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0 % Foreign‑Income Tax — Compliance Info

Territorial taxation is powerful—but only if you play by the rules. This guide shows exactly what Panama expects from you to keep overseas profits legally tax‑free.

How Territorial Tax Works (30‑second refresher)

Income is taxed where it’s earned, not where you live.
If the service is performed, goods are shipped, or intellectual property is used outside Panama, the revenue is foreign‑sourced and escapes Panamanian tax. Simple—but you must prove it.

Core Compliance Checklist

Task Why It Matters Frequency
Segregate Sales Show which invoices are foreign vs. local Ongoing, per invoice
Maintain Dual Bank Accounts Keep foreign revenue in an offshore or USD foreign‑income account Ongoing
Keep Proof of Delivery/Service Location Bills of lading, server logs, signed contracts Archive 5 yrs
Economic Substance (banks) Demonstrate real ops if you hold large balances in Panama Annual review
File Corporate Return (Form 104) Declare zero taxable income, attach notes 31 March
Update UBO Register Required for all companies Within 30 days of change
Respond to DGI Queries Tax office may ask for supporting docs 30‑day deadline

Proving Foreign Source — Examples

Business Model Key Evidence to Keep
E‑commerce (China ➜ USA) Supplier invoices (China), courier tracking, Shopify geo‑analytics
Online Consulting Zoom logs, client contracts stating work performed remotely outside Panama
SaaS / Digital Products Server location certificate (AWS region), payment‑processor country reports
Import‑Export via Free Zone Customs forms showing re‑export, warehouse exit slips

Common Red Flags

  1. Panama IP address on invoices—makes revenue look local.
  2. Single bank account for all income—blurs the source trail.
  3. No board minutes—authorities assume management/control happens in Panama.
  4. High local ad spend—could imply market creation inside Panama.

Fix: Use separate Stripe/MercadoPago accounts and tag transactions by market.

Banking & Economic Substance

Banks follow FATF rules. If you keep large foreign‑income balances inside Panama, expect:

  • Source‑of‑Funds Letters every 6–12 months.
  • Proof of Operations (contracts, invoices, shipping docs).
  • Local Substance Evidence if claiming Free Zone/EMMA incentives (office lease, payroll slips).

Failure to provide can lead to account freezes. AskPanama offers a Substance Pack (virtual office + minutes + director) starting at US $900/yr.

International Reporting (FATCA / CRS)

Panama participates in both regimes:

  • US Citizens & Green‑Card Holders – Panama banks file FATCA Form 8966; you still report worldwide income to the IRS.
  • CRS Countries – Your account balances are reported to your home tax authority. Territorial tax in Panama does not override your domestic obligations.

Record‑Keeping Rules

  • Retention: 5 years minimum.
  • Formats: Digital scans accepted if originals available on request.
  • Language: Spanish or certified translation for audits.

Penalties for Misclassification

Offence Fine
Under‑declaring taxable local income 10 % of unpaid tax + interest
Late corporate return US $100 – US $1,000
Missing supporting documents Up to US $5,000
Severe cases can trigger criminal tax‑evasion charges (rare, but possible).

AskPanama Compliance Services

Service Fee
Zero‑Tax Audit File Prep (binders + digital) US $650
Economic Substance Pack (virtual office + minutes + local director) US $900/yr
FATCA/CRS Advisory (US & EU clients) US $350

Next Step

Book a 15‑min compliance check‑up—free.
Receive a gap report listing missing proofs/documents.
Stay at 0 % with peace of mind.

Chat live or WhatsApp +507‑6933‑3333.
Territorial tax done right—only with AskPanama.

Book your FREE consultation