PANAMA Trends and Developments Contributed by: Anna Cristina Valdés, Edgar Herrera, José Manuel Motta and Ramón Arias, Galindo, Arias & López
Galindo, Arias & López Scotia Plaza, Floor 11 Federico Boyd Avenue and 51st Street
0816-03356 Panamá Republic of Panamá Tel: +507 303-0303 Email: gala@gala.com.pa Web: gala.com.pa
Myths and Facts About Panamanian Tax Residence Certificates Panamanian tax residence explained: what the law really says and how to secure your certificate For decades, Panama has strategically positioned itself as an international services hub, drawing entre - preneurs, multinational corporations, global inves - tors and nomads seeking stability, connectivity and a business-friendly environment at the crossroads of the Americas. In light of this, one of the most discussed – and often misunderstood – topics in this context is tax residence and, more specifically, the Panamanian Tax Residence Certificate. To properly understand how to obtain a Tax Resi - dence Certificate in Panama, it is essential to begin with the foundations of the Panamanian tax system and to clearly distinguish between tax liability and tax residence – two concepts that are related in many jurisdictions, but not necessarily here. Panama’s territorial tax system The Panamanian tax system is based, generally, on the principle of fiscal territoriality. According to this principle, the sole focus of Panamanian income tax is to tax income that, according to the law, is considered as Panamanian-source income – ie, the income pro - duced within the territory of the Republic of Panama, regardless of the place where the income is received. It is an objective system under which considerations of the nationality, domicile and residence of individu - als are irrelevant. Hence, the Panamanian tax sys - tem will be applicable to “taxpayers” indistinctly – ie,
Panamanians and foreigners – if they derive income considered as Panamanian source-income. Generally speaking, and except for specific regimes, the following applies under current legislation: • both individuals and legal entities are generally subject to income tax only if they generate Pana - manian-source income; and • foreign-source income is not taxable in Panama, even if received by a Panamanian resident. This distinction is fundamental. In many jurisdictions that apply a worldwide taxation system, tax residents are subject to income tax on their global earnings, regardless of where that income is generated. Simply being classified as a resident is enough to trigger taxa - tion on worldwide income. The Republic of Panama, however, takes a markedly different approach. Its tax system is rooted in terri - toriality, meaning that taxation is tied to the source of the income, not merely to the status of residence. In practical terms, unless a person (individual or cor - poration) generates income that qualifies as Pana - manian-source under domestic law, that person will not be subject to Panamanian income tax, nor to the related formal filing obligations, even if considered a tax resident. Tax liability, tax residence and immigration residence: three different concepts A frequent misunderstanding is the belief that pay - ing income tax automatically confers tax residence, or that holding permanent immigration status (immi -
345 CHAMBERS.COM
Powered by FlippingBook