Panama and Its Tax Advantages: Everything You Need to Know

Panama's territorial tax system is one of the country's main attractions. Unlike other countries that impose taxes on the global income of their citizens and residents, Panama applies taxes only to income generated within its territory.

What does this mean? If you have income derived from commercial or professional activities that occur outside of Panama, this money will not be subject to the Panamanian tax burden.

Key benefits of the territorial system

• Foreign Income Tax Exemption: All income earned outside of Panama is completely exempt from taxes.
• Competitive taxes at the local level: Tax rates on income generated within the country are significantly lower than in other nations.
• Attracting international business: Panama offers incentives for companies that operate globally and seek to minimize their tax exposure.

For revenues generated within Panamanian territory, local taxes apply according to the following progressive scheme:

• Natural persons:
  • Income less than $11,000 a year: tax exempt.
  • Income between $11,000 and $50,000 a year: 15% tax.
  • Income greater than $50,000 per year: 25% tax.
• Legal entities (companies): Fixed rate of 25% on net profits.

There are certain Tax Exemptions and Deductions, such as costs associated with commercial activities within Panama, which make it possible to further reduce the tax burden.

What taxes don't tax residents have?

In addition to the exemption on foreign income, Panama does not apply taxes on inheritances, gifts or capital gains derived from real estate registered abroad.

Becoming a permanent resident is one of the most important steps to fully benefit from the Panamanian tax system. Here are the basics:

How long can you be out of Panama as a permanent resident?

As a permanent resident, you can leave the country for extended periods. However, it is important to return at least once every Two years to maintain your status under the law.

What happens if you don't meet this requirement?

If you are out of the country for more than two consecutive years, you run the risk of losing your permanent residence status. This may force you to restart the application process.

Permanent Resident Permit Rehabilitation

If you lose your resident status due to extended absence, it is possible to request a rehabilitative. The requirements include re-submitting certain immigration documentation and demonstrating your intention to reside in the country.

Panama is not only attractive for its fiscal advantages, but also for its political and economic stability. Some key recommendations if you're considering setting up or investing:

• Establish a company in a free zone: Areas such as the Colon Free Zone offer important incentives, including reduced taxes.
• Check local laws: To get the most out of the tax system, professional legal assistance is crucial. At Limitless Legal, we can help.
• Explore residency programs: The permanent residence program for foreign investors is a prominent option for those seeking to optimize their global finances.

In addition, Panama has international treaties to avoid double taxation, allowing foreign investors to do transnational business without concern for additional taxes.

Panama remains one of the most competitive tax jurisdictions in the world. Its territorial tax system, combined with accessible migration policies and modern infrastructure, makes it the perfect place to establish businesses or plan your financial future.

At Limitless Legal, we are ready to offer you the advice you need to make the most of Panama's tax advantages.

Don't think about it anymore. Contact us to start your journey to more efficient tax planning!