{"id":7614,"date":"2026-06-09T11:26:39","date_gmt":"2026-06-09T15:26:39","guid":{"rendered":"https:\/\/startabroad.com\/?post_type=resource&p=7614"},"modified":"2026-06-09T14:11:06","modified_gmt":"2026-06-09T18:11:06","slug":"panama-taxes-for-expats","status":"publish","type":"resource","link":"https:\/\/startabroad.com\/es\/resource\/panama-taxes-for-expats\/","title":{"rendered":"Taxes for Expats"},"content":{"rendered":"
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When you move to Panama, your tax situation involves two parallel sets of obligations: what you still owe the US government, and what you owe Panama. Understanding both is essential before you make the move.<\/p>

Panama’s Territorial Tax System<\/h2>

The most important concept for Americans moving to Panama is that Panama taxes income on a territorial basis. This means Panama only taxes income generated within its geographical borders. Any income you earn from sources outside of Panama \u2014 pensions, investments, remote work for a foreign company, rental income from a property in another country \u2014 is not subject to Panamanian income tax.<\/p>

This is a significant advantage for most American expats. Social Security income, US-based investment returns, foreign pensions, and remote work done for non-Panamanian employers are all generally untaxed in Panama.<\/p>

You become a Panamanian tax resident if you spend more than 183 days in Panama within a calendar year. The tax year runs January 1 through December 31, and individual income tax returns are due by March 15 of the following year.<\/p>

Income Tax in Panama<\/h2>

Panama’s income tax rates are progressive, ranging from 0% to 25%, and apply to any income earned within Panama \u2014 employment income, self-employment, or business activities from Panamanian sources.<\/p>

For employees with a single Panamanian employer, income tax is typically withheld from payroll. If your only Panama-sourced income is employment income, you generally do not need to file a separate return.<\/p>

The local brackets are structured on an annual net basis:<\/p>

  • Up to $11,000: 0%<\/li>
  • $11,001 to $50,000: 15% on the amount exceeding $11,000<\/li>
  • Over $50,000: $5,850 + 25% on the amount exceeding $50,000<\/li><\/ul>

    Dividend income is subject to withholding tax at source, typically 10% on registered shares distributing Panama-sourced profits (reduced to 5% for foreign-sourced or exempt income distributed locally). Rental income from Panamanian property is subject to standard progressive income tax or fixed withholding rules based on lease registration.<\/p>

    Interest earned on savings accounts and time deposits held with licensed general banks in Panama is explicitly exempt from Panamanian income tax \u2014 a meaningful provision for those holding large savings.<\/p>

    Sales Tax (ITBMS)<\/h2>

    Panama’s general sales tax (Impuesto de Transferencia de Bienes Corporales Muebles y la Prestaci\u00f3n de Servicios, or ITBMS) is 7% \u2014 one of the lowest in the Americas and significantly lower than the 13% VAT in neighboring Costa Rica. Certain items carry higher rates (luxury accommodations, alcohol at 10%, tobacco products at 15%), while basic food items, medicines, and some specific services are completely exempt.<\/p>

    Property Tax<\/h2>

    Panama’s property taxes are progressive and based on the cadastral value (the government’s assessed value of the land plus construction improvements):<\/p>

    Primary Residences (Registered as Family Patrimony):<\/b><\/p>

    • Up to $120,000: 0% (Exempt)<\/li>
    • $120,001 to $700,000: 0.5% on the bracket exceeding $120,000<\/li>
    • Above $700,000: 0.7% on the bracket exceeding $700,000<\/li><\/ul>

      Secondary Residences, Commercial Properties, or Land:<\/b><\/p>

      • Up to $30,000: 0% (Exempt)<\/li>
      • $30,001 to $250,000: 0.6% on the bracket exceeding $30,000<\/li>
      • $250,001 to $500,000: 0.8% on the bracket exceeding $250,000<\/li>
      • Above $500,000: 1.0% on the bracket exceeding $500,000<\/li><\/ul>

        Note: Law 468 of April 2025 eliminated the historical Real Estate Transfer Tax (ITBI) exemption for the first sale of newly constructed residential properties after December 31, 2025. This change increases closing fees by introducing the full 2% transfer tax on new construction sales starting in 2026.<\/p>

        Capital Gains Tax<\/h2>

        Capital gains on the sale of property not considered part of ordinary business activities are subject to a standard flat rate of 10% on the net profit. At closing, a 3% advance withholding tax on the total transaction amount (or cadastral value, whichever is greater) is collected from the seller. The seller can treat this 3% as definitive or file a calculation of the actual 10% gain to request a refund or credit for any over-withheld amounts.<\/p>

        Inheritance and Gift Tax<\/h2>

        Panama does not have an inheritance or gift tax. Assets transferred through inheritance or gift are generally not taxed in Panama. However, the standard 2% real estate transfer tax applies if titled immovable property changes hands through a transfer.<\/p>

        No Tax Treaty Between the US and Panama<\/h2>

        There is currently no income tax treaty or totalization agreement between the United States and Panama. This means there is no automatic bilateral mechanism to prevent double taxation \u2014 but in practice, the Foreign Tax Credit and Foreign Earned Income Exclusion together eliminate double taxation for most expats living on foreign income.<\/p>

