Taxes in Panama for Americans: what you pay and what you don't

Panama taxes income earned inside Panama and generally leaves foreign income alone, so a US pension, Social Security and investment income from abroad are not taxed there. US citizens still file a federal return every year, and most retirees end up paying the IRS about what they paid before the move.

Panama’s taxes at a glance

The rates below are from general knowledge of Panamanian law at the time of writing. Rates and exemptions change, and the tax authority (the DGI) or a Panamanian accountant confirms the current ones.

Tax	What it applies to	Rate
Income tax	Income from Panamanian sources	0% up to about $11,000 a year, 15% to about $50,000, 25% above
Foreign-source income	Pensions, Social Security, dividends and interest from abroad	Generally not taxed
Sales tax (ITBMS)	Most goods and services	7%; higher on alcohol, hotel stays and tobacco
Property tax	Registered value of real estate	About 0.5% to 1%, with exemptions
Property transfer tax	Sale of real estate	About 2% of the price or registered value
Capital gains on real estate	Gain on a sale in Panama	10% of the gain, with an advance payment of about 3% of the price
Dividend tax	Profits of a Panamanian company from business in Panama	Generally 10%
Inheritance tax	Estates	None

How the territorial system works

Most countries tax their residents on income from anywhere in the world. Panama taxes by source: what matters is where the income is produced.

Income	Taxed by Panama?
US Social Security, military or company pension	Generally no
Withdrawals from a US retirement account	Generally no
Dividends and interest from investments held abroad	Generally no
Interest on savings and fixed-term deposits at a Panamanian bank	Generally exempt
Salary from a Panamanian employer	Yes
Profits from a business operating in Panama	Yes
Rent from property in Panama	Yes

Bringing foreign money into Panama doesn’t make it taxable.

The unclear case 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 answer depends on the facts, so ask a Panamanian accountant before you rely on it.

Income tax if you work or run a business

Employees have income tax withheld from their pay, along with social security and education contributions that together take roughly a tenth of gross salary. Someone whose only Panamanian income is one salary usually doesn’t need to file a return. Self-employed people and landlords register with the DGI for a tax number and file an annual return, normally by mid-March.

A foreigner needs a work permit to take a Panamanian job. See Panama residency for which routes allow one.

Property tax

Rules that took effect in 2019 lowered property tax for most homeowners:

Property	Registered value	Annual rate
Registered primary residence	Up to about $120,000	Exempt
	About $120,000 to $700,000	About 0.5%
	Above about $700,000	About 0.7%
Other property	Up to about $30,000	Exempt
	Above that, in rising bands	About 0.6% to 1%

The primary-residence treatment is not automatic. The owner applies for it, and your attorney normally handles that after a purchase. Some older buildings also carry an exemption on the construction value that passes to the buyer for its remaining years. Ask what applies to the specific property, and see buying property in Panama for the costs of a purchase.

Sales tax and other everyday taxes

ITBMS, Panama’s sales tax, is 7 percent on most goods and services. Basic food, medicines and medical services are generally exempt. The rate is higher on alcohol and hotel stays, and higher again on tobacco. Imported cars carry their own import tax, which is one reason cars cost more than in the US.

Tax residency in Panama

Panama generally treats you as a tax resident if you spend more than 183 days in a year there or make it your permanent home. Because foreign income is outside the net either way, this matters less than in other countries. It is separate from immigration status: a resident card doesn’t by itself make you a tax resident, and the DGI issues tax residency certificates under its own tests.

What the US still expects

• A federal return every year on your worldwide income.
• A foreign account report (FBAR) if your non-US accounts together pass $10,000 at any point in the year. See banking in Panama.
• A second form with your return once foreign financial assets pass a higher threshold.
• Tax on your pension, Social Security and investments as before. Panama doesn’t tax them, so there is no foreign tax to credit.
• Possibly a state return, until you have clearly cut ties with your old state.

If you work while living in Panama, the foreign earned income exclusion may shelter wages or self-employment income from US income tax, provided you meet the time tests. There is no general income tax treaty between the US and Panama. The two countries do exchange tax information, and Panamanian banks report accounts held by US citizens.

Is Panama a tax haven?

Panama’s reputation comes from its territorial system, its corporations and foundations, and a past of banking secrecy. For an American resident the practical effect is modest. You stop owing Panamanian tax on foreign income that Panama would never have taxed, and you keep filing in the US. Panamanian banks now ask detailed questions about where money comes from, and holding assets through a Panamanian company adds US reporting with heavy penalties for mistakes.

Before you move

1. List each source of income and where it is produced.
2. Decide whether you will work, rent out property or run a business in Panama. Those are what bring you into the Panamanian system.
3. Ask before setting up a Panamanian corporation or foundation to hold property.
4. Speak to a preparer who works with Americans abroad before the end of the year you move. Our page on US expat tax help for Panama lists what to ask.

Common questions

Does Panama tax foreign income?

Panama generally does not tax foreign income. Its income tax is territorial, which means it applies to income from sources inside Panama. A US pension, Social Security and returns on investments held outside Panama are foreign-source income and are generally not taxed there.

What is the income tax rate in Panama?

Panama's income tax for individuals has three bands: no tax on roughly the first $11,000 of Panamanian-source income a year, 15 percent on the next band up to about $50,000, and 25 percent above that. Confirm the current bands with a Panamanian accountant or the tax authority, the DGI.

How much is property tax in Panama?

Property tax in Panama is low by US standards. A registered primary residence is exempt up to a value of about $120,000 and taxed at around 0.5 to 0.7 percent above that. Other property is taxed at roughly 0.6 to 1 percent above a small exemption. The value used is the registered value, and the rules changed in 2019.

Is Panama a tax haven for Americans?

Panama is not a tax haven for Americans, because the US taxes its citizens on worldwide income wherever they live. Living in Panama removes Panamanian tax on foreign income, and it can remove US state tax, but the federal return and foreign account reports continue.

Sources

• Dirección General de Ingresos (Panama's tax authority)
• IRS: US citizens and resident aliens abroad
• IRS: Report of Foreign Bank and Financial Accounts (FBAR)
• IRS: Foreign earned income exclusion
• IRS: United States income tax treaties, A to Z