January 20, 2025
Limitless Team
- 1. Consult experts: Specialized lawyers, like the team at Limitless Legal, can guide you through every step of the process.
- 2. Choose your business structure wisely: Pick a company type that aligns with your needs. Popular options include Corporations and Limited Liability Companies.
- 3. Keep your tax documentation updated: From public registration to tax returns, staying up to date is crucial.
- 4. Leverage local services: Whether you plan to operate out of the Colon Free Zone or import through the Panama Canal, having a structured plan will maximize your benefits.
Panama has become one of the most attractive destinations for entrepreneurs and businesses looking to reduce their tax burden and expand international operations. With its territorial taxation principle, tax-free zones, and double taxation agreements, this country offers a unique fiscal proposition.
In this Limitless Legal guide, we’ll explore how you can take advantage of Panama’s jurisdiction to set up your business, the tax benefits it offers, and the requirements you need to meet to ensure the success of your tax planning.
Why is Panama the Ideal Destination to Set Up Your Business?
Panama stands out for its fiscal and strategic advantages for foreign companies.
1. The territorial taxation principle: This principle means that only income generated within Panama is subject to taxation. Therefore, if your customers are outside of Panama, those earnings are exempt from local taxes.
2. Strategic location: Connected via the Panama Canal, the country serves as a hub for international trade.
3. Tax-free zones: The Colon Free Zone allows companies to import, store, and export goods tax-free, making it ideal for global trade.
4. Double taxation treaties: Panama has agreements with countries like Spain to prevent double taxation, optimizing international tax liabilities.
How Do Dividend Taxes and Tax Residency Affect You?
Setting up a company in Panama involves several important tax aspects to consider:
1. Dividend taxes: The distribution of dividends to shareholders might be subject to tax depending on the source of the income.
- If the income is from foreign sources, the dividends are generally exempt from taxes.
- If the income is local, the dividend tax is 10%.
2. Tax residency: While owning a company in Panama can reduce your tax burden, some entrepreneurs choose to establish their tax residency in the country to maximize the benefits. It’s crucial to meet the legal requirements to ensure your tax residency is valid.
Permanent Residency in Panama: Everything You Need to Know
Obtaining permanent residency in Panama not only provides fiscal advantages but also ensures long-term stability.
1. Benefits:
- The ability to travel freely to and from the country.
- Access to all local tax advantages.
2. Time spent outside the country: To maintain your permanent residency active, you must visit Panama at least once every two years.
3. Restoring status: If you exceed this time, it’s possible to apply for the reinstatement of your permanent residency status, subject to legal conditions and specific circumstances.
How to Leverage the Double Taxation Treaty Between Spain and Panama
1. Eliminate double taxation: This treaty ensures that you won’t pay taxes on your income in both countries. For example, if you’ve already paid taxes in Panama, Spain will reduce or waive the equivalent amount.
2. Applying to tax-exempt profits: When your income comes from activities outside Panama, you can use this treaty to secure significant fiscal advantages.
Final Tips and Recommendations for Setting Up Your Company
- 1. Consultation with experts: Specialized attorneys, such as the Limitless Legal team, can guide you through every step of the process.
- 2. Evaluate your business structure: Select a type of company that aligns with your needs. Las Public Limited Companies And the Limited Liability Companies are popular options.
- 3. Keep your tax documentation up to date: From public registration to tax returns.
- 4. Take advantage of local services: Whether you want to operate from the Colon Free Zone or import through the Panama Canal, having a structured plan will maximize your benefits.
✍🏼 Take note...
Establishing a company in Panama comes with unparalleled tax benefits, driven by its territorial taxation principle, free zones, and double taxation treaties. Taking full advantage of these opportunities requires a detailed understanding of local laws and strategic planning. Whether you're seeking to establish tax residency, manage dividends, or expand globally, Panama provides an ideal environment to succeed.