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For an Australian who owns an international or online business and is genuinely willing to relocate, Panama offers a long-established territorial tax system that leaves foreign income alone, a residency route that is open to Australians, and a stable, US-dollar economy. Like the other relocation strategies we describe, for Greece, Italy, the UAE and Singapore, this depends on actually moving to Panama and making it your home. The way in is through residency, most commonly the Friendly Nations Visa, supported where appropriate by a Panamanian company.
This guide sets out how the strategy works, who it works for, how an Australian obtains residency, how they become a Panama tax resident, and the issues that have to be managed to make it hold up.
The strategy in one paragraph
An Australian relocates to Panama and obtains residency under the Friendly Nations Visa, a programme for which Australia qualifies. Residency is granted on the basis of a genuine economic tie to Panama, which can be an employment relationship with a Panamanian company, ownership of Panamanian real estate with a registered value of at least US$200,000, or a fixed-term deposit of at least US$200,000 in a Panamanian bank. With residency granted, the person genuinely moves to Panama and in time becomes a Panama tax resident. Once resident, Panama taxes only Panama-source income, and foreign-source income, including foreign dividends, interest, capital gains and business profits, is not taxed at all.
Who the strategy works for
The strategy works for businesses whose income is genuinely international or location-independent, rather than tied to an Australian premises or an Australian customer base. In practice that means technology and software businesses, content creators and influencers, online service, marketing and consulting businesses, intellectual property holding, and investment portfolios.
What these have in common is that the income can legitimately be earned and accumulated outside Australia, and the owner can run the business from anywhere. A bricks-and-mortar Australian business does not fit, because its income remains Australian-sourced and Australian-taxed regardless of where the owner lives. An online or international business does fit, which is what makes the relocation worth doing.
Panama suits people whose wealth and income arise offshore, because the territorial system leaves that income untouched, and it suits people who value an accessible residency that does not demand the salary thresholds or points tests of the UAE or Singapore routes.
How Panama taxes you
Panama taxes on a strictly territorial basis, and that single feature is the heart of the strategy.
Only Panama-source income is taxed. Income earned from activity carried on, or services rendered, within Panama is subject to individual income tax at progressive rates rising to 25 per cent. Everything else is outside the tax base.
Foreign-source income is not taxed at all. Foreign dividends, foreign interest, foreign rent, foreign capital gains and profits from a business carried on outside Panama fall outside the Panamanian tax net, whether or not they are brought into the country. There is no separate capital gains tax on foreign assets.
Panama uses the US dollar as legal tender alongside its own balboa, which removes currency risk for someone holding US-dollar assets and simplifies banking.
Set against Australian marginal rates of up to 47 per cent on worldwide income, including capital gains, the Panama position for a person whose income arises offshore is not merely better, it can remove the income tax entirely on that income.
Residency: the Friendly Nations Visa
Panama does not offer a general residence visa to any foreigner who wants one, but it does offer the Friendly Nations Visa to nationals of a list of countries with which it has close relations, and Australia is on that list.
The visa is granted on one of three economic bases:
- an employment relationship with a Panamanian company that is properly constituted, registered and compliant with its obligations;
- ownership of Panamanian real estate with a registered value of at least US$200,000, which may be financed; or
- a fixed-term deposit of at least US$200,000 in a Panamanian bank, held for a minimum term.
The visa first grants a provisional residency for two years. After that period, and on showing that the qualifying basis has been maintained, the holder may apply for permanent residency, so the path to permanent residency runs to roughly three years in total. After five years as a permanent resident, a holder may apply for citizenship. The Friendly Nations Visa does not require the holder to be physically present in Panama to keep the immigration status, although, as explained below, actually living there is what matters for tax.
