12 Jun Canada vs Panama: A Look at Investment Tax Differences
One of the safest and most reliable investment options is the S&P 500 Indexed ETF, which includes shares of the top 500 U.S.-based companies. This investment is available globally, and you can access it from almost any country. However, the taxes you pay can vary significantly depending on where you invest from.
For instance, if you invest through a Canadian bank like BMO, you are taxed in two ways. First, you pay personal income tax in Canada on any profit you earn annually. Second, the U.S. government currently charges a 15% withholding tax on foreign investors, which BMO pays directly to the U.S. on your behalf. With the recent passing of the “Big Beautiful Bill” in the U.S., this withholding tax rate is expected to increase to somewhere between 30% and 50%.
In contrast, if you invest in the same S&P 500 ETF through a bank in Panama, you do not pay income tax on the investment profit, as Panama does not tax capital gains. Additionally, because Panamanian banks often invest through U.S.-based financial institutions, the 15% U.S. withholding tax may not apply in the same way, helping you keep more of your returns.
This is the strategy many wealthy individuals use to preserve and grow their wealth. Over 20 years, avoiding a 15% annual tax could mean retaining an additional 300% of compounded growth. When you also consider other annual fees and taxes, it becomes clear why investing through a high-tax country can significantly reduce your long-term profits.
Ultimately, the choice of where to invest is yours. But if your goal is to build and protect wealth, it makes sense to invest where the tax burden is lower.
Dr. Shawn Pourgol, MBA, DC, DO, DN, PhD
The Travelling Osteopath