PSG tip for ExPats: NOV 2020

Editorial Contribution
BEWARE:  Panamá’s days of NOT PAYING TAXES are LONG GONE!!!
Hello Reader’s!   Welcome to the first of what we hope will become a regular part of PNO.   Panasolutions Group will begin writing and contributing to PNO and it’s readers with helpful tips to help avoid some of the regular pitfalls associated with the day to day problems of the expat community.   We have built a relationship over the past year with JB and a few expat clients that he has referred our way.  I’m fact we are proud to say that JB himself has become a client of the firm (although he hasn’t paid and we haven’t charged him for any of the time we have given him to help understand some of the more complex problems some of the PNO readers have found themselves in.   
Today’s “Lesson from PSG” is tax related.   First, we should point out that we are NOT licensed accountants or lawyers but have certainly gone to school here in Panama and work with some of the best lawyers and accounting firms in Panama.   We know them all and most know us…   Having said that back in the not so distant past Panamá was a true haven for those seeking to conceal wealth, shelter monies, transact offshore and do just about anything to evade and avoid paying taxes both inside and outside of Panama.   
The reality is Uncle Sam and other like minded countries have all but put an end to those days in Panama.   From the signing of certain trade agreements to Fatca, AML regulations and most recently the Panama Papers those days are gone.  Panamá once was the land of “Bearer Shares” and little black bank books.   A place where land transactions were used to clean money even evading paying taxes here in Panama.   Giant towers of apartments lining Avenida Balboa were sold and built to never be occupied (at least not by the initial buyer(s).   Form 5471 sound familiar to anybody reading this??    If you own property in Panama most likely it’s held in a company and if you or your spouse or heirs are the ultimate beneficial owners of 10% of that company or property you better be filling out that form or else.    Here’s what’s most interesting and alarming at the same time.  Most of our clients are American or Canadian Ex Pats.   We have some Dutch Nationals as well and the odd Islander and Europeans but most of our clients come to us from the land of Uncle Sam.   Here’s what’s scary and what you all need to know.  For the last 10 years the US has become experts at following and tracking all monies leaving the US.   Those citizens were once targeted by the US and protected by countries like Panamá.   However, now Panamá and other Central American countries are all too willing to give up everything to the US.   What’s worse is many of our Ex pat clients have become targets of governments like Panamá now as well.   Why would Panamá target Ex Pats?   Other than to try and get them to visit and spend money while visiting the country?   It’s very much like the story of the drug dealer that gives out samples for free.   Knowing once they’ve gotten a taste of the goods they’ll be hooked.   So many Ex pats came south looking for cheaper cost of living, better weather but MOST came looking to either retire on the cheap and avoid the taxes associated with income and property back in the US or Canada.   
For decades Americans would come down and purchase property sub declaring the actual purchase prices and in some cases evading taxes entirely based on tax loop holes or paying next to nothing.   However, we have started to see American and Canadian clients of ours who have now been targeted in a big way   They are getting nailed with hefty fines, penalties and interest for what was once an acceptable practice in Panama.   The tricky part is tax evasion is not what would be considered in Panama even today as a felony.   One of the reasons why Panamá sits still on many of the black lists globally.   But the crimes to be considered and concerned about are conspiring to defraud the Panamánian Tax Authorities.   Which would  be perhaps getting advice from a lawyer, or a developer or a seller and together a plan is created such that one hands washes the other.  The developer or seller reduces his tax debt through sub declaring the sales price on the land and the buyer also benefits from a lower annual taxes based on a false purchase price.   The BIG mistake we are seeing is the following…..   Taxes in Panama especially on raw land are generally very low.  There are all sorts of incentives offering no taxes on the improvements meaning apartment or home or villa often times for as much as 20 years.   The bear trap here is two fold.   Number one don’t conspire!   Number two if you are a citizen of the United States or Canada and you maintain your citizenship and/or residency it is prohibited to commit an act in another country that would be considered a serious financial crime such as Fraud, Money Laundering, Tax Evasion,Conspiracy to commit Tax Evasion and so on.  This practice is happening, it’s being perpetrated daily in Panama.   Before it wasn’t considered an issue and countries like Panamá didn’t have a problem telling foreign countries to stay out of their business.   Those days have changed.   We are supporting and helping two clients right now that truly acted blindly and under the advice a developer in Panama City.   They sub declared lots they purchased in a golf course community.   They helped the developer much more than they helped themselves.   They are now dealing with a serious mess both in Panama and the US because one the benefited from illicit act (although only $500) in savings per year on a half million dollar investment.   Two they didn’t fill out the proper 5471 forms for 3 years in a row (that’s a no no)!   But the scariest of all is facing potential serious charges in the US for sub declaring the land value in Panama and using a The US Banking system to send wires for the purchase of said property.   These two clients of ours are the absolute furthest things from Money Launderers you would ever meet.  
The purpose of this post isn’t to turn people away from Panama or other similar places.   It’s simply to be careful in what and how you handle your business.   Beware of Sellers and crooked Developers in Panama.   Ask yourself does what your being asked to do benefit you?   Is the juice worth the squeeze?   Would you rather pay the extra fee hundred dollars a year and sleep well at night?   Oh and by the way all property taxes paid over the life of your home or apartment in Panama can be written off 100% at the time you eventually sell it to offset in Capital Gains you will likely have so don’t be in such a hurry to swim in the dark deep end of the pool.   My father always told me you can’t put a price on peace of mind!   Rest well enjoy the elections JB we miss you and hope to hear from you soon.   Remember Panamá is a great country with great opportunities.   We need more Ex pats that appreciate Panamá for its beauty and the nostalgia of its terrain and landscapes.   Not those looking to make a quick buck or trying to find a way to beat the system.   The system wasn’t set up to be beaten.   Hasta luego.  
Big A-

Hmmmm. Interesting. So an American can be charged in the US of A for conspiring to or committing tax evasion or sub declaring a purchase in Panama. Can you clarify. To me this is both scary and quite interesting at the same time. Thanks JB et al.

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