As a general rule, within the main motivations for wanting a change of tax residence we find the following:

1. Harsh tax regulations in your country,
2. The risk of loss of goods,
3. Currency control and some others.

In this regard, Panama is one of the best countries to do so.

Many believe that once the applicant obtains his immigration residence, he automatically becomes a tax resident, which idea is quite far from reality. They are even two separate procedures, before independent institutions and with different requirements.

Obtaining the official status of resident of Panama does not automatically make you a taxpayer of the country (TAX RESIDENT).

However, given the principle of operation of the Panamanian tax system, you will not pay taxes on income obtained abroad. The Panamanian “territorial” tax system aims to collect taxes on income earned by natural and legal persons exclusively in Panamanian territory.

Panama is the Latin American leader in terms of economic growth. Even if we take into account a certain decline in the economic development of the country at present, the average growth rate of the Panamanian economy is approximately 6%.

The policy of the government of Panama is aimed at attracting capital from abroad and, in relation to this, laws have been enacted that protect the rights of foreign investors. In addition, the country is greatly interested in attracting to itself qualified professionals, needed in various fields of science and business sectors.

With respect to foreign capital, the Republic of Panama maintains a policy of attracting direct foreign investment. It is these capitals that make it possible to finance the development of our country. We must understand that these capitals do not arrive alone; They are accompanied by natural persons or legal persons, which motivates the analysis of whether or not they can be considered tax residents.

In our country, Tax Residence Certificates, in principle, are only applicable to residents of countries with which Panama has signed Treaties to avoid Double Taxation. Currently, these countries are: Mexico, Spain, Barbados, Qatar, Luxembourg, the Netherlands, Singapore, France, Korea, Portugal, Ireland, the Czech Republic, the United Arab Emirates and the United Kingdom.

In our country, we have specific criteria to determine, after a study of each particular case, whether a natural or legal person can be considered a tax resident under the provisions of both the Tax Code and the Treaties to Avoid Double Taxation in force.

Law 33 of June 2010, modified by Law 52 of August 28, 2012, Resolution No. 201-10860 of August 26, 2013 and Executive Decree No. 958 of August 7, 2013, regulate Panama the subject of Fiscal Residence.

The fiscal residence certificate is the document that accredits a person, whether natural or legal, their fiscal residence in our country and it is only issued by the General Directorate of Revenue (DGI) based on article 762-N of the Fiscal Code, Executive Decree 958 of 2013 and regulatory resolutions.

Article 762N of the TAX CODE states that natural persons who first remain in the national territory for more than 183 consecutive or alternate days in a fiscal year or in the immediately preceding year are considered Fiscal Residents in our country.

If the foregoing is not possible, those natural persons who have established their permanent home in Panama will be considered fiscal residents of the Republic of Panama.

In accordance with current legislation, natural and legal persons must limit themselves to proving their fiscal residence based on tests that are regulated and duly recognized by the Authority. The Legal Entity may prove its fiscal residence in Panama in two (2) ways, demonstrating the following:

1. That it has means of management and administration in the Republic of Panama.
2. That it has a current Operations Notice.

In the case of the Natural Person, the tax residence certificate can be obtained, proving any of the following assumptions:

1. That economic interests are maintained in Panama, providing an original work letter issued by a suitable person from the company employing the foreigner. In the case of independent investors, a copy of the Panamanian income affidavit must be provided and proof that the applicant has remained in Panamanian territory for more than 183 alternate or continuous days during a fiscal year or in the immediately preceding year.
2. That a center of vital interests of the person is maintained in the country, demonstrating that they have established their main home in Panamanian territory with a lease contract or a property deed, and providing an invoice for essential services (water, electricity, telephone) in the name of the person requesting the certificate.

The GENERAL DIRECTORATE OF INCOME (DGI) interprets the concept of permanent housing, as the place where the natural person maintains his center of vital interests, be it economic or family interests, so that the mere fact of having a home at his disposal , whether as an owner or a tenant, does not mean that this person has a fiscal residence in Panama, but rather that he or she has to have a personal link with that home, either for personal use or for his or her family in an active and habitual way. Therefore, the time of physical occupation of said home is important.

Among the elements that are analyzed to determine the applications for tax residence of legal persons (including Private Interest Foundations and that do not carry out commercial acts), it is found that they are constituted in accordance with Panamanian laws and that have the material means of management and administration in Panama. That is, demonstrate that the company carries out in or from our country commercial activities or support other companies and that it has administrative offices and personnel effectively dedicated to such activities.

In order to affirm that a person has his tax residence in Panama, it must be requested before the DGI and recognized by this entity. Once the natural person has proven before the Competent Authority that he has his tax residence in Panamanian territory, the Directorate of International Taxation will issue a duly reasoned resolution together with the certificate that is valid within the fiscal period in which it has been requested, where it is confirmed that it is subject to fiscal imposition in Panama and may mitigate double taxation in the other contracting country by presenting the certificate before the corresponding authorities.

The fiscal residence certificate can be requested for general use (against any Treasury) or for the specific application of a
Double Taxation Agreement that Panama has signed and is in force.

Requirements:

The basic requirements established by the DGI for the issuance of the Tax Residence Certificate in the Republic of Panama are the following, in addition to the criteria that support the analysis:

1. Memorial addressed to the DGI that contains:

Clear and express identification of the applicant.

Specification of the tax treaty or agreement to which you wish to receive, when applicable.

2. Original Public Registry Certificate, in the case of legal persons.
3. Copy of identity card or passport of the applicant or Legal Representative.
4. Power of attorney, in the case of legal persons.
5. Other tests that correspond.