Article 762-N of the Tax Code, added by Law 52 of 2012, defines the concept of tax residence applicable to natural and legal persons in the Republic of Panama. It also establishes the basic requirements necessary to be considered a tax resident.
In Official Gazette number 27951-A of January 19, 2016, Resolution No. 201-0354 of January 13, 2016, issued by the General Directorate of Revenues, was promulgated and became effective upon publication. This resolution regulates the requests for Tax Residence Certificates for natural and legal persons in the Republic of Panama and repeals articles two through seven of Resolution 201-10860 of 2013 issued by the National Authority of Public Revenues.
What is the importance of tax accreditation and its uses?
Tax residence is a fundamental concept for determining a country’s taxing authority. Accrediting residence is of great importance in determining the fiscal domicile where a taxpayer must pay taxes. In this regard, countries are empowered to tax the income earned by tax residents of the country anywhere in the world or the income earned in the country by a foreign non-resident.
Through these certifications, the tax administration of the Republic of Panama certifies a specific fact related to the tax situation of an obligor and their status as a tax resident in Panama. Tax residence certificates are commonly used to establish the fiscal domicile in the Republic of Panama for the purpose of applying international double taxation avoidance agreements and treaties signed with other countries.
It’s important to note that even if a taxpayer has a permanent or temporary residence permit or a work permit in Panama, they may not necessarily be considered a tax resident.
Who can request a tax residence certificate?
A natural person who stays in the national territory for more than one hundred and eighty-three (183) days, whether consecutive or alternate, in a fiscal year or in the immediately preceding year, can request a tax residence certificate. Likewise, legal entities established in accordance with the laws of the Republic of Panama that have material means of direction and administration within the Panamanian territory and are duly registered in the Public Registry can also apply.
Where and how can a tax residence certificate be requested?
Any natural or legal person seeking to obtain a tax residence certificate from the Republic of Panama must submit a request to the competent tax authorities. In this case, it should be addressed to the Correspondence Section of the General Directorate of Revenues, and the request must meet the basic requirements set forth in the resolution. Subsequently, the request will be forwarded to the International Taxation Department of the General Directorate of Revenues for evaluation.
What requirements must be provided?
A request letter expressing the reasons why the applicant should be considered a tax resident of the Republic of Panama, detailing the following information:
- Clear and explicit identification of the applicant.
- Fiscal domicile address in the Republic of Panama.
- Business activity conducted in the Republic of Panama.
- Specification of the international double taxation avoidance agreement or treaty to be applied, if applicable.
- Fiscal year for which the Tax Residence Certificate is requested.
- Other relevant supporting evidence.
What can be considered as “Other relevant supporting evidence”?
These supporting evidence are additional documents that support the arguments and reasons detailed in the request letter, such as:
- Notarized copy of the lease contract, which proves the fiscal domicile of the applicant in the Republic of Panama.
- Utility bill receipts (water, electricity, and/or telephone) that demonstrate the applicant’s use of the commercial premises, offices, or residence indicated in the request letter.
- Copy of the Income Tax Declaration for the requested fiscal year.
- Copy of the Business Operation Notice, in the case of a legal entity.
- Copy of the company’s employee payroll, for legal entities or business owners operating individually.
Is the issuance of a tax residence certificate automatic once the request with the requirements and evidence is submitted?
No, it’s important to note that submitting the request does not imply its automatic approval by the competent tax authorities. They have an obligation to evaluate each case and subsequently issue a resolution accepting or denying the Tax Residence Certificate for the requested fiscal year.
What are the elements of analysis that the General Directorate of Revenues evaluates?
For natural persons, it must be proven that:
- They have stayed in the national territory for more than one hundred and eighty-three (183) consecutive or alternate days throughout the year or the immediately preceding year.
- The concept of permanent housing, which is interpreted as the center of the person’s vital interests, refers to their economic or family interests. It’s important to mention that the resolution states that merely having housing available does not immediately qualify a person as a tax resident; the individual must have a personal connection to that housing.
- In the case of legal entities, to determine if a company registered in the Public Registry of Panama has connections in the national territory and has material means of direction and administration, it’s necessary that:
- The applicant informs the General Directorate of Revenues about the commercial activity or support to other companies carried out from the national territory.
- They have offices for this purpose.
- They can prove that the company has personnel at its disposal. This follows from engaging in commercial activities.
How long does it take to obtain a tax residence certificate?
Currently, the General Directorate of Revenues takes two (2) to three (3) months to evaluate and subsequently accept or deny the tax residence certificate request.
What happens if I can’t provide all the requirements the law demands for obtaining the certificate?
For requests that are incomplete or require additional documentation, the interested party has a period of two (2) months from the date of the decision, which will be duly notified, to provide the required documentation.
What if I want to provide additional documentation voluntarily, which I believe could benefit the issuance of the certificate?
The General Directorate of Revenues allows taxpayers interested in obtaining a tax residence certificate to provide any additional evidence they consider appropriate subsequently. This should be done by submitting a letter referencing the initial request.
What should I do after I receive the tax residence certificate?
Once the General Directorate of Revenues provides the tax residence certificate, if it will be used abroad, it must undergo the corresponding legalization process. Any documentation to be used in a country other than its country of origin must have the appropriate apostille.
The Hague Apostille (full name) is a simplified method of document legalization for the purpose of verifying its authenticity in the realm of Private International Law.
Physically, it consists of a page added (attached to the back or on an additional page) to the public document, which is stamped by the competent authority.
In Panama, the Ministry of Foreign Affairs is the competent authority for obtaining the apostille.
Do you need Tax Residence in Panama?
With years of experience in the field, at PGS, we have first-hand knowledge of the specific processes and requirements for successfully obtaining tax residence in Panama on the first attempt.
Don’t waste time trying to navigate complex tax processes on your own. Contact us today and let our experts guide you promptly and efficiently!
Junior Associate – PGS Attorneys