In Panama Tax forms you might have never heard of!
By: Joel Davids, CPA
Now that we are into the New Year, there are many of you are shoveling snow and thinking of Spring. Some of you may already be thawing in Panama. Not me! I am cursed with knowing another tax season is about to descend on me and I have to deal with angry people who never adjusted to new regulations, new forms and write checks for more than they thought. However, I am going to describe some forms you have probably never heard of, let alone been required to complete. When your acquire property, run a business, or have bank accounts in Panama (and other overseas destinations), the IRS requires certain other forms to be completed. The good news is that, except for earning self employment income, there are no additional taxes due that would not otherwise be due if you were not overseas. I will briefly list those forms required by United States citizens.
FenCen 114 or FBAR is the Foreign Bank Accounts Report. This form has been around for a long time under a different name. This report is required if you have $10,000 accumulated in all of your accounts in any given day in the calendar year. FinCen stands for Financial Crimes Enforcement Network. If that doesn’t scare people from not filing, the $100,000 penalty for willful non filing should.
Form 5471 Controlled Foreign Corporation. This form had been around for some time. It was designed for the Apples’, ExxonMobils’, Haliburtons’, Johnson & Johnsons’ of the world, and you who own their personal residences in Panama in corporate name. Well, maybe not designed for you, but you may own your home as a Panamanian Corporation and it fits the definition of who is required to file the form. The good news is that unless you are running a business out of this home there is no additional tax.
Form 3520A and 3520 Report on Foreign Trusts Great! You don’t have a corporation but you own your home in the name of a foundation. Well, we have forms for you too. The 3520 in any year in which the property was donated to the Foundation and 3520A as an annual return for the Foundation. Again, like a Corporation there are no additional taxes.
Form 2555 Earned Income Exclusion. Finally, a form that can significantly reduce your tax burden. If you meet certain residency and income source requirements, you can exclude up to $99,200 of earned income in a foreign country from US income tax.
Except for the Form 2555, the above forms are required even if you do not reside if the foreign country. Mere ownership of assets in a foreign country trigger the filing requirement. Also, there are additional requirements included in those forms not detailed here. The forms and instructions (if reading them does not confuse you more) will describe other requirements.
There are other forms to consider, but that’s for another day. Remember don’t blame the messenger – they only deliver the message!