Panama Double Tax Treaties and Exchange of Information

What is a double tax treaty?

It is an agreement between two countries that allocates the right to tax each type of income (salaries, pensions, dividends, interest, real estate) and sets how double taxation is eliminated: the country of residence exempts the income or credits the tax paid in the other. It also decides tax residency when both countries consider you a resident.

Which countries have a treaty with Panama?

According to the tax authority (DGI), Panama has double tax treaties with Barbados, Czech Republic, France, Ireland, Israel, Italy, Luxembourg, Mexico, the Netherlands, Portugal, Qatar, Singapore, South Korea, Spain, the United Arab Emirates, the United Kingdom, and Vietnam. The list changes when new treaties are signed or enter into force: check the current version with the DGI.

What happens if your country has no treaty with Panama?

• Each country applies only its own law.
• Under its territorial system, Panama generally does not tax your foreign-source income.
• If your country taxes its residents' worldwide income and still considers you a resident, it can tax everything, including income you earn in Panama. Some countries allow a credit for tax paid abroad even without a treaty.
• The United States, Canada and Australia, for example, are not on the list of treaty countries.

How is a treaty applied?

1. Prove your tax residency with a certificate from the authority of your country of residence; in Panama it is issued by the DGI (see tax residency in Panama).
2. Identify the article of the treaty that applies to your type of income.
3. Submit it to whoever pays you the income or to the other country's tax administration, with the forms it requires.
4. Report the income in your country of residence, applying the treaty's method to eliminate double taxation.

What tax information does Panama exchange?

• Non-residents' financial accounts: Panamanian banks and other financial institutions report balances and income every year to their account holders' countries of residence, under the OECD Common Reporting Standard (CRS).
• US citizens and residents: information is reported to the US authorities under the FATCA agreement.
• Information on request: tax administrations can request specific data about a taxpayer under the treaties and the multilateral Convention on Mutual Administrative Assistance in Tax Matters.
• Beneficial owners: Panamanian companies and foundations must identify their beneficial owners, and that information is available to the authorities (see annual corporate obligations).

What changed after the Panama Papers?

The 2016 leak known as the Panama Papers accelerated reforms, some of them already under way: custody of bearer shares, mandatory accounting records for all companies, the beneficial ownership register and the automatic exchange of financial information. Today a Panamanian company, foundation or account cannot be used to hide income: the information reaches your country's tax administration.