows, you will find panoramic views of the Pacific Ocean and the city streets.

Apartment №1

The total area of this apartment is 408 square meters (488 sq. yards). It has:

  • Two living rooms.
  • A study.
  • Four bedrooms.
  • Four and a half bathrooms with marble floors.
  • A large kitchen.
  • A separate dining room.
  • A separate breakfast room.
  • A wide balcony.
  • Centralized air conditioning.
  • Three parking lots in the underground car park.

The apartment has modern furniture and all the necessary home appliances.

The price of this apartment in the Ocean Front Tower is US$ 1,150,000

Apartment №2

The total area of this apartment is 420 square meters (502 sq. yards). It has:

  • Two living rooms.
  • Four bedrooms.
  • Four and a half bathrooms with marble finishing.
  • A kitchen.
  • A dining room.
  • A house cleaner’s room with a separate bathroom.
  • Centralized air conditioning.

Two parking lots in the underground car park.

The price of this apartment in the Ocean Front Tower is US$ 1,250,000

The nature in Panama will leave you breathless as it can only be compared to the nature in paradise. Endless sandy beaches on both the Pacific and the Atlantic coasts, numerous gorgeous islands off these coasts, picturesque mountain villages, and exotic tropical flora – Panamanian nature is truly stunning.

And the cost of living in this paradise-like country is several times lower than that in European or North American capitals. Finding an Eden at an affordable price – what else is there to dream of?

If you have already started thinking of moving to Panama to comfortably live there with your family, we will be happy to provide a free consultation to you on acquiring residency in this beautiful Latin American country. We will also gladly advise you on obtaining tax residency in Panama, choosing real property there and all other matters related to immigrating to Panama. Please write to us to [email protected] and apply for our services.