Posts Tagged Panamas Tax System

Panama has defined its national strategy to remove the label of “tax haven” that has been hung on it by the Organization for Economic Cooperation and Development (OECD). This is a continuation of its long standing policy, adopted over many years, of insisting that nations recognize its tax system as legitimate and fair – one that if adopted by more countries could cause an explosion in productivity, wealth and ingenuity by its citizens.  Witness the incredible success of Hong Kong’s economy over the last thirty years which adopted a similar tax policy.

This more equitable “territorial tax” system is in actuality a system shared in part or in whole by a number of other jurisdictions including Hong Kong, Singapore, Cyprus, Costa Rica, Uruguay and others and contrasts with the U.S tax system that requires all U.S. persons to pay taxes no matter where they live or earn income.

Therefore part of the government’s strategy in their negotiations with the OECD is to re-emphasize that Panama is not a “tax haven.” This is a key distinction, because Panama does tax all income produced within its borders, but it does not tax income earned outside its borders by its residents, whether they be foreigners or nationals.

However, companies with physical offices in Panama earning their income from outside of Panama do have to pay taxes on all funds remitted to or “perfected” in Panama – such as using a Panama bank to process credit card payments.  This is an important change to understand in the previous administration’s 2006 overhaul of the tax and social security system.

However, it is perfectly legitimate to set up a foreign subsidiary, such as in Belize to accept all worldwide payments including those made by credit card.  This means that with proper tax planning little or no taxes would ever need to be paid in Panama, as one would typically remit only those funds from the offshore subsidiary needed for the running of the Panama company and the paying of salaries etc.

If intending to set up a resident company in Panama to operate from physical offices here, our capable team of attorneys and accountants can navigate you through Panama’s simple yet equitable tax system as well as its labor laws and licensing procedures.  We at Sovereign Management and Legal can be contacted here.