Double Tax Treaty – an international agreement to avoid paying twice

One of the main benefits that Panama offers to foreign companies which invest in this country is the double tax treaty. This measure was taken to fulfill the requirements requested by the Organization for Economic Cooperation and Development (OECD) and allows foreign entrepreneurs to avoid double taxation, both in Panama and in their country of origin, for the income earned in the country of residence.

Double taxation occurs when both countries consider that they have the right to tax a particular income. In that way, the same profit can be taxed by more than one country. To solve this issue, countries conclude waiver agreements which state that either only one of the countries will charge taxes on a certain earning or both countries will charge a shared tax on said earning. This shared tax agreement involves the creation of mechanisms to recognize in one country the tax paid in the other country allowing businesses to demand tax credit from their governments.

Income earned outside of Panama will not be subject to taxation while revenues generated in Panama will be charged taxes both in this country and in the business’ home country, as established in the Panama tax system. Here is when the double tax system becomes essential for entrepreneurs because of the beneficial granting of tax credits.

The businesses that benefit the most from these double tax treaties are branches of foreign companies established in Panama which declare their income in the country and have workers who are not permanent residents. Double tax treaties are also beneficial for those who make the payment of dividends, interests and royalties to shareholders residing in a country with which Panama has signed a tax agreement. The latter may ask their government a tax credit for the tax withheld in Panama.

Panama has signed treaties with Mexico, Spain, Israel, France and Qatar, among other countries, in order to avoid the double taxation of the profits of entrepreneurs. Panama’s enormously beneficial international agreements and its reputation as a tax heaven attract more and more investments. Delvalle & Delvalle attorneys at law advise you to seek legal counsel regarding existing agreements with your country of origin and how they can benefit your business.

Don’t hesitate to contact us for more information about the benefits of Panama Double Tax Treaties.