Panama Company with Residency Drawbacks?

[nethostler]

I am a UK citizen and tax resident who's been a perpetual tourist for 2 years.

This year I'm looking to acquire Panamanian residency via the friendly nations visa, and tax residency by the 183 day rule.

As the residency program essentially requires the formation of a Panamanian company. I'm considering the use of the corporation for my new business venture.

However, from my research Panamanian corps appear to be difficult to acquire banking for, so my plan would be to start with an EMI and seek onshore banking in Panama (or perhaps elsewhere) once the company grows its reputation.

Business Activity
Affiliate marketing of digital services ( mostly financial and e-Comm, no gambling, adult content, pharmaceuticals etc)

Payment requirements:
Receive mainly USD and EUR, some GBP, AUD
Receive PayPal via business account (nice but not essential).

Customer location (merchants)
%30-$40 US, %30-%40 EU, %20 Canada, Australia and rest of world

Revenue
$0 its pre-launch

My wishlist :
1. "ease of operation" e.g minimal reporting requirements, red tape etc
2. Limited liability
3. Flexibility (The ability to close or migrate the company with ease)
4. Tax efficiency
...

I've looked into US LLC's but they seem overkill for my situation (few remote account opening options, complex tax code, high penalties, EIN wait times, ETOB, ECI etc) , and I'd rather a clean break up with HMRC than get into UK ltds or LLPs.

What are the potential advantages and disadvantages of the Panamanian set-up?

 

[Golden Fleece]

However, from my research Panamanian corps appear to be difficult to acquire banking for, so my plan would be to start with an EMI and seek onshore banking in Panama (or perhaps elsewhere) once the company grows its reputation.

It is my understanding that opening a corporate bank account for the corporation is part of the process when obtaining a friendly nations visa.

All citizens of these 50 countries need to do is to create a local Panama corporation, open a corporate bank account, and deposit between [sic] $5,000.

https://thewanderinginvestor.com/foreign-residencies/the-friendly-nations-visa-in-panama/

 

[Sols]

Panama is viewed poorly if it's just one piece of the puzzle. If you are both resident in Panama (home address, utility bill, phone number, IP address, all in Panama), have a company there, and a local bank account (personal and corporate), your overall risk profile goes down. You still suffer some from Panama's generally tarnished reputation, but it's usually better than Panama resident with EU company and EU bank account (if you can get one at all).

 

[fshore]

This year I'm looking to acquire Panamanian residency via the friendly nations visa, and tax residency by the 183 day rule.

Why do you need the panama (tax) residency? UK lets you become non tax resident without needing to prove another residency (as long as you fulfill the criteria).

 

[nethostler]

It is my understanding that opening a corporate bank account for the corporation is part of the process when obtaining a friendly nations visa.


https://thewanderinginvestor.com/foreign-residencies/the-friendly-nations-visa-in-panama/

That would be nice, but the requirement is for a personal account according to the lawyers I've spoken to.

Panama is viewed poorly if it's just one piece of the puzzle. If you are both resident in Panama (home address, utility bill, phone number, IP address, all in Panama), have a company there, and a local bank account (personal and corporate), your overall risk profile goes down. You still suffer some from Panama's generally tarnished reputation, but it's usually better than Panama resident with EU company and EU bank account (if you can get one at all).

I'd gladly take the Panamanian set-up despite the reputational drawback. I'd rather spend my time growing the business than chasing down banking in the EU.

Why do you need the panama (tax) residency? UK lets you become non tax resident without needing to prove another residency (as long as you fulfill the criteria).

I'd spend the 183+ days there anyway, the tax residency would be a bit of free insurance should I need to prove my tax residency sometime in the future.

Thanks for the input all. I'm going for the Panamanian corp + residency,

 

[Kakarot]

but won't you pay like 15% on income you make as the UBO of your panama company as income tax if you are tax resident there? Personal tax there is 15% on anything under 50 grand, and 25% on the money over that.

So you might not pay any corporate tax, but when you withdraw money from your panama bank, isn't that considered a dividend payment to yourself the UBO, and therefore you will incur the personal tax there?

