Seeking Recommendations: "Location of Accounting Records" for Panamanian SRL

[Chonsai]

Hello everyone!

This is my first post on this forum, but hopefully over the coming years there will be many more.

I'm a digital nomad and owner of a Panamanian Sociedad de Responsabilidad Limitada (SRL), my company operates in the crypto space & entirely online. My business aims to be structured as an offshore, capitalizing on the beneficial regulatory & tax environment of Panama. However, I am currently facing a crisis when it comes to the "Location of Accounting Records" (LoAR).

Currently, the LoAR are in the UK. I've realised this could subject me to some complications, including regulatory & tax scrutiny from the UK authorities. I have requested to my registering agent to move my LoAR to a Panamanian address, and was informed this might reclassify my SRL as an onshore company, subjecting me to 25% tax and stricter rules & regulations (oops).

I have brainstormed a few potential possibilities, however this is my first time trying to run & operate a business as a digital nomad, and I am learning a lot.

1. My registering agent is wrong and keeping my LoAR within Panama will not classify me as an onshore company.
2. Using another jurisdiction as the permanent home for my SRL's LoAR (subject to regulatory changes).
3. Rotating the location of my LoAR every 3-4 months (along with my own residence) to different countries. Theoretically this would mean my business would not operate in any one jurisdiction for long enough to trigger the local business operations implications. I'd like some realistic opinions on the feasibility and wisdom of this approach.

There may be more possibilities that I have not thought of. What I'm looking to get out of this would be a solution that would:

1. Recognize the offshore status of my Panamanian SRL.
2. Does not impose a high corporate tax rate.
3. Does not impose stricter rules & regulations for my SRL (or at least they are veery relaxed so as not to affect operations in a big way).
4. Does not mandate KYC on users.

If any of you have faced similar challenges or have insights into possible solutions, I would appreciate your feedback immensely. I hope I can tap in to the wisdom of this community to find an efficient, compliant, and optimized solution for the growth of my business.

Regards,
Chonsai

 

[Sols]

There is no such thing as offshore vs onshore companies in Panama. Panama operates a territorial tax system where foreign income is exempt from Panamanian tax. That's it. That's all there is to it.

Location of Accounting Record should be an absolute non-issue for tax purposes. It's just a physical place you tell the government that the accounting records are held.

Your current service provider is smoking some low-quality crack if they claim that having the accounting records in Panama would make your foreign income taxable in Panama.

 

[JustAnotherNomad]

But what is Panama's definition of foreign income? Many countries require a PE abroad to treat income as foreign-sourced.

 

[Sols]

But what is Panama's definition of foreign income? Many countries require a PE abroad to treat income as foreign-sourced.

That's an interesting but separate discussion. It has nothing to do with where your accountant sits and does the paperwork for the company. Maybe in some extreme fringe case where no other tie breaker exists, in an alternate reality where Panama has become as aggressive (and skilled) as a high-tax European country — maybe then, it could matter.

 

[Chonsai]

Hey Sols,

Thank you for providing your insights on my query. Your straightforward perspective on Panama's territorial tax system has challenged the information I've received so far, and I appreciate it!

To ensure I make an informed decision for my SRL (as making the wrong decision may have serious consequences) I'd like to delve a little deeper into your feedback.

1 - Sols, without any intention of sounding rude or skeptical could you explain a little bit about your experience with Panamanian business structures? It's essential I understand the depth of expertise I'm drawing insights from
2 - Domiciled vs. Operated: I understand there's a difference between where a company is domiciled and where it's operated. In many jurisdictions, if a company is domiciled in one place but operates in another it may be subject to the rules & regulations of both. Is my understanding correct?
3 - Panamanian offshore designation: My prior understanding was that Panama differentiates between companies that are ONLY domiciled there, and those that are both domiciled and considered as operating there. Companies just domiciled but not operating (e.g. having account records in another jurisdiction, along with physical offices and presence) were classified as "Offshore", exempting them from certain local obligations. Is this right?

For instance, if I were to shift from just being domiciled to being both domiciled and operated I might require adherence to local business operational standards, and potentially require licensing. I may be totally wrong on this one.

My overarching aim is to avoid an "operational" tag in any single jurisdiction, while staying compliant with the domicile's regulations. As you mentioned, the location of accounting is merely a formality, but does it (or the registered address) commonly signal operational presence for many jurisdictions?

Thank you once again for your valuable time and knowledge

Warm regards,

Chonsai

 

[Sols]

To ensure I make an informed decision for my SRL (as making the wrong decision may have serious consequences) I'd like to delve a little deeper into your feedback.

