Taxes for Americans living in Panama

Moving to Panama doesn’t end your US tax obligations. US citizens and green card holders file a federal return every year wherever they live. What changes is the Panamanian side, which is lighter than most people expect.

How Panama taxes

Panama taxes on a territorial basis. Income earned from sources inside Panama is taxed. Income from outside Panama generally is not, even if you live there full time and bring the money in.

Income	Taxed by Panama?
US Social Security or pension	Generally no
Dividends and interest from investments held abroad	Generally no
Salary from a Panamanian employer	Yes
Profits from a business operating in Panama	Yes
Rent from property in Panama	Yes
Gain on selling property in Panama	Yes

Where Panamanian income tax does apply, the rates for individuals are progressive, with a tax-free band and a top rate of 25 percent.

One grey area is work you physically do in Panama for clients or an employer abroad. The short-stay visa for remote workers treats that income as foreign. For long-term residents the position is less clear-cut, so take advice from a Panamanian accountant if this is you.

What changes on the US side

• You still file a US return on your worldwide income.
• Foreign accounts must be reported. If your non-US accounts total more than $10,000 at any point in the year, you file a foreign account report (FBAR). Larger balances trigger a second form with your tax return.
• Retirees usually see little change. Pensions, Social Security and investment income are taxed by the US as before, and since Panama generally doesn’t tax them there is no foreign tax to credit.
• Earned income may qualify for the foreign earned income exclusion if you work while living abroad and meet the time tests.
• A Panamanian corporation or foundation brings extra forms. Property in Panama is often held this way, and the US reporting is detailed, with heavy penalties for missing it. Ask before you set one up.
• Your state may still want a return. Some states keep treating you as a resident until you clearly cut ties.

Panamanian tax residency

Panama generally treats you as a tax resident if you spend more than 183 days a year there or make it your permanent home. Under a territorial system that matters less than it would elsewhere, because foreign income stays outside the net either way. It is separate from immigration status: a resident card doesn’t by itself make you a tax resident.

When to bring one in

Before the end of the year you move, so you can plan the move date, a property purchase, and whether to hold anything through a Panamanian company. At the latest, before your first US filing deadline abroad.

What to ask a preparer

• How many clients do you have who live in Panama?
• Do you handle the Panamanian side, or work with a Panamanian accountant who does?
• Is the fee fixed, and does it include foreign account reporting, a state return and any forms for a Panamanian corporation?
• Are you an enrolled agent or CPA, and will you represent me if the IRS writes to me?

See retiring in Panama for how tax fits with Social Security and healthcare.

Common questions

Do I still pay US taxes if I live in Panama?

US citizens and green card holders must file a US federal return every year wherever they live. Because Panama generally doesn't tax foreign income, there is often no Panamanian tax to credit against it, so many retirees owe the US about what they would at home.

Does Panama tax foreign income?

Panama taxes on a territorial basis: income from Panamanian sources is taxed, and income from outside Panama generally is not. A US pension, Social Security and returns on investments held abroad are foreign-source income.

Do I have to report a Panamanian bank account to the US?

Yes, if your non-US accounts together exceed $10,000 at any point in the year. That is the foreign account report known as the FBAR. Larger balances require a second form with your tax return, and a fixed-term deposit made for a residency visa counts.

Is there a tax treaty between the US and Panama?

There is no general income tax treaty between the two countries. There is an agreement to exchange tax information, and Panamanian banks report accounts held by US citizens to the IRS.