        U.S. Tax Obligations for Americans Living in Panama<\/h2>

        No matter where you live in the world, the US requires all citizens and green card holders to file an annual federal tax return. However, several provisions can significantly reduce \u2014 or eliminate \u2014 your US tax bill on income earned abroad.<\/p>

        Foreign Earned Income Exclusion (FEIE)<\/b><\/p>

        For tax year 2025 (filed in 2026), the maximum FEIE is $130,000 per qualifying person. For tax year 2026 (filed in 2027), it rises to $132,900. Married couples where both spouses qualify can each claim their own exclusion.<\/p>

        To qualify, you must meet one of two tests:<\/p>

        1. Physical Presence Test: Physically present in a foreign country for at least 330 full days during any 12-month period<\/li>
        2. Bona Fide Residence Test: Genuine, established residence in a foreign country for an uninterrupted period including an entire tax year<\/li><\/ol>

          The FEIE covers only earned income \u2014 wages, salaries, and self-employment income. Passive income such as dividends, interest, capital gains, and Social Security does not qualify and remains subject to US tax.<\/p>

          Claim the FEIE on IRS Form 2555.<\/p>

          Foreign Tax Credit (FTC)<\/b><\/p>

          The Foreign Tax Credit allows you to offset US tax liability dollar-for-dollar with income taxes paid to Panama on Panama-sourced income. You cannot apply the FTC to income already excluded under the FEIE, but the two can be used strategically together.<\/p>

          Claim the FTC using Form 1116.<\/p>

          Foreign Housing Exclusion or Deduction<\/b><\/p>

          If you claim the FEIE and your foreign income exceeds the FEIE threshold, you may also be able to exclude or deduct eligible housing costs \u2014 rent, utilities, parking, furniture rental, and similar expenses. For 2025, the housing limitation is $39,000; for 2026, it rises to $39,870.<\/p>

          Foreign Bank Account and Asset Reporting for Americans<\/h2>

          Living in Panama means you’ll likely have local bank accounts, and the US has strict reporting requirements.<\/p>

          FBAR<\/b> (FinCEN Form 114): If foreign financial accounts exceed $10,000 combined at any point during the calendar year, you must file an FBAR. Due April 15 with an automatic extension to October 15.<\/p>

          FATCA<\/b> (Form 8938): If you hold foreign financial assets above certain thresholds, you must also file Form 8938:<\/p>

          • Single filers: $200,000 at year-end, or $300,000 at any point<\/li>
          • Married filing jointly: $400,000 at year-end, or $600,000 at any point<\/li><\/ul>

            Note: 2026 brings stricter enforcement of FATCA reporting on digital assets. If you hold cryptocurrency in Panamanian accounts or through Panamanian entities, confirm your reporting obligations with a qualified US expat tax advisor.<\/p>

            Working with a Tax Professional<\/h2>

            Although many expats will owe little or nothing to Panama, navigating changes in US tax reporting from abroad can be complex. For US clients, we recommend reaching out to Taxes for Expats.<\/p>

            Frequently Asked Questions: Taxes for Americans in Panama<\/h2>

            Do Americans living in Panama still have to file US taxes?<\/h3>

            Yes. US citizens must file an annual federal return regardless of where they live. Worldwide income is reportable. The Foreign Earned Income Exclusion and Foreign Tax Credit together mean most Americans living abroad legally owe little to nothing in US federal income tax.<\/p>

            Will I be taxed on my Social Security, pension, or US investment returns in Panama?<\/h3>

            No. Panama’s territorial tax system means foreign income of all kinds \u2014 Social Security, pensions, US investment returns, remote work for foreign employers \u2014 is not taxed locally. Panama is one of the few countries in the world that genuinely delivers on this promise without complex caveats.<\/p>

            Is there a tax treaty between the US and Panama?<\/h3>

            No. There is currently no US-Panama income tax treaty, and no totalization agreement. In practice, the FEIE and Foreign Tax Credit eliminate most double-taxation exposure for expats, but tax planning is important.<\/p>

            What income is taxable in Panama?<\/h3>

            Only income earned within Panama: salary from a Panamanian employer, local business profits, freelance work for Panamanian clients, and rental income from Panamanian property. Foreign-source income of any kind is not taxable in Panama.<\/p>

            Do I have to report my Panamanian bank account to the US government?<\/h3>

            Yes, if the balance warrants it. If combined foreign account balances exceed $10,000 at any point during the calendar year, you must file an FBAR. This is filed separately from your return and due April 15 with an automatic extension to October 15. Failure to file carries substantial penalties.<\/p>

            What is the sales tax rate in Panama?<\/h3>

            7% (ITBMS) on most goods and services \u2014 one of the lowest in the Americas. Basic food, medicine, and some services are exempt.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\n<\/div>\n\t\t<\/div>","protected":false},"featured_media":2305,"template":"elementor_theme","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false},"resources-country":[72],"class_list":["post-7614","resource","type-resource","status-publish","has-post-thumbnail","hentry","resources-country-panama"],"acf":[],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t