Overview

Unless you already have a second passport in hand, it is often not necessary or desirable to establish legal residency in a country that you would like to spend time in.

This is because becoming a legal resident entails getting sucked into a country’s tax system, something that is obviously better to avoid if possible.

The smarter option is usually to just leave every 90 days and renew a tourist visa while not spending more than six months per year in any particular country. (Most countries will consider you a tax resident if you spend more than six months per year there.)

It’s much better to be treated as a valued guest to be courted (a tourist) than a cow to be milked (a legal resident). Sometimes though, it is advantageous to become a legal resident of a country, particularly if you intend to become naturalized and obtain a second passport, which gives you enormous political diversification benefits.

Most countries will naturalize legal residents after a certain number of years. However the conditions to initially obtain, and then retain, permanent residency status vary widely across countries. One of the easiest countries in the world to obtain permanent residency status is Panama.

A law was passed in 2012 (Executive Order 343) to encourage certain foreign citizens to come to Panama.

It makes obtaining permanent residency in Panama easy for citizens of 48 specific countries that “maintain friendly, professional, economic, and investment relationships with the Republic of Panama.” This program is often referred to as the “Specific Countries” or “Friendly Countries” program. Eligible countries include the USA, Canada, and many European countries.

It requires one simple application and a deposit of at least $5,000 USD in a local bank account, plus an additional sum of $2,000 USD for each dependent.

Applicants will also have to show proof of some meaningful economic activity in Panama, such as ownership of a Panamanian corporation (new or existing), a purchase of income-producing real estate, or an employment contract from a business in Panama.

Incorporating a new LLC in Panama in order to qualify is not particularly difficult or expensive. This is an especially attractive option if you have an Internet-based business or a mobile source of income.

There is, of course, discretion by the Panamanian authorities in determining if your situation qualities for “meaningful economic activity.” But from what I have heard it is not difficult to get approved.

Once you have obtained permanent residency status, you become eligible to obtain full citizenship and a Panamanian passport after five years.

The Panamanian government also has discretion on the naturalization process. If you don’t spend any significant time in the country during the five years they may decide not to grant you citizenship. That said, they do not currently appear to be strictly counting the number of days you are in-country.

I’d recommend that you consult with a local attorney to better determine how much time in the country is required to maintain permanent residency status with an eye towards naturalization after five years.

The attorneys I spoke with said that a visit once every two years is the minimum needed to maintain residency.

In any case, it would be a good idea to establish demonstrable personal and business ties to Panama. Tomorrow’s government may decide to interpret things more stringently.

For those interested in pursuing Panama as a choice for a second passport there is an important clarification.

It is true that on paper Panama does not recognize dual citizenship and requires you to renounce your previous citizenship in order to be naturalized. However, this does not mean you have to really give up your existing citizenship.

The Panamanian nationality law requires an oath of renunciation of former citizenship as a condition of naturalization. However, currently the US court system interprets this oath as “non-meaningful” and therefore it will not result in the loss of US citizenship, unless the US citizen renounces their citizenship directly to the US State Department, which will then result in loss of US nationality.

That said, it is not necessary to renounce US citizenship to the US State Department to become naturalized in Panama.

Immigration and naturalization can be complex topics, especially when you consider every individual’s specific circumstances. This is why it is important to seek the advice of a knowledgeable attorney.