Panama income tax is one of the main reasons Americans consider moving to the country. Panama taxes only income produced within its territory, so a pension, investment portfolio or salary earned abroad is generally outside the Panamanian tax system.
That advantage is real, but it is narrower than many online guides suggest, and it does not change what you owe to the IRS.
This guide was prepared by the attorneys at NDM Law Firm & Associates. It explains which income Panama taxes, the 2026 rates, how tax residency differs from immigration status, how the US rules interact with Panama and which mistakes we see most often. For a review of your own situation, our tax law team works alongside your US tax adviser.
Panama’s Territorial Tax System
The Panama income tax applies to income generated within Panama, regardless of the taxpayer’s nationality or residence. What matters is the source of the income, not where you live or where the money is paid. Understanding how the source is determined is the key to applying the system correctly.
Does Panama Have Income Tax?
Yes. Panama is not a tax-free country, and residents and companies with local income pay Panama income tax at rates of up to 25%. The difference is that the Panama income tax stops at the border: income earned abroad is outside its scope, which is why so many retirees and remote workers pay little or nothing in Panama.
What Counts as Panama-Source Income
Income is Panama-source when it comes from work performed for a Panamanian employer, services rendered to clients in Panama, sales to the local market, rent from property located in Panama or the sale of Panamanian assets. A salary from a local company, a consulting fee from a Panamanian client and rent from an apartment in Panama City are all taxable in Panama.
Foreign Income That Panama Does Not Tax
US Social Security, private pensions, dividends and interest from foreign accounts, gains on foreign investments and rent from property abroad are generally foreign-source income. Panama does not tax them, even if you live in the country full time. Interest earned on deposits in Panamanian banks is also generally exempt.
Remote Work From Panama: The Gray Area
Remote work for a foreign employer or for clients abroad is generally treated as foreign-source income when the service is used and paid for outside Panama. The analysis changes if you invoice Panamanian clients, work for a local company or operate from a business established in Panama. The Digital Nomad Visa is designed for remote workers paid from abroad, and it requires that you do not work for Panamanian employers. If your income mixes local and foreign clients, have the source reviewed before you file.
Personal Income Tax Rates in Panama
When you do earn income from Panamanian sources, the Panama income tax rates are moderate and progressive. These are the rules that apply to individuals in 2026.
Panama Income Tax Brackets for 2026
- 0% on the first $11,000 of annual taxable income.
- 15% on income between $11,000 and $50,000.
- 25% on income above $50,000.
For example, an expat with $60,000 of Panama-source taxable income would pay nothing on the first $11,000, $5,850 on the next $39,000 and $2,500 on the last $10,000, for a total Panama income tax of $8,350 and an effective rate of about 14%.
Filing a Panama Income Tax Return
Employees whose employer withholds tax and who have no other local income usually do not need to file. Self-employed professionals, landlords and anyone with other Panama-source income file an annual return with the General Directorate of Revenue (DGI), which requires a taxpayer registration number (RUC). The return is due by March 15 of the following year, and a one-month extension can be requested.
Non-Residents With Panama-Source Income
A non-resident who earns income in Panama, such as rent from an apartment or fees for services performed in the country, is also subject to Panama income tax on that income. In most cases the tax is collected through withholding by the Panamanian payer, so it is important to agree in writing who is responsible for withholding before the payment is made.
Becoming a Resident of Panama and Why It Matters for Taxes
Two different concepts are often confused: tax residency, which is defined by tax law, and legal residency, which is the immigration permit that allows you to live in Panama. You can have one without the other, and each has its own consequences.
The 183-Day Test and the Tax Residence Certificate
You are a Panamanian tax resident if you spend more than 183 days in the country in a fiscal year, consecutive or not, or if Panama is the center of your vital interests. Because the system is territorial, becoming a tax resident does not make your foreign income subject to Panama income tax. Its practical value is the tax residence certificate issued by the DGI, which some banks and foreign tax authorities request to confirm where you live. The certificate requires a RUC and supporting evidence of your days in the country.
Which Residency Visa Fits Your Income
The Pensionado Visa suits retirees with a lifetime pension of at least $1,000 per month and grants permanent residency directly. Because pensions from abroad are foreign-source, retirees on this visa usually owe no Panama income tax at all.
The Friendly Nations Visa is available to Americans through a job with a Panamanian company or an investment of $200,000 in real estate or a fixed-term deposit. The Qualified Investor Visa requires a larger investment, and the Digital Nomad Visa covers remote workers with at least $36,000 per year in foreign income. US citizens can stay up to 180 days as tourists while they decide, as explained in our guide to visa requirements for US citizens.
Why Legal Residency Helps With US Taxes
A residency permit, a lease or property title and a local bank account are the kind of evidence the IRS considers when you claim the bona fide residence test for the Foreign Earned Income Exclusion. They also help show your former state that you no longer live there.
How Much Panama Income Tax Will You Pay? Four Expat Scenarios
The same rules produce very different results depending on where your money comes from. These simplified examples show how the Panama income tax applies to typical expat profiles, before any deductions.
- Retiree on Social Security and a US pension. All income is foreign-source, so the Panama income tax is $0. US tax on the pension follows the normal US rules.
- Remote worker paid $90,000 by a US employer. If the work is for the foreign employer only, Panama generally taxes nothing, and the Foreign Earned Income Exclusion can cover the full salary for US purposes.
- Owner of an apartment in Panama City rented for $18,000 a year. The rent is Panama-source. Before expenses, the first $11,000 is taxed at 0% and the remaining $7,000 at 15%, for about $1,050 in Panama income tax.
- Consultant earning $60,000 from Panamanian clients. The income is local, so the Panama income tax is $8,350, which can generally be credited against the US tax on the same income.
