What is the Certificate of Tax Residence in Panama and around the world?

You should know that the Certificate of Tax Residence is only useful for those who want to benefit from the agreements to avoid double taxation

The Certificate of Tax Residence or Tax Residence Certificate can be used to officially prove one’s tax residence in Panama. However, it is not an indispensable document, and it is not always sufficient to prove one’s tax residence in Panama or another country.

This document is useful, both for individuals and legal entities, who want to take advantage of the agreements to avoid double taxation and is generally only required for this very specific purpose.

Panama’s Dirección General de Ingresos (DGI) is the entity responsible for issuing Tax Residence Certificates. To obtain it, both natural and legal residents must submit a formal application along with the necessary documentation proving their tax residency in the country. This process is regulated by Resolution No. 201-0354 of January 13, 2016, which establishes the requirements and procedure for applying for these certificates.

Tax residency in Panama for individuals is based on staying in the territory for more than 183 days in a fiscal year, consecutive or alternating, or establishing permanent residence in the country. For legal entities, those incorporated under Panamanian laws and foreign entities that have their effective administration and control in the territory of Panamá are considered tax residents.

Generally, no one asks you for this certificate. The Certificate of Tax Residency only helps prevent double taxation and ensure that companies and individuals operating in multiple countries, are taxed fairly, thus promoting a favorable and transparent business environment.

With the Certificate of Tax Residence you can establish your tax position to benefit from double taxation treaties to which the country has acceded. It is not needed to prove your actual tax residence in an unobjectionable form.

What does tax residency mean?

The concept of tax residency plays a crucial role in the world of finance and international taxation, becoming a topic of interest to both individuals and corporations operating across borders. The need to establish tax residency generally stems from the intention to avoid double taxation, a phenomenon that occurs when the same income is taxed by two different tax jurisdictions. To address this challenge, many countries have entered into bilateral agreements and adopted domestic legislation that allow taxpayers to prove their country of tax residence.

In this context, the Certificate of Tax Residence emerges as an essential tool. This official document, issued by the relevant tax authority, certifies that an individual or legal entity is a tax resident in a specific country, for a specific tax period. Obtaining such a certificate is essential for taxpayers who wish to avail themselves of the benefits provided by international double taxation treaties.

The procedure for applying for a Certificate of Tax Residence may vary from country to country. For example, in Spain you can request a Tax Residence Certificate in the web of the Agencia Tributaria, in Italy, the request is made at the Agenzia delle Entrate, while in Panama you have to submit an application to the Dirección General de Ingresos (DGI).

In addition to being useful for individuals who live and work in multiple countries, the certificate is also important for companies that operate globally. It ensures that entities that operate in multiple countries, are taxed appropriately based on their true tax residence, thus avoiding unfair tax burdens and promoting a fair and transparent business environment. If you are not a multinational corporation and have no centers of economic interest in multiple countries, the Certificate of Tax Residence is just a bureaucratic piece of paper that no one will ever ask you for. Do you have doubts? Request a consultation with attorney Giovanni Caporaso Gottlieb