Panama applies the territorial principle: it taxes income produced within its territory and, as a rule, leaves out income produced abroad. If you plan to live in Panama with a US LLC, here is what we could verify in the statute and what remains open.
The territorial principle in article 694
Article 694 of the Fiscal Code makes taxable the income produced, from any source, within the territory of the Republic of Panama, wherever it is received. Where you get paid does not decide the question; where the income is produced does.
A taxpayer is any natural or legal person, Panamanian or foreign, who receives that taxable income. As a Panamanian resident, you are taxed on what is produced in Panama, not on what is produced abroad.
Income not considered produced in Panama
Paragraph 2 of the article lists activities whose income is not considered produced in Panama. Two of them matter most to anyone working internationally:
- Directing, from an office established in Panama, transactions that are perfected, consummated or take effect abroad.
- Invoicing, from an office established in Panama, the sale of goods for more than they were invoiced to that office, provided the goods move only abroad.
Note what they have in common: both require an office established in Panama and transactions that close or take effect outside the country.
A history worth knowing
In 2013, Ley 120 amended article 694. Ley 1 of 8 January 2014 then repealed those changes and restored the article with retroactive effect to 31 December 2013. Earlier, Ley 8 of 2010 had repealed Paragraphs I-A and I-B of the same article. Territoriality survived the attempt to change it.
One honest caveat: the text we verified is the one restored in 2014. We could not consult an official consolidated version of the Fiscal Code with later amendments, so any later change to the article is outside this page.
When you are tax resident in Panama
According to the tax authority (DGI), article 762-N of the Fiscal Code treats as tax residents individuals who stay in Panama for more than 183 days, consecutive or not, in a fiscal year or in the immediately preceding year.
That is the only residence test we verified at an official source; we could not review the full text of the article.
What stays open for your LLC
The law does not say expressly how Panama treats the profits of a transparent US LLC whose only member works from Panama for foreign clients. The office exclusion requires an office established in Panama and transactions perfected, consummated or taking effect abroad. No ruling we have read decides this for a single-member LLC; the risk is that part of the income is considered produced in Panama.
Before you move
Count your days: more than 183 in the fiscal year or in the preceding year makes you resident under the DGI's reading of article 762-N. Decide whether you will have an office established in Panama, since both exclusions above depend on one. Map where your transactions are perfected, consummated or take effect: in Panama or abroad. Have your structure reviewed for the open points before you rely on territoriality.Leaving Spain? Read first what Spain still claims when you leave. Panama is not on Spain's list of non-cooperative jurisdictions.
Sources
Checked 26 October 2026.
- Fiscal Code, article 694, as restored by Ley 1 of 8 January 2014: asamblea.gob.pa
- Ley 8 of 15 March 2010: gacetaoficial.gob.pa
- DGI, tax residence of individuals (article 762-N): dgi.mef.gob.pa
This page is general information, not advice for your case. Your individual situation is checked in the consultation, held in English.
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