Real cases include deductions, mixed income and timing issues, so these figures are a starting point for a conversation with your advisers, not a substitute for it.
Does the US Have an Income Tax Treaty With Panama?
No. The United States and Panama have no income tax treaty, and Panama does not appear on the IRS list of tax treaties. There is also no totalization agreement, so self-employed Americans in Panama generally keep paying US self-employment tax.
The two countries do have a tax information exchange agreement, and Panamanian banks report accounts held by US persons to the IRS under FATCA. Canada is in a similar position: it has an information exchange agreement with Panama but no double taxation treaty. Because the Panama income tax does not reach foreign income, the lack of a treaty rarely causes double taxation for retirees, but it matters for anyone with Panama-source income.
Other Taxes and Financial Considerations in Panama
Beyond the Panama income tax, these are the taxes an expat is most likely to meet. Most are moderate, but several have conditions worth knowing before you buy property or start a business.
Sales Tax (ITBMS)
The general rate of ITBMS, Panama’s value added tax, is 7%. Basic food, medicines and medical services are generally exempt, while alcohol and tobacco carry higher rates.
Property Tax
Under Law 66 of 2017, a primary residence registered as such with the DGI is exempt up to a cadastral value of $120,000. Above that amount it pays 0.5%, and 0.7% on the portion above $700,000. Other properties are exempt up to $30,000 and then pay 0.6%, 0.8% or 1% depending on the value. The primary residence exemption is not automatic: it applies only after the property is registered.
Rental Income Tax
Rent from property located in Panama is Panama-source income, even if the owner lives abroad and the tenant pays into a foreign account. It is added to your other local income and taxed at the regular Panama income tax rates, after deducting allowable expenses. Many foreign owners overlook this obligation until they try to sell the property.
Capital Gains Tax
When you sell real estate in Panama, the buyer’s side withholds an advance of 3% on the higher of the sale price or the cadastral value, and the seller also pays a 2% transfer tax. The 3% can be treated as the final tax, or you can calculate 10% on the actual gain and request a refund of the difference. Sales of shares in Panamanian companies carry a 5% withholding with the same 10% option. Selling assets located abroad is not taxed in Panama.
Dividend Tax
Panamanian companies pay corporate income tax at 25% on Panama-source profit. Dividends are subject to withholding of 10% when they come from Panama-source profit and 5% when they come from foreign-source profit. If you plan to hold assets through a company, our guide to the Panama IBC explains the 2026 compliance rules that apply to it.
Social Security and Payroll Taxes
Employees of Panamanian companies contribute 9.75% of their salary to the Social Security Fund (CSS) and 1.25% in educational insurance. Employers contribute 13.25% plus 1.5%, and the employer rate is scheduled to rise to 14.25% in March 2027 and 15.25% in March 2029. Remote workers paid from abroad are generally outside the system.
No Wealth, Inheritance or Gift Tax
Panama has no net wealth tax, inheritance tax or gift tax for individuals. This does not remove US estate tax exposure for American citizens, which should be planned separately.
US Tax Rules for Americans Living in Panama
The United States taxes its citizens on worldwide income wherever they live. Moving to Panama does not end your US obligations, but several provisions can reduce or eliminate the tax due.
Foreign Earned Income Exclusion
For tax year 2026, the Foreign Earned Income Exclusion allows qualifying Americans abroad to exclude up to $132,900 of earned income, up from $130,000 for 2025. It applies to salaries and self-employment income, not to pensions, dividends or Social Security. You qualify through the bona fide residence test or the physical presence test of 330 full days abroad in a 12-month period.
Foreign Tax Credit
If you pay Panama income tax on Panama-source income, you can generally credit that tax against the US tax on the same income. Because Panama’s top rate is 25%, high earners with local income may still owe a difference to the IRS.
State Taxes and Reporting Obligations
Some states, such as California and New York, can continue to treat you as a resident unless you clearly cut your ties. Americans with foreign accounts that together exceed $10,000 at any time of the year must also file an FBAR, and many will need Form 8938. These are reporting duties, not taxes, but the penalties for missing them are significant.
Is Panama a Tax Haven? What Changed in 2026
Panama offers legal tax advantages, not secrecy, and the Panama income tax system is now part of a framework of international transparency. On October 9, 2026, the European Union removed Panama from its list of non-cooperative tax jurisdictions after reforms that include a private beneficial owner registry, mandatory accounting records for companies and automatic exchange of financial account information with other countries. From 2027, Law 526 of 2026 also requires economic substance in Panama from companies in multinational groups that receive foreign passive income.
For individuals, the message is simple: the territorial system is a lawful benefit, and it works best when your income, residency and any company you own are documented correctly.
Common Panama Income Tax Mistakes Expats Make
These are the situations in which expats end up owing tax, paying penalties or losing a benefit they assumed was automatic:
- Assuming all remote work is foreign-source while invoicing Panamanian clients.
- Renting out an apartment in Panama without declaring the rental income.
- Buying a home without registering it as a primary residence for the property tax exemption.
- Treating the 3% withholding on a property sale as the end of the matter when the 10% calculation would be more favorable.
- Stopping US tax filings because no tax is due, which forfeits the Foreign Earned Income Exclusion and triggers penalties.
- Relying on the tourist stamp for years instead of obtaining legal residency.
How Our Attorneys Help With Panama Income Tax Questions
NDM Law Firm & Associates advises expats on the Panamanian side of their tax position: whether an income is Panama-source, RUC registration, the tax residence certificate, property tax exemptions, company structures and the residency permit that supports your plans. We coordinate with your US CPA so both returns tell the same story. If you are still planning your move, start with our guide to living in Panama.
Schedule a consultation with our team and we will review your income sources, your residency options and the Panama income tax obligations that apply to you before you make any decision.
