Residents moving to Panama in October will remain tax residents in Spain

Changing tax residence to a third country during a calendar year carries specific implications for determining tax residence in Spain and the treatment of income received. The Directorate General of Taxes (DGT) has clarified the applicable treatment for taxpayers planning to move their domicile to Panama in the last quarter of the year.

What the DGT has ruled

The Administration has clarified that if a taxpayer communicates their change of residence to Panama in October 2027, they will continue to be considered a tax resident in Spain for that entire calendar year. This is due to meeting the permanence criterion, having been present in Spanish territory for more than 183 days during the fiscal year.

As a consequence of this status, the taxpayer will be obligated to pay tax in Spain on their worldwide income during the year 2027. However, the ruling also addresses the application of the Convention between Spain and Panama regarding pensions derived from previous employment. According to the applicable regulations, these pensions may only be subject to taxation in the State of residence, which in this case would be Panama, provided that such status is proven.

What this means for you

If you relocate your residence in the final months of the year, you should take the following points into account:

• Residence in the year of relocation: You will maintain your status as a tax resident in Spain for the entirety of the year in which the move occurs, if you exceed the 183-day threshold.
• Obligation to declare worldwide income: During that transition year, you must declare all your income in Spain, regardless of where it was generated.
• Treatment of pensions: Once residence in Panama is established, pensions from previous employment will be exempt from withholding in Spain, provided that documentation proving your tax residence in Panama is submitted.
• Subsequent years: If in following fiscal years you do not meet the criteria for residence in Spain, you will transition to being taxed solely as a non-resident.

What should be done

It is necessary to evaluate the relocation schedule to understand the impact on the income tax return for the current year. Proving tax residence in Panama will be an indispensable requirement to avoid withholdings in Spain on pensions derived from previous employment, in accordance with the provisions of the Double Taxation Convention.