There has been a lot of drama surrounding Panama in the past few months. Trump started going around saying he wanted to seize the canal and then strong-armed the Panama government into forcing a Hong Kong group to sell some of their Panama Canal activities to BlackRock.
The Chinese were furious and are now vetoing the process on their end.
People will try to tell you that this demonstrates that Panama is geopolitically relevant and is an important center for the world.
The reality is a little more nuanced than this. I’d say that it further demonstrates that Panama is not a Singapore nor a Switzerland. Panama absolutely shoots below its weight and probably always will, an issue that is endemic to Latin America.
It just got publicly bullied, humiliated and was made to renege on important contracts.
What’s the lesson from all of this?
Panama got lucky with the Canal. Just like Gulf states got free money from God (oil & gas), Panama got free money from the French and the Americans (the Canal). Except that Panama has not demonstrated enough ability to turn it into full sovereignty.
Is Panama still a great Plan A or Plan B?
Absolutely. Just go there with reasonable expectations.
– No, it’s not the “Singapore” or “Switzerland” of Latin America
– No, you won’t find much in terms of “culture”
But yes:
– Great residency options
– Decent banking
– Potentially 0% taxes if structured properly
– Decent international schools
– Affordable healthcare
– Safe
– Pleasant
– Calm
– Easily accessible
And for people who say “The US might annex Panama”.
If it ever does, then watch your real estate investments in Panama shoot up in value 😅. And if you don’t like the new situation, then you can move elsewhere.
My only advice would be to avoid storing precious metals in the Canal area, which is why I personally opted for the financial center.
Many ways to obtain residency
For people from developed countries and South Africa:
- $200,000 in real estate
- $200,000 in a term deposit
- Create a company and employ yourself
If you are from a developing country in most cases an investment of at least $300,000 qualifies.
And once you are a permanent resident of Panama, you just need to set foot in Panama once every two years yo keep your residency active, thus making Panama a great plan B.
Here are all the ways you can obtain residency in Panama.
Taxes in Panama
Together with Wi Men and Giovanna we discussed some key tax concepts in Panama with regards to personal and corporate income taxes, dividend taxes and tax residency.
Do note that there is more complexity than this, especially on the corporate side, but it’s a decent overview.
I also wrote a detailed analysis of the real estate investment market in Panama City.
Again, manage your expectations. You won’t find “net rental yields of 7%-8%” in new developments in Panama City as promised by many online publications. The function of Panama City real estate is diversification and safe haven status, not rental yield.
Overall, Panama is a great option, as long as you are realistic about what to expect.
I’m a resident of Panama and am very happy I made this decision.
To a World of Opportunities,
The Wandering Investor.
Articles on Panama
- Panama City Real Estate Market: Investor Guide
- Affordable Tax-Free Caribbean Lifestyle and Real Estate
- The Pros and Cons of investing in the Boquete Real Estate Market in Panama
- How to Obtain the Panama Retirement Visa
- Panama Permanent Residency in ONE trip
- What is the Panama Travel Passport and how to get it?
- The Pros and Cons of living in Panama
- Panama Friendly Nations Visa through Work Permit and Company Formation
- How to buy a gun in Panama – Gun rights in Panama
- Real estate for Friendly Nations Visa in Panama City – case studies
- Create a corporation in Panama
- Buying real estate in Casco Viejo of Panama City – Things to know
Services in Panama
- Remotely opening a bank account in Panama
- How to obtain Residency in Panama
- Real estate lawyer in Panama
- My Realtor in Panama City
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Transcript of “Panama Tax Guide: Personal and corporate income tax, dividend tax, tax residency”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. Today, I’m in Panama City, and we shall be discussing personal income taxes, corporate income taxes, and also how to become a taxpayer in Panama, and how to obtain a tax certificate in Panama. I’m here with Giovanna and Wi Men, who have helped me obtain residency here, create a corporation, open a personal bank account, corporate bank account. They helped me with everything from A to Z. They have lawyers and CPAs on their team, and we shall be discussing this in detail. How are you?
GIOVANNA: Good. How are you?
LADISLAS MAURICE: Good, good, good, good.
WI MEN: How are you doing, Ladislas?
Personal income taxes in Panama
LADISLAS MAURICE: First things first, let’s discuss personal income taxes.
