Panama Tax Residency Guide for Digital Nomads

For digital nomads, selecting the right tax residency can be a game-changer. A proper tax residency influences your financial situation and impacts your ability to work and live freely across borders without burdensome expenses.

There are two options in South America to optimize your tax residency as a digital nomad:

🇵🇾 Paraguay is a beneficial choice due to the 0% tax on foreign income policy and no minimum stay requirement. Learn more here.

🇵🇦 Panama, our main subject in this article, is another popular option for digital nomads due to its favorable tax regime, territorial tax system, and residency options.

Our verified immigration expert, Ana Fabrega, recently hosted an insightful Ask Me Anything session with the largest private community of Digital Nomads on Facebook, Digital Nomads Around the World. In this article, we discuss these frequently asked questions about obtaining a Panama Tax Residency, highlighting the key steps, requirements, and advantages for digital nomads.

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Panama Tax Residency Requirements and Benefits

What are the main tax benefits of becoming a tax resident in Panama?

Panama offers significant tax benefits for digital nomads due to its territorial tax system. This system means that only income earned within Panama is subject to taxation.

Foreign income, including earnings from overseas clients or investments, is not taxed by Panama. This setup provides a substantial advantage for digital nomads who earn income from international sources.

What are the requirements for tax residency in Panama?

To establish tax residency in Panama, you generally need to meet the following requirements:

• Spend at least 183 days in Panama within a calendar year
• Obtain a residency visa or permit that aligns with Panama's residency programs
• Provide proof of sufficient financial means to support yourself during your stay
• Submit a criminal background check from your home country

What do I need to prove tax residency in Panama?

To prove tax residency in Panama, you should:

• Obtain a tax residency certificate from Panama's tax authorities
• Maintain records showing your physical presence in the country, such as travel documents and entry/exit stamps
• Provide proof of income and financial stability, including bank statements and employment contracts

Can digital nomads use Panama as a tax residency while operating a business internationally?

Yes. Digital nomads can use Panama as their tax residency while operating an international business. Panama's territorial tax system means that income generated from business activities outside the country is not subject to Panamanian taxes.

However, confirm you meet all regulatory requirements for maintaining tax residency and comply with tax laws in the countries where your business operates.

How often should I renew or confirm my tax residency status in Panama?

To maintain your tax residency status in Panama, you generally need to renew your residency visa or permit annually or as required by your specific residency program.

You should confirm that you meet the physical presence requirement and update any necessary documentation with Panamanian authorities.

How does Panama's tax residency compare with other countries offering similar benefits?

Panama operates under a territorial tax system, meaning foreign income is not taxed. The fiscal policy makes it an attractive option compared to countries with similar tax benefits.

Is the tax residency program in Panama applicable to business corporations or only to sole proprietors?

The tax residency program in Panama applies to business corporations, similar to a C-Corp in the USA.

How long does the tax residency process take in Panama?

The process begins with obtaining a criminal background check apostilled by a Panamanian consulate in your home country. The time required for this step varies by country.

Once you have the document, you must spend about five days in Panama to complete the process and receive your temporary residency card. After two years of holding temporary residency, you will qualify for permanent residency.

What is the taxation on cryptocurrency in Panama? Is it considered foreign income?

In Panama, there are no taxes on digital assets or cryptocurrency. Cryptocurrency is considered foreign income because it comes from outside of Panama.

Panama Tax Residency: Banks

Can I open a personal bank account in Panama with this residency program and transfer money from anywhere in the world?

Yes. You can open a personal bank account in Panama with this residency program.

However, residency is not required to open an account. Ana's team can assist with the bank account setup as well.

Are there any special requirements for opening a business bank account in Panama?

To open a business bank account in Panama, you must submit several documents. The list may vary per back, but here are some which you may require:

• Provide Company Documentation: Submit your company's legal documents, for example, the incorporation certificate and shareholder details.
• Show Proof of Residency: Provide proof that you are a tax resident in Panama or have a Panamanian address.
• Demonstrate Business Activities: Show evidence of the business activities, such as contracts or invoices.
• Complete Bank Forms: Fill out the bank's application forms and provide identification documents for all signatories

Contact verified experts here to get assistance for your Panama bank account.

Panama Business Registration

What are the benefits of registering a business in Panama?