I hope I'm wrong, let me know -- because I'm considering going with panama or UAE at this point to cover all bases at once.

 

[nethostler]

but won't you pay like 15% on income you make as the UBO of your panama company as income tax if you are tax resident there? Personal tax there is 15% on anything under 50 grand, and 25% on the money over that.

So you might not pay any corporate tax, but when you withdraw money from your panama bank, isn't that considered a dividend payment to yourself the UBO, and therefore you will incur the personal tax there?

I hope I'm wrong, let me know -- because I'm considering going with panama or UAE at this point to cover all bases at once.

That's a question I couldn't answer but I plan to get in touch with a few local lawyers this week to determine the viability of this set-up, I'll keep you posted.

 

[Panama]

That's a question I couldn't answer but I plan to get in touch with a few local lawyers this week to determine the viability of this set-up, I'll keep you posted.

I am on the same path, man. Discovering my options, but I am from Canada. Interesting what the lawyer says. Keep us posted. Thanks!

 

[fshore]

That's a question I couldn't answer but I plan to get in touch with a few local lawyers this week to determine the viability of this set-up, I'll keep you posted.

Wouldn't there also be 25% corporate tax, if you manage and run the company from panama?

 

[JackAlabama]

That's a question I couldn't answer but I plan to get in touch with a few local lawyers this week to determine the viability of this set-up, I'll keep you posted.

You pay tax when salary come from a panama sa corp.
However you can run most expense thru the corp anyway IF it earns purely from abroad you do not need to do acc.

Also you can pay yourself 12k salary year which is at the 0% tax rate and some above for showing your goodwill to panama which will hopefully grant you the passport down the road.

things might have changed by now. They changed quite a few things since 2018.

 

[Kakarot]

i want to know more about the panama method as well. Companies who help form these panama corps via friendly visa are telling me that no, i would not be required to pay any corporate tax, nor personal income tax at all with the panama set up. they also claim getting the merchant corporate bank account will be easy.

Panama sounds like you essentially get the full UAE treatment -- but much cheaper to form the company, and much cheaper annually to keep it in good standing -- but a less reputable jurisdiction -- however, you'll be visa resident there, so is it really considered a greyzone if you have a visa and resident status there, a personal bank and corporate bank there, etc?

Maybe panama is like a cheaper better version of what UAE offers frankly.

Thoughts?

 

[troubled soul]

Panama Has Its Share of Bureaucratic Problems​

Getting anything done at a government office here requires patience and time. Don’t compare how things are done in the any other country to Panama or you will be disappointed. Things are done slowly in Panama and they don’t move quicker by criticizing it.

 

[Kakarot]

yeah they did say i need to come for like a month to do it all or something. But I dont really mind.

UAE and panama seem so comparable to me.

both offer tax residency, both allow zero corporate and personal income tax it seems.

both are open to travel right now -- in a world mostly locked down.

both seem to be able to get you personal and corporate banks accounts realistically.

Both give a visa long term that is easy to maintain with minimal time spent in the country -- panama you only need 1 day every 2 years.

UAE you need 1 day every six months.

So which jurisdiction would you guys choose?

Panama only costs like $600 per year to maintain the company in good standing i think.

UAE is like 5000+ USD

 

[lavel]

Op do you consider to relocate to Panama? if not it's an interesting approach to take

 

[Golden Fleece]

Companies who help form these panama corps via friendly visa are telling me that no, i would not be required to pay any corporate tax, nor personal income tax at all with the panama set up.

You need to find an honest Panamanian lawyer and talk with them directly. Many Panamanian lawyers will have you form a corporation when you really do not need one (e.g., for holding title to property). Other attorneys will try to charge you large fees to close a corporation when all you need to do is stop paying the annual registration fees.

https://www.offshorelivingletter.com/panama-corporations-just-not-worth-anymore/

These (non-Panamanian) guys, who advise U.S. expats, have a good reputation and this what they say:

Territorial taxation is ideal for anyone with an online business or who provides services outside of Panama. However, US Americans should be aware that work performed or services provided in Panama may be taxable there.