Absolutely, but don't take my word for anything. I could be wrong. Confirm your situation with a Panamanian law firm/tax adviser. If your current service provider isn't Panamanian, they may not quite understand Panamanian law. It sounds like they don't.

1 - Sols, without any intention of sounding rude or skeptical could you explain a little bit about your experience with Panamanian business structures? It's essential I understand the depth of expertise I'm drawing insights from

A perfectly valid question. Let's just say that the downfall of Mossack Fonseca was quite a headache, but I have stayed involved with Panamanian businesses in different ways since then.

2 - Domiciled vs. Operated: I understand there's a difference between where a company is domiciled and where it's operated. In many jurisdictions, if a company is domiciled in one place but operates in another it may be subject to the rules & regulations of both. Is my understanding correct?

Yes, your understanding seems to be correct. But you are using the word "domiciled" which can mean different things in different contexts. I would move away from that term to avoid confusion.

Companies are taxed where they are tax resident. A company can have multiple places of tax residence, in which case a tax treaty can be useful to avoid paying double or more tax.

If you have a standard Panama setup with nominee directors in Panama but you operate the company effectively by yourself, the company might be tax resident but also wherever you are based. In that case, the company should be paying tax in Panama according to Panamanian law, under which foreign income is usually exempt, so your tax bill in Panama is in all likelihood zero (paying zero tax is still the act of paying tax). Additionally, you should probably be declaring the company tax resident where you live and pay corporate income tax there. A very messy situation which a lawyer should be able to help you with.

3 - Panamanian offshore designation: My prior understanding was that Panama differentiates between companies that are ONLY domiciled there, and those that are both domiciled and considered as operating there. Companies just domiciled but not operating (e.g. having account records in another jurisdiction, along with physical offices and presence) were classified as "Offshore", exempting them from certain local obligations. Is this right?

It's not so much about the company itself. It's more about the source of income. The portion that is sourced in Panama is taxed in Panama. The portion that is sourced from outside of Panama is not taxed in Panama. If you have zero locally sourced income, corporate filings and reporting are a bit simplified.

 

[Chonsai]

Thank you once again @Sols for shedding more light on Panamanian business structures & general international tax systems. Your insights are highly valued .

1. Legal Advice: I've engaged with a Panamanian law firm for a tailored legal opinion on my company's situation to cover everything I need to know for my company to be controlled & operated in Panama. I'm also engage in discussions with my UK/US-based lawyer, and considering a third counsel but am cautious about unnecessary escalating costs.
2. BBCIncorp: My Panamanian company was registered through BBCIncorp in Hong Kong. They mentioned that they consult Panamanian legal experts. I'm unsure if their advice is generalized, or tailored to my specific scenario. Do you have any experience with them?
3. Company Structure: Just to clarify, my company initially had two nominee Panamanian directors along with myself. After incorporation they resigned, leaving me as sole director, UBO, treasurer, and shareholder.
4. Tax Residency: I'll stop using "domiciled" when I mean "tax resident". My SRL is a tax resident in Panama. All its income will be foreign-sourced, and I've taken measures like IP-blocking Panama.
5. My Residency & Operations: Currently, my residence is in the UK in the same location as the "Location of Accounting Records". I intend to transition to a digital nomad lifestyle, primarily to avoid establishing a fixed tax residency. If I move the accounting records to Panama, do you see any complications, or that it would just cement its pre-established tax residency status in Panama?
6. Digital Nomad Status: You mentioned previously the possibility of declaring the company as a tax resident where I personally reside. If I am relocating every few months as a digital nomad, in your experience would I still need to declare the company's tax residency in each of these places every time I move? This is veering on sounding overly complicated, as I would not want to inadvertently become a tax resident in 5 countries at once.

Thanks again for your time and insights, this guidance is crucial in my decision making going forward.

Best,

Chonsai

 

[Sols]

Legal Advice: I've engaged with a Panamanian law firm for a tailored legal opinion on my company's situation to cover everything I need to know for my company to be controlled & operated in Panama. I'm also engage in discussions with my UK/US-based lawyer, and considering a third counsel but am cautious about unnecessary escalating costs.

This is great news and the right path forwards.

BBCIncorp: My Panamanian company was registered through BBCIncorp in Hong Kong. They mentioned that they consult Panamanian legal experts. I'm unsure if their advice is generalized, or tailored to my specific scenario. Do you have any experience with them?

