PANAMA Trends and Developments Contributed by: Anna Cristina Valdés, Edgar Herrera, José Manuel Motta and Ramón Arias, Galindo, Arias & López
nian tax resident. The authority responsible for issuing these certificates is the Dirección General de Ingresos (DGI), which operates under the Ministry of Economy and Finance of the Republic of Panama. The process for issuing a Tax Residence Certificate may take months, and requires substantial documen - tary support, as previously mentioned. In that sense, advice regarding the issuance of a Panamanian Tax Residence Certificate is often met with a reality check. Clients must carefully organise and structure their affairs to ensure that, by the time the certificate is issued, it fully meets the requirements and expecta - tions of foreign authorities, financial institutions or international partners. It is not just a formality. The timing, documentation and demonstration of genuine ties to Panama are criti - cal for the certificate to serve its intended international purpose. Furthermore, it is important to note that Tax Residence Certificates are valid only for the fiscal year for which they are issued. If an individual or entity requires a certificate for a different fiscal period, proof of tax resi - dence must be submitted again, accompanied by a formal request, specifically for that period. Tax residence for legal entities For corporations, whether incorporated in Panama or properly registered as foreign entities before the Panamanian Public Registry, obtaining a Tax Resi - dence Certificate requires demonstrating that the entity’s effective management and administration are conducted within Panamanian territory. This has the following meaning, in practical terms. • Board of directors meetings in Panama: the com - pany’s board of directors must hold meetings in Panama to evidence that strategic decisions are made locally. This supports the argument that the entity’s place of effective management is in Pana - ma. • Real commercial or support activities: the company must conduct commercial operations or provide services to affiliated or third parties. Merely existing on paper is insufficient.
• Personnel: the company must maintain hired per - sonnel in Panama to support its operations. • Physical office space: the company must have a physical office in Panama from which its employ - ees conduct their day-to-day activities. Only when these elements are satisfied will the tax authority consider issuing a Tax Residence Certificate. It is important to clarify that conducting activities in Panama does not automatically imply paying income tax in Panama. Under Panamanian law, certain struc - tures – such as offshore corporations or Panamanian holding companies – may have a physical presence in Panama without generating taxable Panamanian- source income, depending on how their activities are structured. Tax residence for individuals For individuals, the analysis differs and often becomes more complex. To obtain a Tax Residence Certificate, an individual must demonstrate the following. • Physical presence: spending 183 days or more in Panama, consecutive or non-consecutive, within a given fiscal year (January to December) will auto - matically qualify an individual as a tax resident. Moreover, if the individual exceeds the 183-day threshold in a particular fiscal year, they will also be considered a tax resident for the following fiscal year. • Permanent home: maintaining a permanent home in Panama, either owned or leased. • Economic and/or family ties: establishing sub - stantial economic or family connections within the country. It is worth mentioning that even individuals who do not strictly meet the 183-day requirement may qualify for a Tax Residence Certificate if they can demonstrate sufficient personal, economic and residential ties to the Republic of Panama. Increased scrutiny in recent years Due to global transparency standards and information exchange agreements, the Panamanian Tax Authority has increased scrutiny over its tax residence applica - tions.
347 CHAMBERS.COM
Powered by FlippingBook