Registering a business in Panama offers several benefits, for example:

• Tax Advantages: Panama's territorial tax system means foreign income is not taxed
• Business-Friendly Environment: Panama has a robust legal framework and infrastructure that supports business operations
• Privacy: Panama provides a high level of privacy for business owners
• Strategic Location: Panama's geographic location offers access to international markets and trade routes

Tax breaks and a friendly business environment make Panama an attractive option for global entrepreneurs.

What is the process for registering a business in Panama?

The procedure for registering a business in Panama may include the following steps:

• Choose a Business Structure: Choose the type of business entity, such as a corporation (Sociedad Anónima), limited liability company (LLC), or branch office.
• Name Reservation: Secure your business name with the Public Registry
• Draft and Notarize Documents: Prepare the required incorporation documents, such as the articles of incorporation, and have them notarized.
• Register with the Public Registry: Submit the notarized documents to the Public Registry for official registration.
• Obtain a Tax ID Number: Register with the Panamanian tax authorities (DGI) to obtain a Tax Identification Number (RUC).
• Open a Bank Account: Open a corporate bank account in Panama for business transactions.
• Obtain Necessary Licenses: Apply for any specific licenses or permits for your business operations.

We highly suggest you confirm with a verified expert because requirements vary per case. Browse services here.

Are there any specific tax obligations for businesses registered in Panama?

Businesses registered in Panama must comply with several tax obligations, some of which are:

• Income Tax: Companies are subject to a flat rate of 25% on their taxable income derived from Panamanian sources
• Annual Declaration: Submit a yearly tax declaration and financial statements to the tax authorities
• Sales Tax (ITBMS): If applicable, businesses must collect and remit sales tax (ITBMS) on goods and services.
• Other Taxes: Depending on the business activities, additional taxes or fees may apply.

Your accountant or expert will help you stay compliant.

Can a foreign national own and operate a business in Panama?

Yes, foreign nationals can fully own and operate businesses in Panama. There are no restrictions on foreign ownership, and Panama's business laws favor international investors.

Foreigners can also benefit from the country's territorial tax system, which only taxes income earned within Panama.

If I open a Sociedad Anónima (S.A.) in Panama to obtain residency and use it to consult for clients outside Panama, will I be taxed in Panama?

No, Panama taxes only domestic income.

If your Sociedad Anónima provides services to clients outside Panama, the income from these services will not be taxed in Panama.

Taxation is based on the source of income, not the company location.

Panama Temporary Residency Requirements

What are the general requirements for obtaining temporary residency in Panama?

To obtain temporary residency in Panama, you must meet the following requirements.

• Valid Passport: Your passport must be valid for at least six months
• Proof of Financial Means: Provide evidence of adequate financial resources to support yourself during your stay
• Health Certificate: A medical certificate proving good health, often from a Panamanian doctor
• Criminal Background Check: A police clearance certificate from your home country, apostilled or legalized
• Application Forms: Complete the residency application forms provided by the National Immigration Service of Panama
• Proof of Purpose: Documentation supporting the reason for your stay, such as a work contract, business plan, or property ownership

We suggest you verify your case with a verified lawyer. You can contact them here.

How many days do I need to stay in Panama for temporary residency?

For temporary residency, you only need to spend around five days in Panama to complete the process.

After that, there's no requirement to stay in the country.

Are there specific income or financial requirements for applying for temporary residency in Panama?

Yes. You must prove financial stability to apply for temporary residency. The specific conditions may vary based on the type of residency program, but generally:

• Proof of Income: Show proof of a steady income, such as salary or bank statements
• Minimum Financial Threshold: Demonstrate having a minimum amount of money in a bank account, often around $1,000 to $2,500 per month, depending on the residency category
• Additional Proof for Family Members: If applying with family members, you may need to show additional financial means to support them

How long does it take to process a temporary residency application in Panama?

The processing time for a temporary residency application in Panama is 3 to 6 months. This timeframe includes the submission, review, and approval of your application by the National Immigration Service.

Can I travel in and out of Panama with temporary residency?

Yes. As a temporary resident, you can travel in and out of Panama. However, you should ensure that you maintain your residency status by complying with any stay requirements or conditions outlined in your residency permit.

Are you interested in Panama's favorable tax system? For personal advice and assistance, consider consulting with a local immigration expert to guide you through the process and address any specific concerns with your application. Start here.