I have no experience with them because they don't qualify as a good enough service provider for me to engage with.

Company Structure: Just to clarify, my company initially had two nominee Panamanian directors along with myself. After incorporation they resigned, leaving me as sole director, UBO, treasurer, and shareholder.

Yikes.

Tax Residency: I'll stop using "domiciled" when I mean "tax resident". My SRL is a tax resident in Panama. All its income will be foreign-sourced, and I've taken measures like IP-blocking Panama.

No, if you don't have directors in Panama, I don't see how the company would qualify as tax resident in Panama.

Your company is tax resident where you live. It should be declaring and paying taxes just like a regular, local comapny.

My Residency & Operations: Currently, my residence is in the UK in the same location as the "Location of Accounting Records". I intend to transition to a digital nomad lifestyle, primarily to avoid establishing a fixed tax residency. If I move the accounting records to Panama, do you see any complications, or that it would just cement its pre-established tax residency status in Panama?

Most likely, your Panamanian company is currently tax resident in the UK, then. If the HMRC finds out, you're in for a dreadful experience.

Digital Nomad Status: You mentioned previously the possibility of declaring the company as a tax resident where I personally reside. If I am relocating every few months as a digital nomad, in your experience would I still need to declare the company's tax residency in each of these places every time I move? This is veering on sounding overly complicated, as I would not want to inadvertently become a tax resident in 5 countries at once.

This is an outdated way of living called Permanent Travelling. For peace of mind and stability of business, pick at least one place as your genuine, bonafide place of tax residence and primary economic interest.

 

[Chonsai]

Thanks for being candid, it helps a lot.

Thanks for your insights about BBCIncorp, I'll take their advice with a grain of salt.

Yikes

Oh. In terms of company tax residency I genuinely believed the setup I had established would classify my SRL as a tax resident in Panama. Your insights indicate a serious misstep that I need to address urgently. For the past 5 months it has felt like I am constantly taking one step forward but two steps back.

Your point on HMRC concerns me. I've always sought to be transparent and legal in all my dealings, the last thing I want is to tangle with HMRC. My SRL would definitely be considered a tax resident in the UK, considering this is where I currently live, but the company has not yet started trading.

I intend to begin within the next ~2 months. This is why I had planned to do what you have referred to as "Permanent travelling" so that my company is NOT a tax resident in the UK, but where I had thought - Panama. I'm disheartened to hear that this is old fashioned and no longer the correct approach, and will reconsider, along with my company structure.

Thank you for your recommendation to find a "genuine, bonafide place of tax residence and primary economic interest". I too would like to find this place. Would you be able to recommend any service or consultants that have a deep understanding of what it is I am trying to do, and who can offer some recommendations & connections to get this done... fast? I know fast & legal typically don't go well together, but time is running out for me.

Your advice continues to be indispensable, thank you muchly!

Regards,

Chonsai

 

[Meta]

Let me chime in. I certainly don't have experience regarding Panama and believe that advice of @Sols was of a high quality. Just wanted to add that generally "Location of Accounting Records" should not be important if we are talking about tax residency (for Panama and even more so for other countries). What's more important is location of people managing the company.
1) From the point of view of Panama it's certainly not Panama now: you are the only one shareholder-director-UBO and you are not in Panama. But my guess you will be fine with nominee arrangements (should check with lawyers).
2) From the point of view of UK it's UK. Good that you have not started operating yet. Even if you had nominees the HMRC would claim that you are the main decision maker and since you are in UK, the company should be treated as a local tax resident. Again, it's my guess as I don't know the details of setup.
3) From the point of view of countries where you will be nomading. That's difficult. I'm traveling around so I researched the question a bit. Some countries have laws boiling down to "If a person who is a tax resident here manages/operates an overseas company, that company becomes a tax resident". Some countries though say that "If a person who is physically present here manages/operates an overseas company, that company becomes a tax resident". There are some additional rules regarding what constitutes managing/operating, so you probably don't become a tax resident because of checking work e-mail while on a two day trip, but rules vary.
What I wanted to point out is that getting a personal tax residency somewhere else doesn't 100% insulate you from the risk of making your company resident while traveling. Good news though is that while it's not 100%, you will probably be fine.

 

[Sols]

Oh. In terms of company tax residency I genuinely believed the setup I had established would classify my SRL as a tax resident in Panama. Your insights indicate a serious misstep that I need to address urgently. For the past 5 months it has felt like I am constantly taking one step forward but two steps back.

