Panama Tax Benefits - Panama Legal Center

9/23/2020

PANAMA TAX BENEFITS - PANAMA LEGAL CENTER

PANAMA TAX BENEFITS Home / PANAMA TAX BENEFITS

(https://www.panamalegalcenter.com/panama-tax-bene ts/)

PANAMA TAX INCENTIVES FOR FOREIGN INVESTORS; ULTIMATE GUIDE WHY PANAMA CONSIDERED A TAX HAVEN? Republic of Panama is a small country located in Central America and it o ers foreign investors a BEST TAX HAVEN simply because government of Panama is pro business and in in promoting Panama as the best OFFSHORE JURISDICTION IN THE WORLD.

Panama does not tax foreign companies that doing business in Panama.

Summary Panama Tax Characteristics Panama tax structure is very di erent than other countries and it does not impose income, corporate, capital gains, or estate taxes on o shore entities that eng doing business outside of the Panama jurisdiction.

Panama O shore companies can also do business in the local market but they only will pay local taxes as a result.

Panama O shore Banking Law designed to protect individuals and corporations secrecy and are fully protected under the law.

Panama has not signed tax treaties with others and has no exchange control law in its tax system.

Panama’s legislation, law, corporate and legal system makes Panama a pure & best tax haven jurisdiction.

Learn more about Panama relocation benefits;

WHAT ARE BENEFITS OF RELOCATING TO PANAMA?

WHAT IS PANAMA TAX BENEFITS? The Republic of Panama is an independent democratic country in Central America that is known as ” TAX HAVENS” for foreign investors. The reason for such title is because Panam tax exempt status designed for foreign investors.

Panama is well known jurisdiction for its huge tax bene ts o ered to foreign companies and individuals that desire to do business in Panama. For this reason, m more foreign enterprises are deciding to move to Panama ad enjoy the tax bene ts provided by the government of Panama. For example, Panama O shore compan require to pay value added taxes or even report annual reports, In addition, O shore Companies income made outside Panama are one hundred percent tax free. The only sm rate tax that o shore companies would pay is to renew their company registration with Public registry in Panama.

Not only O shore Companies enjoy the Panama Tax Bene ts, but they are fully protected under the Panama economic stability, growth and democratic political system.

(https://www.panamalegalcenter.com/asset-protection/) Another example is multinational corporation SEM law that permits the multinational companies to have a branch or back o ce operation such as call center within Panama and SEM companies are exempt from paying income taxes in Panama.

Moreover, Panama’s attractive tourism / agriculture investment laws are not just for big corporations and with a minimum investment of $50,000. anywhere in Panama’s interior region, you will bene t from:

WHAT IS PANAMA AGRICULTURAL TAX BENEFITS? A 20-year exemption of any import taxes on materials, furniture, equipment, and vehicles A 20-year exemption on taxes for all real estate assets of the enterprise Exemption from any tax levied for the use of airports and piers Accelerated depreciation for real estate assets of 10% per year.

In general, income derived from agricultural activities is exempted from income tax if annual gross income is less than $250,000.

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What Are Panama Investment Tax Bene ts?

If registered in the National Securities Commission Raise long-term funds in a securities market Distribute no less than 90% of their free cash ow register in the General Direction of Revenues and withhold 20% of the pro ts distributed as an income tax advance payment on behalf of the shareholder that deemed the de nitive tax to be paid by the shareholder.

What Are Business Tax Bene ts?

City of Knowledge ( Ciudad Del SABER ) Multinational Companies (SEM) Free Trade Zone ( Colon ) Petroleum Free zones Panama-Paci c Special Economic Zone

WHAT IS PANAMA TAX RATES? Personal income tax in Panama is based on a sliding scale, ranging from a minimum of 7% after the rst $9,000 to a maximum rate of 27%..

Transfer Tax Real estate transfer taxes in Panama usually paid by the seller is 5%.

Inheritance Tax Inheritance taxes in Panama have been completely abolished.

Rental Income You will be liable for income tax up to a maximum of 27% (on returns greater than $250,000). However, if you invest in one of the special “tourism zones,” you may be exempt from income tax for up to 20 years.

