Jul 10, 2019

Tax residency in Panama: the best way to protect assets and minimize fiscal burden

Automatic exchange of taxpayer information between countries may entail some financial risks and additional tax burden. However, not every country is a member of the CRS (Common Reporting Standards) group, and changing your tax residence can be a serious matter to consider. One of the most effective solutions would be relocating your business to the Central American country of Panama.

Why change the country of your tax residency?

The European Union in general and OECD in particular are toughening international business regulations in their fight with the so-called ‘shell companies’. The matter is that such companies located in countries with lax tax regulations have been sometimes used for money laundering and tax evasion.

Today many banks all around the world deny services to non-residents of the countries these banks are stationed in. The reason for this is their desire to rid of the clients whose origins of capital may look suspicious to the international financial authorities. The latter, if suspicious, are bound to impose different sanctions on the banks, which is the last thing they want.

At the same time, taxes in the first-world countries are notoriously high and they keep growing in some national states. This naturally makes one think of moving to a place where the fiscal burden is not so heavy. With the toughening European restrictions related to international business, finding the right location for one’s tax residency has become more difficult but it has not become impossible. Particularly, Panama offers some attractive conditions that can make it the country of your choice.

Panama: a comfortable country for tax residence

Over the recent years, the Panamanian Government has been doing its best to improve the country’s reputation in the international arena. It is good to see that these efforts are bringing considerable fruit. Many national states have already taken Panama off the list of offshore jurisdictions, and many others are moving in this direction. Simultaneously, this country still offers some benefits for business people that cannot be found in other places.

Of course, relocating your business to Panama is not going to come at no cost at all. But the expenditures involved will certainly pay back due to the favorable tax and other legislative regulations that Panama has.

To obtain tax residence in Panama you will have to have some economic substance in this country, first of all. Unlike it was before, now having a company simply registered in an offshore jurisdiction is not enough. You have to prove to the authorities that you have economic interests in Panama. You have to show that yours is not just a fake company but that it makes some sort of contribution to the country’s economy. Having some physical assets in Panama will also help you build trust with international business collaborates, as they will see that yours is a company with substance, not just an enterprise existing only on paper.

In addition to that, you may want to demonstrate to the Panamanian authorities that your interests extend beyond acquiring tax residence in this country, especially if you are thinking of becoming a citizen of Panama after a while. For this purpose, you have to show that you have some familial ties in the country, or that your family has a place to stay when they come to Panama with you, etc. You also have to have enough money on your account to sustain your dependents. (And let us be frank: ‘enough’ for Panamanian authorities is not very much by the European or American standards.)

A short list of the ‘substance’ in Panama looks as follows:

  • Permanent address.
  • Physical presence in the country for 183 days a year. (Please note that these do not have to be consecutive days.)
  • A Panamanian business company incorporated by you and registered in your name.
  • Other economic or personal interests in the country.

Obtaining tax residence in Panama by providing only fake evidence of your presence in this country is impossible. You will have to acquire certain assets and actually live in Panama for more than half a year every year. But then again, all your assets will be effectively protected in this country and living in the Caribbean basin is many people’s dream. Thus, we are actually inviting you to consider not only tax residence but also permanent legal residence in Panama.

Whether you are thinking of obtaining only tax residency in Panama, or moving to this country with your family to become Panamanian citizens after five years of residence in this country, we can assist you with any of these tasks. You are welcome to contact us via e-mail: [email protected], and our specialists will provide in-depth consultations and help you make the best choice while avoiding hasty decisions.  

Tax and legal residence in Panama: the benefits this country offers

Panama has quite a few benefits worth mentioning. Below you will find an extended answer to the question: “Why should I consider moving to Panama?”

  1. Panama has made agreements for avoidance of double taxation only with the following countries: Germany, France, Spain, the Netherlands, the United Kingdom, Mexico, Singapore, and the United Arab Emirates. Panama is also not a member of the automatic taxpayer information exchange group.

This means that the information about your Panamanian real estate, bank accounts, or any other assets that you may have there will not be shared with the tax authorities of your home country (unless you reside for tax purposes in one of the countries mentioned above).

