Reyn and I are not trying to hide. In fact the thought of being targeted by the IRS puts my guts into knots.
I really want to play by the rules, but of course, I don't want to pay more taxes than are absolutely necessary.
We went to Panama City on Tuesday to meet face-to-face with a couple of tax accountants who specialize in helping US citizens who live in Panama.
Okay so maybe we didn't need to meet with 2 accountants over 2 days, but we wanted more than 1 perspective on the recent changes. It was an enlightening experience.
NOTE: We met with one of the accountants near the statue of Einstein's head in Panama City (see the photo above). Even Einstein had a hard time understanding tax law, and I imagine it was alot simpler back in his time.
The difference for US citizens is that the IRS is in hot pursuit.
Most other countires might have laws saying their citizens must pay taxes even while abroad, but they aren't willing to pursue the matter.
Lots of expats in Panama want to live "under the radar". In many ways that is possible here. The cash economy thrives in Panama. Paying for things - even very large ticket items - in cash is the norm. Panamanians generally prefer it. Unlike the US where some places won't even accept cash.
Very few things are computerized here. Unpaid bills don't haunt you in Panama. They just disappear. There is no local financial tracking system, or any kind of tracking system. Well, except for immigration - but even that is limited by location.
Neither is true anymore.
The Organization for Economic Cooperation and Development (OECD) has been exerting more pressure on "grey" countries. They are increasingly saying to countries that if you want to play with the big boys in the world market you need to play by the rules.
OECD has been targeting tax havens, putting countries on black, grey, or white lists depending upon whether they exchange information with other nations for the purposes of tax reporting, regardless of domestic bank secrecy laws
In April of 2009, Panama was put on OECD's "grey" list.
These countries, and more, have now all complied with OECD's Article 26 standards regarding information exchange.
Panama was conspicuously absent from the list. This is true no longer.
Panama has enacted a number of transparency rules, including a new law that requires reporting the names of the share holders of its many corporations.
So all you folks who are "hiding" under a Panamanian corporation or private Panama foundation, beware. Of course, if you are an American, you were always required to report any "bearer" or other shares you hold in a Panama corporation or foundation to the IRS. But now, it is much easier for the IRS to discover if you participate in a Panama corporation or foundation.
Many Panama lawyers, either won't tell you this, or don't know about this new tax implication.
Do yourself a favor. Make sure you don't just talk with a lawyer, but an accountant who knows the tax implications both in Panama and in the US (or in your country-of-origin).
Okay, back to the OECD and Panama.
This means that Panama has signed information exchange agreements with at least 12 major countries.
The most far reaching agreement they signed was with the US government.
World-wide the US has become very aggressive in seeking out expats who aren't paying their taxes - no matter where they live. There really is almost no place to hide from the US tax-man anymore.
In 2011, Panama officially said "uncle" to the revenue-starved US. Panama agreed to grant bank account access to IRS agents - but only if they have a US-issued warrant in hand. This is similar to the agreement european and other countries have with the US for information exchange.
As part of that agreement, starting in 2014, Panama has to report any bank accounts over $50,000 to the US. The Panama banks are very scared of stepping out of line with this new agreement so they aren't waiting for 2014. They have already started reporting these bank accounts.
While these changes feel very much like Big Brother breathing down your neck, unless something changes with OECD or US Tax law it is a new global reality.
Compared to most other places, Panama is still an excellent choice to live, work, and invest
Panama is also a very easy place to set up a corporation.
If you have an off-shore business, for instance an on-line business, you can easily and quickly set up an off-shore corporation in Panama.
For your business to qualify, you must have:
You can have your office in Panama and do all your work in Panama, but your clients cannot be Panamanians.
An off-shore corporation gives you great tax freedom.
You not only don't pay taxes in Panama, but you can also qualify for a huge income tax exclusion in your home country.
For instance, if you are a US Citizens you can legally exclude the first $95,000 you earn "off-shore".
This is available to all US citizens if you live outside the USA for "at least 330 full days during any period of 12 consecutive months".
However, if you are a legal Panama resident and own your own home in Panama, you get the exclusion no matter how much time you spend in the USA.
To get this exclusion, you must file a 5471 form as part of your US taxes each year no matter how much or how little you earn.
Until next time,
Betsy