Property Taxes in Panama If you buy or build a residential property in Panama, you may be exempt from property tax for up to 20 years. The exemption is tran during the exemption period to any new buyer.

Capital Gains Tax Capital gains should be included in the annual tax return, and are taxed at whatever level the individual is being assessed for income tax.

Panama’s O shore Jurisdiction Anyone can incorporate in Panama and set up a anonymous corporation and private foundation. Panama’s o shore law provides an excellent business structure to foreign looking to do business o shore and take advantage of PANAMA OFFSHORE JURISDICTION.

WHAT ARE THE ADVANTAGES OF INCORPORATING A COMPANY IN PANAMA? O shore Companies that are incorporated in Panama do not pay any taxes while engaging in doing business outside the Panama.

O shore Companies that are incorporated in Panama, and the owners of the companies, are exempt from any corporate taxes, withholding taxes, income tax, gains tax, local taxes, and estate or inheritance taxes.

As you see, it is a no brainer. People or businesses of any nationality may incorporate within Panama and Panama is the best tax jurisdiction in the world becau other country can compete with Panama.

What Is Panama Expat Taxes?

No matter where you are, if you are a US citizen or a Green Card holder, you are obligated to le annul IRS tax return. However there are exception to the above general ru depends on the EXPAT income, status, etc.

For example if your annual income is below $12,000. , then there is no need to le any annual tax return with the IRS.

Why Expat taxes are complicated?

As an individual, (i.e. not a business or charity) you will need to le a Form 1040 and the associated schedules, much the same way you did in the US. In addition you may qu the Foreign Earned Income Exclusion (https://www.taxesforexpats.com/expat-tax-advice/glossary.html#fei), the Foreign Housing Deduction or the Foreign Housing E (https://www.taxesforexpats.com/expat-tax-advice/glossary.html#housing) in which case you would have to le the appropriate forms as they have a number of advantages and you a signi cant amount of money.

In a recently issued report (https://ru.scribd.com/document/43633459/Erroneous-Foreign-Earned-Income-Exclusion-Claims)by the U.S. Treasury approximately 10% of ex returns were

led with erroneous foreign earned income tax exclusions due to overstatement or inaccuracies on the Form 2555 (https://www.taxesforexpats.com/ex

advice/glossary.html#2555).

What Is Expat Tax Requirements?

If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to le income tax returns, estate tax returns, and gift tax returns estimated tax in the same way as those residing in the United States. Your income, ling status, and age generally determine whether you must le a return. Generally, you m return if your gross income from worldwide sources is at least the amount shown for your ling status in the Filing Requirements table in Chapter 1 of Publication 54, Tax Guide Citizens and Resident Aliens Abroad (https://www.irs.gov/forms-pubs/about-publication-54).

If you are the dependent of another taxpayer, see Chart B – For Children and Other Dependents in the instructions for Form 1040 (https://www.irs.gov/forms-pubs/about-form-1 more information on whether you must le a return.

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Foreign Currency

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Yo m st e press the amo nts o report on o r U S ta ret rn in U S dollars If o recei e all or part of o r income or pa some or all o r e penses in foreign c rrenc

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PANAMA TAX BENEFITS - PANAMA LEGAL CENTER

You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all your expenses in foreign currency, y translate

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(https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates).

Gross Income Gross income includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. In determining whether you must le a return, y consider as gross income any income that you exclude as foreign earned income or as a foreign housing amount. If you are self-employed, your gross income includes the amoun Gross Income line of Schedule C (Form 1040), Pro t or Loss from Business (https://www.irs.gov/forms-pubs/about-schedule-c-form-1040).

In addition, you may be liable for ling Form 8938, Statement of Speci ed Foreign Financial Assets (https://www.irs.gov/forms-pubs/about-form-8938), if you have an interest in foreign nancial assets with a value above the reporting threshold that applies to you. Other forms that you may have to le include Form 3520 (https://www.irs.gov/forms-pub form-3520) or Form 3520-A (https://www.irs.gov/forms-pubs/about-form-3520-a) if you made contributions to or received income from a foreign trust or received a gift from a person.