  1. Panama keeps to strict rules in protecting foreign investments, private property, and the country residents’ rights.

According to the Panamanian legislation, foreign citizens enjoy the same rights as the local residents apart from the right to elect and be elected. When a case is taken to a Court of Law, judges in Panama disregard the decisions made in other countries’ courts of law.

  1. If you are engaged in international business and derive profits from different countries, these profits are not taxable in Panama. Panama has a territorial tax system, which means that the tax resident of this country pays taxes only on the profit generated on its territory.
  2. You can obtain legal residence in Panama within three to four months if you use one of the investment visa programs designed by the Government.

There are various migration programs in Panama that allow foreign nationals to reside in the country. Unlike in many other countries of the world, a foreigner in Panama can become a legal resident by incorporating a company there, or purchasing real estate, or making an averagely large deposit in a bank, or by investing in reforestation in the country. Please see below for more detailed descriptions of these migration programs available in Panama.

It should be noted that the expenditures connected with participation in these programs are considerably lower than those with such European countries as Portugal, Cyprus, or Malta that use similar investment attraction instruments.

  1. There is a very comfortable business environment in Panama. It takes between five and seven business days to have a company registered with the country authorities. On top of that, you do not even have to visit Panama in order to do that – everything can be done remotely.

Foreign investors in Panama do not have to face restrictions and prohibitions related to the use of foreign currencies. The “free capital” principle is applied in this country, and the American dollar is in free circulation there.

  1. Panama has a strong financial system represented by two National Banks and over eighty international ones. A legal resident in Panama, let alone a tax resident, can open an account in any Panamanian bank, each of which has a reliable reputation and high liquidity. Thus, a bank account in Panama will give you access to international funds. Apart from that, there are Free Trade Zones in Panama with preferential taxation regimes.
  2. Panama is also a perfect country from the personal residence point of view. There is a wonderful climate there and good weather lasts for 365 days a year. The rain season that lasts from December to May brings only one-hour refreshing showers. If you find that it is a bit too hot in the dry season, there are escape places higher in the mountains where the temperature is lower. The country has an immense number of exotic sandy beaches. Once in Panama City, you can swim in the Caribbean Sea and the Pacific Ocean in one day. There are also a lot of fishing, surfing, and scuba-diving opportunities in Panama. The country’s tropical forests and numerous islands (some of them uninhibited) are certainly going to impress you too.
  3. Panama has built a very good infrastructure and its development continues not only in Panama City but also all over the country. High-speed Internet connection is available almost anywhere there.

Panama is also referred to as the main transportation hub in Central America with the Panama Canal and Panama City Tocumen International Airport playing the major roles. Ships pass through the Canal nonstop, and there are endless flights from the Airport to the cities in the Americas, Europe, and Asia.

The economic growth that Panama demonstrates is so fast and impressive that the country’s success is often compared to the achievements that Hong Kong and Singapore made 25 years ago. Over the recent five years, the number of tourists and expats to Panama has grown dramatically. They are attracted by fantastic beaches, golf fields, trade centers, modern hospitals, and the high quality of life in general that comes at a very affordable price.

Panama real estate sector

Real property in Panama is in great demand with foreign investors. More and more tourists come to Panama every year. Today this country is leaving behind the former regional leader in the number of foreign visitors – Costa Rica.

Foreigners visiting Panama as tourists find that the living standards here are rather high while the prices are very reasonable. Thus, many of them come again in order to purchase a piece of real estate in this country.

Some buy property because they want to move to Panama for good. Others want to have a nice place to stay on their regular visits to this wonderful place. Still others want to have a reliable source of passive income by leasing their real estate out.

Far from every country on the planet allows using its real estate as an asset that provides for the opportunity to become a legal resident of this country. Panama does allow using the property ownership for immigration purposes and besides, there is a wide choice of real property there. Accommodations of a high level of comfort are especially popular with foreigners in Panama. Such accommodations are available not only in the capital city but also along the sandy beaches on the Pacific Ocean shore.