For quick high level overview, I'd recommend checking these two links:
https://taxsummaries.pwc.com/panama/corporate/corporate-residencehttps://taxsummaries.pwc.com/united-kingdom/corporate/corporate-residence
These types of summaries never capture the full scope of the law and how it's been exercised, but it gives you a good overview. Based on what's in there, it's very clear that your Panama company is tax resident in UK. If had kept the directors in Panama, there could perhaps be some debate and uncertainty. But courts and tax authorities will at times disregard directors if they are nominees (i.e. not genuine directors and acting as directors for dozens, hundreds, of thousands of other companies).

Your point on HMRC concerns me. I've always sought to be transparent and legal in all my dealings, the last thing I want is to tangle with HMRC. My SRL would definitely be considered a tax resident in the UK, considering this is where I currently live, but the company has not yet started trading.

I intend to begin within the next ~2 months. This is why I had planned to do what you have referred to as "Permanent travelling" so that my company is NOT a tax resident in the UK, but where I had thought - Panama. I'm disheartened to hear that this is old fashioned and no longer the correct approach, and will reconsider, along with my company structure.

I don't have the full details of your situation. Maybe there are steps you can take to prevent or preempt any mess with HMRC. My experiences with HMRC have been generally positive and productive. Your UK lawyer should be able to help you with this.

Thank you for your recommendation to find a "genuine, bonafide place of tax residence and primary economic interest". I too would like to find this place. Would you be able to recommend any service or consultants that have a deep understanding of what it is I am trying to do, and who can offer some recommendations & connections to get this done... fast? I know fast & legal typically don't go well together, but time is running out for me.

One of the challenges here is that lawyers, for example, are licensed per jurisdiction. So it's very hard to find one single point of contact that's also competent and has your best interests (not the biggest commission) in mind.

I know people in similar positions have found for example Sovereign Group, Vistra, Trident Trust, Dixcart, and Asiaciti Trust useful. But you'll have to do a lot of legwork yourself. If you have an idea of which place feels like a good fit for you (taking into account taxes, costs of living, lifestyle, culture, language), identify reputable service providers based there.

 

[JustAnotherNomad]

Just to chime in regarding the "location of the accounting records" part. In Greece, this seems to be one of the criteria for corporate tax residency:

The determination by the tax authorities that the effective management of a legal entity is exercised in Greece is made on the basis of the actual facts and circumstances of each case and by taking into account mainly the place of exercising the day-to-day management, the place of making strategic decisions, the place where the annual general meeting of shareholders or partners is held, the place where the books and records are kept, the place where the meeting of the members of the BoD or other executive management board takes place, and the residence of the members of the BoD or other executive management board.

Source: Greece - Corporate - Corporate residence

But you can see, it's only criterion of many. It's similar to a "center of life" test for natural persons.
It's not like you can live and manage your company from Greece and avoid Greek corporate tax simply by using an accountant from the Seychelles.

So let's pretend that the Panamanian company is actually tax resident in Panama and has local directors.
Would income earned while traveling really count as foreign-sourced? Most countries would count it as local income if it was not earned by a foreign PE (meaning that there likely would have been tax in some other country instead), since it is linked to the local head office. But I could imagine that the Panamanian tax office doesn't care very much, even if their formal definition should indeed be like that.

 

[Sols]

So let's pretend that the Panamanian company is actually tax resident in Panama and has local directors.
Would income earned while traveling really count as foreign-sourced? Most countries would count it as local income if it was not earned by a foreign PE (meaning that there likely would have been tax in some other country instead), since it is linked to the local head office. But I could imagine that the Panamanian tax office doesn't care very much, even if their formal definition should indeed be like that.

Yes, it would count as foreign-sourced, insofar as declaring it as a foreign-sourced practically never gets questioned for these types of businesses.

 

[TopoChico]

Yes, it would count as foreign-sourced, insofar as declaring it as a foreign-sourced practically never gets questioned for these types of businesses.