Report of Foreign Bank and Financial Accounts FinCEN Report 114, Report of Foreign Bank and Financial Accounts (“FBAR”) (https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-andaccounts-fbar) (formerly TD F 90-22.1), must be led if you had a nancial interest in, or signature or other authority over, any bank, securities, or other nancial account(s) in a country, the aggregate value of which exceeds $10,000 at any time during the calendar year. You do not have to le the report if the assets are with a U.S. military bankin operated by a U.S. nancial institution or if the combined assets in the account(s) are $10,000 or less during the entire year.

File the FBAR electronically through the BSA E-File System (https://bsae ling. ncen.treas.gov/main.html). For E-Filing system questions, call the FinCEN E-Filing Help Desk at (8 9478, (Monday – Friday, 8 a.m. to 6 p.m. Eastern time) or email at BSAEFilingHelp@ ncen.gov (mailto:BSAEFilingHelp@ ncen.gov). If you are unable to E- le, you may contact the Regulatory Helpline at 800-949-2732 to request an exemption. If you are calling from outside the United States, call 703-905-3975.

Help in completing the FBAR is available Monday – Friday, 8 a.m. to 4:30 p.m. Eastern Time, at (866) 270-0733 (toll-free inside the U.S.) or (313) 234-6146 (not toll-free, for callers the U.S.). Questions regarding the FBAR can be sent to FBARquestions@irs.gov (mailto:FBARquestions@irs.gov). Filers residing abroad may also contact U.S. embassies and consu assistance.

Foreign Earned Income Exclusion – FEIE The Foreign Earned Income Exclusion is the largest tax advantage available to you as an expat. If elected, your rst $97,600 ($99,200 in 2014) earned overseas is exempt from inc unless you are an employee of the US government. Note that if you are a Foreign Service employee, and your spouse works in the local economy, the exemption still applies spouse. The following page is divided in two sections – a brief Executive Summary and Detailed Explanation of the Foreign Earned Income Exclusion.

Executive Summary of Foreign Earned Income Exclusion To bene t from the Foreign Earned Income Exclusion, the taxpayer must meet one of the following two criteria: 1) Work full time inside a foreign country for an entire calendar year- known as the Bona Fide Residence Test (https://www.taxesforexpats.com/expat-taxadvice/glossary.html#bona de) 2) Work outside of the United States for at least 330 of any 365 day period – known as the Physical Presence Test (https://www.taxesforexpats.com/expat-taxadvice/glossary.html#physical) While the two criteria may appear to be similar, they are actually quite di erent in terms of how they apply to your US expat taxes. US Expats automatically become eligible exclusion if they have worked overseas throughout an entire calendar year (January 1st-December 31st). They are then considered a bona de resident. The second clause can confusing when applying to Expatriate tax return.

The second clause essentially means that a person left the United States for business and has not returned for more than 35 days throughout the past twelve months. This clau based on a calendar year; it simply refers to any twelve month period (ie April to April or September to September). Also note that it makes no reference to consecutive days; Expat would be considered ineligible if he made several 2-7 day trips back to the US that totaled more than 35 days during the twelve month period in question. The key to mee “physical presence test” is to have spent less than 35 days in the US during a 12 month period.

How Much Deductions?

If a person meets either of the above conditions they are allowed to deduct up to $97,600 ($99,200 in 2014) of their foreign earned income from their US expat taxes. If you are ling jointly, you would be able to deduct up to double that from your US expat taxes. This amount is also indexed for in ation and increases each year. Additionally, you would q the Foreign Housing Deduction (https://www.taxesforexpats.com/expat-tax-advice/glossary.html#physical) as well.

As the name implies, the Foreign Earned Income Exclusion relies solely on foreign income for calculation purposes and the income must be earned. Foreign income from sources dividends, interest and rental income are not included since this income is not “earned” in the IRS’s view. Additionally, US based income from things such as pensions will not q this exclusion because it was not earned inside a foreign country.