The most popular migration programs in Panama

It is not necessary to live in Panama all the year round in order to become its tax resident. Obtaining a residence permit and registering with the country’s Revenue Agency will suffice for that.

Unlike many other countries that offer “citizenship in exchange for investment”, Panama does not ask foreigners wishing to live there to make any irretrievable payments. All the money that you invest into acquiring residency in Panama can be regained after some time and even with a profit.

The “permanent resident” status grants the foreigner the right to use all the social benefits that local people have except for the right to vote in national elections and run for a state office.

However, after five years of permanent residence in Panama you can apply for citizenship of this country and become a naturalized Panamanian.

Please mind that this is only a possibility, not a guarantee. Not every applicant will receive Panamanian citizenship. The authorities’ decision will depend upon the level of the applicant’s integration into the Panamanian society and the country’s economy.

“Friendly Nations” visa

The Government of Panama has made a list of fifty nations whose members are especially welcome to come and stay in the country. These nations are best Panama partners in the economic and political relationships. Citizens of these fifty countries will have to deal with less red tape if they want to move to Panama, and the investment requirements to them are more relaxed. This list includes the following countries:

  1. Andorra
  2. Argentina
  3. Australia
  4. Austria
  5. Belgium
  6. Brazil
  7. Canada
  8. Chile
  9. Costa Rica
  10. Croatia
  11. Cyprus
  12. Czech Republic
  13. Denmark
  14. Estonia
  15. Finland
  16. France
  17. Germany
  18. Great Britain
  19. Greece
  20. Hong Kong
  21. Hungary
  22. Ireland
  23. Israel
  24. Japan
  25. Latvia
  26. Liechtenstein
  27. Lithuania
  28. Luxembourg
  29. Malta
  30. Mexico
  31. Monaco
  32. Montenegro
  33. Netherlands
  34. New Zealand
  35. Norway
  36. Paraguay
  37. Poland
  38. Portugal
  39. Republic of Korea
  40. San Marino
  41. Serbia
  42. Singapore
  43. Slovakia
  44. South Africa
  45. Spain
  46. Sweden
  47. Switzerland
  48. Taiwan
  49. United States of America
  50. Uruguay

Italy is not on this list but only because Italians have been enjoying all the privileges that the ‘Friendly Nation’ status gives since 1966, in accordance with the agreement that Panama made with Italy back then.

“Business Investor” visa

You can obtain a Panamanian residence permit by investing minimum US$ 160,000 into business in this country. One thing you can do is incorporate a company in Panama. This company has to be registered in your name or otherwise you should hold the controlling parcel of its shares. You can also purchase an existing business for not less than US$ 160,000 and this will constitute a reason for the authorities to grant you residence permit. Of course, the process requires considerable paperwork as you will have to prove to different state departments that you are the true owner of the business and that you have really invested the required sum into the country’s economy. However, we have vast experience in dealing with the Panamanian authorities and with our assistance, using the Business Investor visa program may turn out exactly what you need.

“Economic Investor” visa

With this program, you have to invest minimum US$ 300,000 into the Panamanian economy. This can be done in three different ways:

  1. You can buy property in Panama worth at least US$ 300,000. The property ownership alone will constitute sufficient grounds to apply for residency.
  2. Alternatively, you can deposit at least US$ 300,000 in the National Bank of Panama. This will have to be a fixed-term three-year deposit. In case you want to cancel the agreement earlier, your residence permit will be annulled. At the same time, you can safely withdraw the money (and the interest) after you receive Panamanian citizenship or if you are not interested in residing in this country anymore.
  3. You can also combine these two methods and buy, for example, a US$ 150,000 worth of property and make a US$ 150,000 deposit. The important thing is that your total investment should amount to not less than US$ 300,000.

Reforestation program

The Panamanian Government is looking to restore the country’s rainforests. For this purpose, it offers preferential conditions to foreign investors who want to contribute to this benign cause.

There are other investment visa programs in Panama too, and if you would like to learn more about the opportunities to obtain a Panamanian residence permit, and then a citizenship, we are at your disposal for any queries that you might have. Please write to us to: [email protected] and apply for a free consultation on this matter. Our experts will get back to you ASAP.