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Panama: Personal Taxation

Residence and Liability for Taxation

There are no statutory residence rules as such, but an individual is considered resident if he is present in Panama for more than 180 days in any one tax year. Residence has to be officially recognised by the government.

As regards taxation, there is no distinction between foreign and Panamanian individuals. The territorial basis of taxation applies to individuals as it does to business entities, so that individuals pay income tax on Panama-sourced income. 'Panama-sourced' means that the services rendered are deemed to be provided within Panama - if a Panamanian entity pays an employee for services rendered abroad, tax will not be due.

A fiscal reform package introduced in 2005 and which took effect from 2006 in most respects has changed the rules in some ways:

According to the newly introduced Paragraph 1-A of article 694 of the Fiscal Code, income derived from personal services such as wages, salaries and other personal remunerations will be treated as originating from a source located within Panamanian territory – even though such personal services may be physically and actually rendered both within and outside Panamanian territory – if the individual taxpayer resides in the Republic of Panama for at least 70% of the calendar days of any given year. Other income (dividends, pension payments and interest, for example) is not covered by the new rule.

See Domestic Corporate Taxation for details of new withholding tax rules introduced under the package.



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