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.
The rationale behind these criteria is to establish a clear definition of tax residency, ensuring that individuals with substantial ties to Panama contribute to the country's tax revenues.
2. Impact of International Tax Treaties on Tax Residency
Panama has entered into several tax treaties with other countries to prevent 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, the Panama-United States tax treaty provides that an individual is considered a resident of Panama if they meet any of the following criteria:
- 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.
The treaty also includes a tie-breaker rule for individuals considered residents of both Panama and the United States under each country's domestic law.
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 United States to facilitate tax compliance and enhance economic cooperation between the two countries.
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