Two points shape how a relocating business owner uses this route. First, the Friendly Nations Visa does not by itself grant the right to work in Panama; a separate work permit from the Ministry of Labour is required, and that is applied for alongside the residency. Second, the employment route is constrained by Panama's labour rules, which broadly limit foreign employees to a small proportion of a company's workforce. That means sponsoring yourself through a brand-new, one-person company is not straightforward, unlike the free-zone self-sponsorship available in the UAE. For most relocating individuals the cleaner path is one of the investment routes, the US$200,000 property purchase or the US$200,000 bank deposit, with a Panamanian company used to hold and run the business rather than to manufacture an employment relationship.
The company
A Panamanian company, usually a sociedad anónima or a limited liability company, is straightforward to incorporate and is itself taxed territorially. It pays Panamanian tax only on Panama-source income, so a company whose income is earned offshore generally pays no Panamanian income tax. The company can hold the business, intellectual property or investments, and can be the vehicle through which the owner operates after relocating. Where the employment route to residency is used, the company is also the employer that supports the work permit, subject to the labour rules described above.
Becoming a Panama tax resident
Panama's favourable treatment follows from being a Panama tax resident, so the relocation has to be real. An individual is generally a Panama tax resident if they spend more than 183 days in a year in Panama, or establish their main centre of economic interest and their permanent home there. Holding a Friendly Nations residency does not, by itself, make a person a Panama tax resident or end their Australian residency. For an Australian who genuinely moves to Panama and lives there, residency will usually follow in the ordinary course, and it is residency that unlocks the territorial treatment described above.
The issues that have to be managed
The strategy is sound, but it depends on four things being handled properly.
1. Ceasing Australian tax residency
The Panama tax position only helps once the owner is no longer an Australian tax resident. While they remain an Australian resident, Australia taxes their worldwide income, including any Panamanian and foreign income and any capital gains, at rates up to 47 per cent. The departure from Australian residency must be deliberate and well evidenced, and it must account for CGT event I1, which deems a disposal of the departing resident's non-Australian-property assets at market value on the day they cease to be a resident. Australia does not have a comprehensive double tax treaty with Panama, so there is no treaty tie-breaker to resolve a dual-residence year, which makes a clean and unambiguous exit more important rather than less. The Australian Taxation Office looks closely at moves to low-tax and territorial-tax destinations, so the relocation must be genuine and capable of proof.
2. The residency route, and the work-permit reality
The Friendly Nations Visa requires a genuine qualifying basis, and the basis you choose has consequences. The employment route depends on a real Panamanian employer and is constrained by the foreign-worker rules, so it is rarely the simplest option for a one-person business. The investment routes, property or a bank deposit, are more commonly used and are cleaner, but they tie up US$200,000. The right to work is a separate work permit, not the visa itself. None of this is an obstacle, but it needs to be planned rather than assumed.
3. Substance: the business must genuinely operate from where you are
If the business is in substance still run from Australia, Australia can treat the company as an Australian tax resident on the basis that its central management and control is in Australia, which would pull its profits back into the Australian net. Genuine management and operation from Panama, consistent with the owner having actually relocated, protects against that.
4. What is taxed, and what is not
The Panamanian advantage is specific. Foreign-source income is not taxed, but Panama-source income is, so the structure should be set up with a clear view of where income is sourced, so that income intended to be outside the Panamanian net is not inadvertently sourced in Panama. Panama also has reporting obligations and, for certain entities, economic-substance requirements, which need to be met.
Is Panama the right destination?
Panama suits owners of international or online businesses who want a genuine territorial tax system, an accessible residency that is open to Australians without a salary or points test, and a stable US-dollar economy. It is less suited to those whose income remains Australian-sourced, those who will not genuinely relocate, and those who expect to self-sponsor through a one-person company in the way the UAE allows.
For the right person the combination is compelling: foreign income left untaxed, a clear route to residency and ultimately citizenship, and a dollarised economy. The strategy rewards being deliberate. The relocation has to be real, the residency basis has to be chosen with care, and the Australian exit has to be clean.
Cadena International advises Australians on international relocation and corporate structuring, including the Panama strategy described here. If you are considering a move to Panama, we can help you design and implement it.
This material is produced by Cadena International. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such.