Furthermore, Americans in Panama may incur taxes when they bring income earned outside of Panama into the country. For example, dividend distributions on foreign-sourced income from a Panamanian corporation are taxed at a rate of 5%. While this is lower than the 10% applied to dividends from local income, it is not tax-free.

https://onlinetaxman.com/americans-living-in-panama-us-tax-guide/

 

[nethostler]

Its 0% on foreign sourced income according to the lawyer I spoke to.

Panama Corp + Residency looks like a very attractive option if you're in the right position but in my case,(pre-launch, $0 revenue) it's just premature optimization . So, revisiting it when it makes sense spares me a ton of overhead.

I'm looking at an IBC/LLC (insert no-fuss jurisdiction, any recommendations?) + EMI and staying in perpetual tourist mode for the foreseeable. Should my country of citizenship claim default taxing rights, I'll take care of that as and when.

Very grateful for all the responses in ITT though, I hope you all can get a definitive answer WRT the corp and personal tax issues.

NB: The lawyer I spoke to has heard that significant changes are on the horizon for the Friendly Nations Visa and suggests applying asap to grandfathered by the current requirements. Maybe a sales trick, but I thought it's worth mentioning as I've read similar reports elsewhere recently.

 

[Golden Fleece]

NB: The lawyer I spoke to has heard that significant changes are on the horizon for the Friendly Nations Visa and suggests applying asap to grandfathered by the current requirements. Maybe a sales trick, but I thought it's worth mentioning as I've read similar reports elsewhere recently.

That is a possibility. The Immigration Department proposed the changes about five months ago, but ultimately declined. An email from October 19, 2020:

A group of immigration lawyers have written a letter and requested a meeting, with the Immigration Director requesting that the changes not take effect for at least 6 months. We should know this week, what will happen to the Friendly Nations Visa. Of course, I will let you know as soon as I know the details.

As you can see from the proposed changes to the Friendly Nations Visa, it seems to have been written by real estate agents trying to FORCE you to buy real estate if you want to live in Panama.

 

[fshore]

Its 0% on foreign sourced income according to the lawyer I spoke to.

Maybe you don't understand the definition on foreign source income. It means when the income is generated outside Panama. If the corporation is run and controlled from Panama then the income is local sourced, even if clients are foreign.

However I don't know how this is handled in practice in Panama. But of course the lawyer selling you the setup will present it in the best way.

 

[Golden Fleece]

Maybe you don't understand the definition on foreign source income. It means when the income is generated outside Panama. If the corporation is run and controlled from Panama then the income is local sourced, even if clients are foreign.

However I don't know how this is handled in practice in Panama. But of course the lawyer selling you the setup will present it in the best way.

It is also possible that the Panamanian lawmakers do not understand the definition of foreign source income. According to this article, which seems well-researched, those Panamanian lawyers cited by nethostler appear to be correct.

Likewise, any service that a company established in Panama provides outside of the country would not be subject to income tax, as long as this service is not related to its taxable activities in Panama. Moreover, sales of merchandise by a Panamanian company, when the goods do not enter into Panama’s territory, are considered to produce foreign source income and are therefore not subject to income tax. However, if they do enter Panama, the income arising from the operation will be subject to income tax.

https://oxfordbusinessgroup.com/overview/tax-matters-look-country’s-tax-regime-and-its-implications

 

[bizniz]

Maybe you don't understand the definition on foreign source income. It means when the income is generated outside Panama. If the corporation is run and controlled from Panama then the income is local sourced, even if clients are foreign.

However I don't know how this is handled in practice in Panama. But of course the lawyer selling you the setup will present it in the best way.

No, this is not correct. You can run a company from within Panama, and as long as all its income comes from outside the country, it is classed as foreign source income. (Completely logically and this kind of business is strongly encouraged by government, banks etc as opposed to pure offshore business)).

Banking and merchant accounts should not be a problem provided you are genuinely establishing residence in Panama and planning to spend time there (renting/buying a home etc). For the merchant account you will require an Aviso de Operaciones (local business license) and the bank will probably want to visit your premises to check that the company really has a physical presence - this is because they had a lot of problems from Visa and Mastercard due to opening accounts for shell companies a few years ago.