Let me drop few points here in regards of Panamanian corp. If your layer registered your Panamanian SA as a "offshore entity" with RUC which is "dormant" and as per your contracts and invoices Corporation can demonstrate foreign source income there is no tax for the corporation in PANAMA. At the end of the year Panamanian CPA of your choice will have to certify your books and it will be submitted to the Layer in panama for records or any audits fron DGI. this part is clear. Nowthen you may want to benefit from the income corporation have gained this when things get a little tricky. If you are a fireighn tax resident you withdraw your dividents from Panamanian corp bank account and report you income in the country of your tax residency in this case in Panama your dividends are not taxed or your corporation structure is not jeopardized i.e. same "offshore" type of thing.
If you are living in Panama and fall under 183 days rule ect and started withdrawing dividends from your Panamanian corporation it will be subject to tax your personal income and corporate income as well. The law here has changed DGI is auditing lawyers who have been selling so to say Offshore Structures they don't exists. Due to cultural specifics you may get a Layer or CPA who is a friend of a Judge or head of DGI or immigration and you can get away with whatever but once government changes etc. you may not be a "favorite" anymore. They are trying to make it look like they are cleaning and structuring but things on the ground are not as clear as they are in UK...
If you go Panama tax residency rote and want to get your taxes to zero you as a person have to be receiving funds from account outside of Panama. Getting payed by Panamanian SA and living in Panama only work till you get audited it may happen it may not all depends on your risk tolerance.

 

[Chonsai]

Thanks everybody for your responses.

After careful consideration I'm going to consult with a Panamanian CPA to understand whether or not my business activities would be considered 'foreign-source', and if not how I could get them to be considered as such.

Regarding my personal tax residency I'm thinking somewhere that is NOT Panama, for ease. Cyprus, Sark, even Thailand full time. The only caveat I have identified is if I were to live in somewhere, say Thailand, the authorities COULD deem my business as being operated from their jurisdiction and subject it to all sorts of things. I think this is a risk I must acknowledge and take on board, unless anyone has any suggestions as to how I can sleep better at night?

Does anybody have recommendations for how I can have a 'substantial presence' in Panama so the company is recognisable or at least somewhat defensible as Panamanian operated? Above have mentioned to have Panamanian directors, so I will investigate this once more. Also considering a Panamanian office, although I don't intend to visit, so would a P.O. Box do just fine?

Chonsai

 

[TopoChico]

Thanks everybody for your responses.

After careful consideration I'm going to consult with a Panamanian CPA to understand whether or not my business activities would be considered 'foreign-source', and if not how I could get them to be considered as such.

Regarding my personal tax residency I'm thinking somewhere that is NOT Panama, for ease. Cyprus, Sark, even Thailand full time. The only caveat I have identified is if I were to live in somewhere, say Thailand, the authorities COULD deem my business as being operated from their jurisdiction and subject it to all sorts of things. I think this is a risk I must acknowledge and take on board, unless anyone has any suggestions as to how I can sleep better at night?

Does anybody have recommendations for how I can have a 'substantial presence' in Panama so the company is recognisable or at least somewhat defensible as Panamanian operated? Above have mentioned to have Panamanian directors, so I will investigate this once more. Also considering a Panamanian office, although I don't intend to visit, so would a P.O. Box do just fine?

Chonsai

Every Lawyer in Panama will sell you an virtual office space and every Lawyer in Panama will sell you a nominee directors. Having nominee directors in Panama don't make your Panama SA tax liable if your source of income is from outside of territory. In Panama they will look at your income as taxable only when you start distributing that income inside Panama to Panamanian tax resident etc. there is a lady on youtube the channer is Prime solutions and Tax check wit them for a start they are free to consult with and they are LAW and TAX together. This land here is wild west one CPA will charge you 450 for a basic letter another one will only ask for 75 so be careful there are professionals who will consult you with no charge to get your business. or look in to MG consulting they are part of SMS Latinamerica. Good luck

 

[Sols]

Regarding my personal tax residency I'm thinking somewhere that is NOT Panama, for ease. Cyprus, Sark, even Thailand full time. The only caveat I have identified is if I were to live in somewhere, say Thailand, the authorities COULD deem my business as being operated from their jurisdiction and subject it to all sorts of things. I think this is a risk I must acknowledge and take on board, unless anyone has any suggestions as to how I can sleep better at night?

Every step you can take to legitimize the story that you're just a passive shareholder can help. But if you're talking about the likes of Cyprus, Sark, and Thailand, enforcement has historically been very limited.

Does anybody have recommendations for how I can have a 'substantial presence' in Panama so the company is recognisable or at least somewhat defensible as Panamanian operated? Above have mentioned to have Panamanian directors, so I will investigate this once more. Also considering a Panamanian office, although I don't intend to visit, so would a P.O. Box do just fine?

This is a questioned answered not through a Panamanian perspective but through the perspective of your host country (if you are the sole person behind the wheel of the company). Having Panamanian resident directors is one of many factors that can help determine where the company should be taxed.