A small country in Central America, famous for its canal that connects the Atlantic and Pacific oceans, Panama is more than just a strategic location for global trade. It is also one of the most tempting jurisdictions for foreign investors. They flock to Panama to enjoy tax benefits, financial privacy, and legal stability. Wonder why?
1. Territorial tax system
One of the most appealing features of Panama’s tax ecosystem is that it is based on the territorial principle. This means that just income derived from sources within Panama is subject to taxation, regardless of the residency status of the taxpayer. Income from foreign sources, including dividends, interest, royalties, capital gains, or services rendered abroad, is exempt from taxation in Panama.
This applies to both individuals and legal entities, with corporations, trusts, and foundations among them. Therefore, if you establish a Panama offshore company and run business operations outside of Panama, you will not have to pay any corporate or withholding taxes. Besides, Panama tax advantages extend to income, capital gains, estate, or local taxes that you are not required to pay in Panama. With this option to enjoy, your tax burden will be significantly lower and profits higher.
2. Financial privacy and banking secrecy
Another reason why Panama is a popular choice for offshore businesses is that it has strong laws and regulations protecting the confidentiality and privacy of financial transactions and information. Panama’s banks are prohibited from disclosing any details about clients or their accounts unless a specific court order is issued in connection with a criminal investigation. Panama also has no information exchange agreements or tax treaties with other countries, which means that it does not share any financial or tax information with foreign authorities.
With its flexible and modern corporate law, Panama allows you to incorporate offshore companies quickly and easily. Mind that you won’t have to disclose the names of your shareholders, directors, or beneficiaries. To boost your anonymity and asset protection, you can also use nominee services or bearer shares.
3. No capital gains tax
In Panama, you will pay no capital gains tax on the sale of securities or real estate. This is a considerable advantage for investors looking to capitalize on their investments without the burden of hefty taxes. Whether you’re a real estate investor looking to sell property at a profit or a trader navigating the stock market, the absence of capital gains tax in Panama will significantly boost your overall returns.
4. Exemption for foreign-earned income
As mentioned above, for individuals who choose to make Panama their home, the country offers an attractive exemption for foreign-earned income. Expatriates residing in Panama for more than 183 days a year are not required to pay taxes on income earned outside the country. This exemption extends to various sources of income, including salaries, dividends, and interest. This is why Panama is a particularly enticing destination for retirees, digital nomads, and professionals with global income streams.
5. Favorable corporate tax rates
Panama’s corporate tax rates are among the lowest in the region. In 2023, the standard corporate income tax rate is a flat 25%, plus various exemptions and incentives are available for specific industries. Additionally, certain business activities, such as those related to export and tourism, may benefit from reduced tax rates or exemptions. This tax-friendly environment has attracted a growing number of international businesses to establish a presence in Panama, contributing to the country’s economic growth.
6. Economic perks and legal stability
A stable and democratic country with a solid legal system and a pro-business environment, Panama has special legislation in place that guarantees legal stability for 10 years to foreign investors who register their companies in Panama and comply with certain requirements. This means that as a qualifying investor, you will have to create jobs, invest in infrastructure, or develop the nation’s strategic sectors. During that period, the government has no right to change the tax regime, labor laws, or incentives that apply to your business.
Foreign investors about to invest in tourism, agriculture, or free trade zones, enjoy various economic incentives and benefits in Panama. These include tax exemptions, special visas, import duty waivers, and simplified procedures. Panama has several free trade zones that offer a favorable environment for international trade, including the Colon Free Zone, the Panama Pacifico Special Economic Area, and the City of Knowledge.
7. Wealth protection and estate planning
Panama comes with robust mechanisms for wealth protection and estate planning. The country allows for the creation of private interest foundations, which function similarly to trusts, providing a flexible and efficient way to manage and protect assets. This is particularly advantageous for those looking to structure their estates in a manner that ensures the smooth transfer of wealth to future generations.
How to obtain tax residency and visa in Panama
If you want to enjoy the tax advantages and benefits that Panama offers, you will need to get a visa and tax residency in Panama. Different ways exist to achieve this, it all depends on your profile and goals. For example, you can obtain tax residency in Panama by spending more than 183 days in the country in a given tax year, or by establishing a permanent residence and a center of economic and family interests in Panama. To prove your tax residency, you will need to get a certificate from the Directorate General of Revenue.
To obtain a visa in Panama, apply for one of the many options that Panama offers to foreign nationals who want to live, work, or retire in the country. The Friendly Nations Visa grants permanent residency to citizens of 50 countries that have friendly relations with Panama, while with the Pensionado Visa, you will enjoy permanent residency as a retiree with a minimum monthly income from a foreign source. The Investor Visa gives temporary or permanent residency to investors who make a minimum required investment in Panama.
Are you interested in obtaining citizenship or residency in Panama or any other overseas jurisdiction by investing in property or business there? If so, International Wealth will help you find the best tax haven for your needs. We offer professional assistance and guidance throughout the whole process. To explore the possibilities, simply request a free expert consultation!