GIOVANNA: For Panama, there are two types of income tax, there’s local and there’s offshore. For offshore income tax, as long as the service and everything is provided outside of Panama, you have zero income tax. But for locally, let us say, for example, you offer services in Panama for a company, or to someone, or you sell something on your name, it’s 15% income tax.
LADISLAS MAURICE: Fifteen, okay. Like, local rental income, 15%?
GIOVANNA: That’s correct.
LADISLAS MAURICE: All right. And if I live here and, for example, I’m trading stocks and I have capital gains overseas, I don’t need to pay taxes here in Panama for those capital gains?
GIOVANNA: As long as it’s offshore, then you will have to deal with the local taxes over there.
LADISLAS MAURICE: Cool. This is why Panama is very interesting for a lot of people, high net worth individuals who base themselves in Panama, because essentially all their overseas income, if things are structured properly, they don’t need to pay taxes on it here in Panama, they just deal with their tax obligations in the other jurisdictions. But here, it’s clean, they just need to declare it, right.
GIOVANNA: Yeah.
LADISLAS MAURICE: And then you say, “Oh, I made $200,000 overseas.” And then it’s, like, taxes zero.
GIOVANNA: That’s correct.
Corporate income taxes in Panama
LADISLAS MAURICE: Clean, cool. What about corporate income taxes?
WI MEN: The corporate income tax is also divided into sections, like Giovanna mentioned before, is offshore incomes and local incomes based on the local activities. For the local income tax is 25%. Offshore activities, zero. It’s based on the net profit as a taxable income.
Dividend taxes in Panama
LADISLAS MAURICE: Cool. That’s the headline numbers. As you can tell, local income taxes are high. What about dividend tax?
WI MEN: Dividend tax is 5% for offshore incomes, and for local activities is between 5% to 10%.
LADISLAS MAURICE: And I think this is very important, because there is the misconception that when you have a corporation in Panama and you have overseas income that you don’t have to pay any taxes. Yes, you don’t have to pay any corporate income tax, but you do have to pay a dividend tax of about 5%. Effectively, it’s not entirely a 0% tax jurisdiction. Obviously, you can use expenses and a whole bunch of methods to effectively not pay that much in taxes, but the reality is you still have to pay dividend taxes if you want to remove money from your corporate structure for that overseas income.
GIOVANNA: That’s correct.
Obtaining a tax ID in Panama
LADISLAS MAURICE: All right. Now, can you tell us about becoming a taxpayer of Panama, and also the difference between become a taxpayer of Panama and obtaining an international tax certificate here in Panama.
WI MEN: Okay, I’m going to start with the taxpayer ID first. As soon as you become a temporary resident in Panama, you can apply for that. And this process takes between three weeks to six weeks, and the documentation we require is the passport, the residency card, and some other document we request with the immigration office.
LADISLAS MAURICE: Cool. Once I have the tax ID and once I am a resident of Panama, then I can file taxes here?
WI MEN: Yes, that’s correct.
LADISLAS MAURICE: And what if I want to obtain a tax certificate that would be valid for double tax treaty agreements?
WI MEN: For this process, you are mandatory to spend 183 days in Panama to apply for the tax residency certificate for international purpose.
LADISLAS MAURICE: Cool. Look, none of this is tax advice, but there’s generally the misconception that you always need an international tax certificate. The reality is, depending on your personal situation, depending on your citizenship, depending on where you were a tax resident before, depending on the level of vital interests that you have in other jurisdictions or here in Panama, in some cases, you don’t actually need an international tax certificate. All you need to show is that you are paying taxes somewhere, and that you have the center of your vital interest in that jurisdiction.
For example, for some people, just spending three, four months of the year in Panama, but having very strong links to Panama, so your banking, your company, your business activities, a car, a cell phone contract, a driver’s license, owning real estate, having all of this and not having such links to other jurisdictions and filing taxes here, and the rest of the time you’re traveling around and not becoming a tax resident anywhere else, in some cases, for some people, this is good enough. But again, this depends on a whole bunch of factors.
You’ve helped hundreds of people essentially obtain residency here in Panama, create their corporate structures, open bank accounts, you file their taxes, you do all of that, correct?
GIOVANNA: That’s correct.
WI MEN: Yes, that’s correct.
LADISLAS MAURICE: They did this for me. I’m very happy with their services. If you want to get in touch with Giovanna and Wi Men, there is a link below with more information on their services. All right, thank you.
GIOVANNA: Thank you.
WI MEN: You’re welcome. Thank you.
