Tax Residency in Panama
1. Criteria for Determining Tax Residency in Panama
According to Article 764 of the Tax Code of Panama, an individual is considered a tax resident if they meet any of the following criteria:
- Physical presence in Panama for more than 183 days in a calendar year.
- Having a permanent home in Panama.
- Having a spouse or dependent children residing in Panama.
- Being employed in Panama for more than 183 days in a calendar year.
- Being a shareholder or director of a Panamanian company.
Entities are considered tax residents if they are incorporated or domiciled in Panama.
2. Impact of International Tax Treaties on Tax Residency
Panama has entered into several tax treaties with other countries to avoid double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, under the Panama-United States tax treaty, an individual is considered a resident of Panama if they meet the following criteria:
- They have a permanent home in Panama.
- They are present in Panama for at least 183 days in a calendar year.
- Their center of vital interests is in Panama.
The treaty also provides a tie-breaker rule for individuals who are considered residents of both Panama and the United States under each country's domestic law. In such cases, the individual is considered a resident of the country where they have a permanent home.
These treaty-specific modifications aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Panama and the other country to facilitate tax compliance and enhance economic cooperation.
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