WHY BECOMING A PANAMANIAN TAX RESIDENT COULD MAKE SENSE FOR SOME

Most countries in the world use a residence based tax system, meaning that residents of the country are taxed on their worldwide income, regardless if it is local or foreign. This is rooted on the idea that residents of a country benefit from public infrastructure and services, thus they should contribute and pay their part in taxes.

The Republic of Panama uses a territorial based tax system or source based system, meaning that tax payers are only taxed on income produced within the borders of the country. Panama does not tax nationals or foreign residents on foreign income as a general rule.

One of the activities that Panamanian tax law considers foreign income is to operate from Panama transactions that are perfected or take effect abroad. This broad definition can apply to many activities and operations that can fall into this condition, for another, income from foreign bank accounts (Panama doesn’t tax interest from local bank accounts either), capital gains and dividends from investments abroad, billing from Panama merchandise and services that do not come into Panama o that are not provided within its borders, income relating to cryptocurrency/blockchain such as mining, staking or influencing could also be good cases.

Becoming a tax resident of another country does take planning and commitment. To be recognized by the Panamanian Tax Administration as tax resident one would need to comply with one of the following:

a. Having spent 183 days in Panama during the last year in Panama.
b. Having a permanent residency in Panama that is vital to the persons interests either for reasons of family or business interests.

Becoming a Panamanian tax resident can be a very good option for persons who have flexibility of where they can live part of the year and generate considerable foreign income. It is important to consider that a few countries tax their citizens regardless if they are residents or not, the US for example.

Cheers! And remember…
INFORMATION = POWER
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