NZ Citizens Living in Panama: Best option(s) to legally reduce personal and business tax as much as possible.

[surfnzwaves]

Hello,

Thank you all in advance for your assistance.

We're NZ citizens who recently moved to Panama. The aim is to clarify and to confirm that we're on the right track to legally reduce personal and business tax as much as possible.

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Goals for this thread:
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- To clarify/confirm we're on the right track.

- To decide which option for business continuation is best:

- Keep NZ business structure?

- Or setup new offshore company business structure?

- Panama?

- Other?

- Or both?


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Overview: New Zealand:
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- We are married.

- We are both NZ citizens.

- We are directors of a company registered in NZ as a Ltd. company.


- We have an online business, membership business model.

- Members pay into PayPal and Stripe NZ accounts.

- Funds are transfered to NZ Kiwibank or NZ TransferWise (to USD account).

- Drawings from NZ Ltd. are our salaries.

- NZ Ltd. does not pay tax because no profit: All profit is drawings.

- We then pay NZ tax on personal income (the drawings).


- We have cut all personal ties with NZ.

- Only have the NZ Ltd. company, the NZ PayPal and Stripe accounts, and the NZ Kiwibank and NZ TransferWise accounts.

- We will become non-tax residents of NZ on Feb 2021.


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Overview: Panama:
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- We moved to Panama in March 2020.

- We became permanent residents of Panama in August 2020.

- We used the Friendly Nations Visa program.


- We have a personal bank account with a Panama bank.

- We also have a Inc. Panama company.


- The Panama bank account and the Inc. Panama company setup during FNV application process.

- Panama bank account only currently used for personal expenses.

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Objective:
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- To legally reduce personal and business tax as much as possible.

- Personal

- Move to Panama. (Done)

- Become tax residents of Panama (if necessary or by default?).

- Become non tax residents of NZ.


- Business

- Continue w/ NZ Ltd.?

- Or use Panama Inc.?

- Or setup new offshore company somewhere?

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Questions:
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- Can we continue/keep the NZ business structure the same?

- Members continue to pay membership via NZ PayPal and NZ Stripe.

- We continue to transfer funds from NZ PayPal and NZ Stripe to NZ Kiwibank and NZ TransferWise (to USD account).

- We continue drawings from NZ Ltd., and start to transfer of funds from NZ Kiwibank and NZ TransferWise to Panama personal bank account.

- NZ Ltd. company continues with no profit and thus pays no NZ tax.

- NZ accountant continues to prepare and file tax return for NZ Ltd. company.

- If continue/keep the NZ business structure the same, then as directors of NZ Ltd. company,
what are the disadvantages?

- As tax residents of Panama, with drawings from a NZ Ltd. company, is the personal income foreign source
and thus not taxed in Panama? Does NZ see this as a problem?

- As tax residents of Panama, with dividends from a NZ Ltd. company, is the personal income foreign source
and thus not taxed in Panama? Does NZ see this as a problem?

- Or would it be better to setup and use new business structure outside of NZ? And or outside Panama?

- Setup and use new business structure in Panama?

- Setup and use new business structure somewhere else?

- Where?

- Delaware LLC?

- BVI? UAE? ...

Thank you!

 

[ncracy]

Wow, a lot of questions! Good preparation, though. Why don't you ask them to some NZ and/or Panamanian tax advisors?
My 2 cents (IANAL, just my opinion):
As tax residents of Panama with income from NZ company you shouldn't be liable to tax in Panama, just the NZ tax. I don't see how it can be a problem for NZ IRD.
I'm pretty sure that in order to stop paying NZ taxes you'll need to get rid of NZ Ltd. NZ ltd is always considered tax resident of NZ no matter where it is managed from and thus the income source is NZ and therefore you pay taxes in NZ even when you are not NZ tax residents. A DTA might've changed that, but as far as I'm aware there is no NZ-Panama DTA. Better to confirm it with NZ tax advisor, of course, there might be some "50 shades of grey" options to reduce tax even when having NZ structure in place.
In terms of new business structure I think your existing Panamanian entity would work, but all those nitty-gritty details like PayPal/Stripe availability for a Panamanian company need to be checked separately. If PayPal/Stripe is not available, then it might be better to check other offshore options.

 

[John Andrews]

I would set up an agency agreement between the NZ and Panama company so you can keep using Stripe and Paypal

 

[ncracy]

That's what I called "50 shades of grey" option. Most likely outcome: NZ IRD considers this setup as having only one purpose - reducing NZ tax, which is tax avoidance and a big no-no. Therefore it is null and void so it continues to tax as if there was no such agreement at all. It theory, something like this is possible, but in practice almost impossible to do and maintain properly.