Taxes

Taxes in Panama

Panama's territorial tax system is one of its major attractions for expats and retirees. Understanding it can save you substantial money.

The Territorial Tax System

Key principle: Panama only taxes income earned IN Panama

What this means:

• Foreign pension: 0% Panama tax
• Remote work for foreign company: 0% Panama tax
• Investment income from abroad: 0% Panama tax
• Rental income from property abroad: 0% Panama tax
• Social Security/government pension: 0% Panama tax

What IS taxed:

• Work performed in Panama for Panama company
• Panama rental income
• Panama business profits
• Interest from Panama banks

This is a massive advantage compared to worldwide taxation.

Income Tax Rates (for Panama-source income)

Progressive tax brackets for 2026:

Most retirees pay zero Panama income tax (foreign pension).

For US Citizens

Important: US citizens must still file with IRS

• US taxes worldwide income regardless of residence
• Foreign Earned Income Exclusion (FEIE): $120,000+ for 2026
• Foreign Tax Credit for any Panama taxes paid
• FATCA reporting for foreign accounts >$10,000
• Must file even if owe nothing

Consult US tax professional familiar with expat issues

For Canadian Citizens

• Canada has tax treaty with Panama
• File Canadian taxes as non-resident if qualify
• Pension income may have withholding
• Consult cross-border tax specialist

Property Taxes (Impuesto Sobre Inmuebles)

Remarkably low:

• First $120,000 of property value: EXEMPT
• $120,001 - $700,000: 0.5-0.7% (varies by municipality)
• Above $700,000: 1%

Examples:

• $150,000 property: $150-210/year
• $300,000 property: $900-1,260/year
• $500,000 property: $1,900-2,660/year

Far lower than US/Canada/Europe.

Capital Gains Tax

On Panama real estate:

• 10% on gain if sold within 2 years
• 5% on gain if sold after 2 years
• Primary residence: First $250,000 of gain exempt

On foreign investments:

• Not taxable in Panama (territorial system)
• May owe in home country

Value Added Tax (ITBMS)

Panama's sales tax:

• 7% standard rate (recently increased from 7%)
• Applies to goods and services
• Some items exempt (basic foods, medicines)
• Included in displayed prices (not added at register)
• Lower than most countries

Import Duties

On personal items:

• Household goods: Exempt for new residents (limited time)
• Car import: 10-40% duty (better to buy local)
• Personal electronics: Usually exempt in reasonable quantities

Business Taxes

For those operating Panama business:

• Corporate income tax: 25%
• Commercial license: $200-500 annual
• Social security contributions: ~12.5% (employer + employee)
• Books must be kept in Spanish

Social Security

If working in Panama:

• Mandatory contributions
• Employer pays ~12.25%
• Employee pays ~9.75%
• Provides healthcare and pension benefits
• Once permanent resident, often enrolled

If retired/not working:

• Not required
• Can voluntarily contribute for healthcare access
• Most use private insurance instead

Tax Residency

Becoming Panama tax resident:

• Physical presence 183+ days per year, OR
• Permanent residence + economic ties to Panama

Why it matters:

• Triggers tax treaty provisions
• May affect home country tax status
• Important for "departure tax" in some countries

Tax Filing

If you have Panama-source income:

• Annual filing deadline: March 31
• Must file if income over threshold
• Penalties for late filing
• Can file online
• Attorney or accountant recommended

If only foreign income:

• Generally no Panama filing required
• Simple situation
• Keep records just in case

Inheritance & Estate Tax

Good news:

• Panama has no inheritance tax
• No estate tax
• Wills recognized
• Straightforward inheritance process
• Massive savings vs many countries

Tax Planning Opportunities

Legal strategies:

• Structure investments to be offshore
• Use Panama foundation for estate planning
• Take advantage of FEIE if US citizen working
• Time property sales for lower capital gains
• Consult professionals for optimization

Common setup:

• Keep foreign investments foreign (not taxed)
• Draw pension/Social Security (not taxed)
• Maintain US retirement accounts (not taxed until distributed)
• Rent property abroad (not taxed in Panama)

Getting Help

Tax professionals:

• Bilingual accountants common in expat areas
• Costs: $300-800 for annual filing
• Worth it for peace of mind
• US/Canada specialists available

Resources:

• Deloitte Panama
• PWC Panama
• Local CPAs familiar with expat issues

Common Tax Questions

Q: Do I pay tax on US Social Security in Panama?

A: No, foreign pension not taxed by Panama. But US may withhold/tax.

Q: What if I work remotely for US company while living in Panama?

A: Panama doesn't tax it (foreign source). US does but FEIE may exclude it. Consult tax pro.

Q: Are Panama bank interest taxable?

A: In Panama, yes (low interest anyway). In US, yes if US citizen.

Q: Capital gains on US stocks?

A: Not taxable in Panama. US citizens pay US capital gains tax.

Bottom Line Tax Advantages

For typical retiree with foreign pension:

• Panama income tax: $0
• Property tax: $150-1,000/year
• Sales tax: 7%

This is one of the lowest tax burdens globally for retirees.