Panama Country Guide
Everything you need to know about moving to Panama
Tax outlook for expats moving to Panama
Everything you need to know about taxes as an expat in Panama
Income Tax for Expats in Panama
Unlike American and European tax systems, Panama only taxes you on revenue generated from Panamanian sources. This includes all income.
If you earn income from Panamanian sources, the first $11,000 earned is tax-free. After that, you’ll be taxed 15% for income $11,000-50,000 and 25% above $50,000. If you are an employee of a Panamanian company you do not need to file income tax returns – your taxes should be deducted from your paychecks automatically.
Deductions can be made for medical expenses in Panama, local donations, education expenses, and loans for home improvement.
Property Taxes for Expats in Panama
Panama has some of the lowest property taxes in the Americas. Primary residences are taxed at 0.5-0.7% unless valued at under $120,000, in which case they are tax free. All other property types (commercial property, vacation homes) are taxed at 0.6-1% unless valued at under $30,000, in which case they are tax-free. You can also get tax exemptions of up to 15 years on newly built properties.
Capital Gains Tax for Expats in Panama
Capital gains tax in Panama is a flat 10% of gross sale profit.
Social Security for Expats in Panama
The U.S. and Panama do not have a tax treaty or Social Security totalization agreement, so Americans employed in Panama may have to pay Social Security in both places.
Foreign Earned Income Exclusion for U.S. Expats in Panama
The United States requires all of its citizens to file taxes, including expats. However, there are substantial exclusions available to ease the tax burden for expatriates. The most accessible of these is the Foreign Earned Income Exclusion.
For the tax year 2023, expats can exclude the initial $120,000 of foreign earned income from their U.S. tax obligations, provided they meet the eligibility criteria.
There are two ways that an individual can qualify for the FEIE:
- The Physical Presence test requires that the individual has spent 330 out of the previous 365-day period outside of the US (this is not limited to Costa Rica).
- The Bona Fide Resident test requires that an individual demonstrate that they have legal residency in a foreign country.
It’s important to note that Social Security income is not considered as foreign earned income for this exclusion.
Foreign Housing Deduction for U.S. Expats in Panama
U.S. expatriates who claim the Foreign Earned Income Exclusion (FEIE) and find their income exceeding the established FEIE threshold have the opportunity to apply for the Foreign Housing Deduction or Exclusion.
This exclusion or deduction can cover expenses such as rent, parking, furniture rental, utilities, and more. In the tax year 2023, American expats have the potential to exclude or deduct up to $19,200 in eligible expenses, providing a valuable opportunity for tax savings.
Foreign Tax Credit for U.S. Expats in Panama
The Foreign tax credit system allows you to offset taxes you paid in Portugal for your US expat taxes (or vice versa) dollar for dollar. Note that you can’t use the credit on income that has already been excluded by the Foreign Earned Income Exclusion.
Additional Tax Reporting Requirements for U.S. Expats in Panama
Depending on your financial holdings in Portugal, you may have additional reporting requirements.
FBAR Reporting: U.S. citizens with foreign bank accounts exceeding a cumulative value of $10,000 at any point during the year are required to file an FBAR (Report of Foreign Bank and Financial Accounts).
Form 8938 (FATCA): Expats with foreign accounts and assets, including stocks, bonds, real estate, and insurance, must file Form 8938 (Foreign Account Tax Compliance Act). For single filers, the threshold is assets worth $200,000 at the end of the year or combined assets exceeding $300,000 at any time during the year. For couples, the limits are $400,000 on the last day of the year or combined assets over $600,000 at any time during the year.
Penalties for foregoing these additional filings can be steep, so it makes sense to consult with a tax expert if you think you might need to file in the upcoming year.
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