Common Pitfalls There are some catches and loopholes to the Foreign Earned Income Exclusion, so it is almost always advisable to consult a US Expat tax expert about your speci c situation. For e business owners may be forced to pay the Self-Employment tax inside the US and this is not considered part of the Foreign Earned Income Exclusion. However you may still b exclude your earnings after you have paid the self employment tax. Another common scenario for the self employed is when US Expats move to countries where there is a Social treaty in place with the United States, like the UK. The US / UK treaty allows you to opt out of Social Security and enroll in the UK National Insurance Plan. By opting out of U security, you could save about 15% annually on your US expat taxes!

The last thing worth mentioning is that not all US expats are able to take advantage of the foreign earned income exclusion. If you are a US Government Employee and are paid b

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government then you will not be able to use the Foreign Earned Income Exclusion to minimize your US expat taxes. This includes individuals in the Armed Forces Ex Commissioned and non-commissioned O cers’ messes, Armed Forces motion pictures services and employees of kindergartens on Armed Forces installations.

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American expatriates should be aware of the following: Need to File State Returns: Certain taxpayers must maintain a state of domicile in the United States, and there will be tax obligations to that state (Varies by st please contact us (https://www.taxesforexpats.com/contact.html) for details).

Foreign Housing Exclusion or Deduction: In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross incom your housing amount if your tax home is in a foreign country, you have self employment income, and you qualify under either the bona de residence test or th physical presence test.

Retirement: You still qualify for the tax advantages of making contributions to a retirement account, such as SEP, IRA or ROTH IRA. These contributions are sub certain limits based on your gross income, so for the most part the foreign earned income exclusion will not a ect them.

Other Income: Did you rent your property while living abroad? Your rental income is reported, along with related expenses including but not limited to mortga interest expense. Dividend or other investment income? Reported, less related expenses.

Are you self employed but working overseas? You are in need of a tax plan. You could be saving at least 6% of your gross income.

Detailed Explanation of Foreign Earned Income Exclusion Following are excerpts from IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. Click here (https://www.irs.gov/pub/irs-pdf/p54.pdf) to download the c publication [1.5 MB]. Below we present the key elements of qualifying for the Foreign Earned Income Exclusion, but you should consult the full publication for a complete explanat

Who Quali es for the Exclusions and the Deduction?

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from incom $97,600 (for 2013) of your foreign earnings. In addition, you can exclude or deduct certain foreign housing amounts.

Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements.

Your tax home must be in a foreign country.

You must have foreign earned income.

You must be either: A U.S. citizen who is a bona de resident of a foreign country of countries for an uninterrupted period that includes an entire tax year, A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in e ect and who is a bona de reside foreign country or countries for an uninterrupted period that includes an entire tax year, or A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecut months.

———————————————————————————————————IMPORTANT NOTE: We recommend that you consult with your accountant about any tax implication whether you need to le or not since each ExPat situation is di erent.

What Is Panama Financial Privacy?

Panama law and regulation is pro business and was written to protect its investors. Corporate structure and nancial privacy works hand in hand and strict con dentiality appl corporate entities. All o shore corporations, trust, foundations enjoy Panama secrecy and privacy law.

Panama O shore Banking is very popular because of its strict banking secrecy laws to protect its owners and shareholders. Panamanian banks are prohibited from sha information about o shore bank accounts or account holders. The only exception is a speci c Panamanian court order in conjunction with a criminal investigation.

Learn more about how to set up a Foundation in Panama; HOW TO SET UP A FOUNDATION IN PANAMA? (https://www.panamalegalcenter.com/setting-up-a-foundation/)

What Is “Panama Papers”?

In year 2016, a German newspaper, Süddeutsche Zeitung, published certain nancial les of a Panama law rm called Mossack Fonseca from an anonymous source.

Panama Papers revealed that the Firm has established total of 214,000 o shore companies and while most of them were legit, some had been set up for illegal purposes such a laundry, fraud, etc.

(https://www.panamalegalcenter.com/contact-us/) FOR MORE INFORMATION, EMAIL US:

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