Simple tax guide for Americans in Panama

If you are planning to move, retire, or start a business in Panama, you need to understand how Panama taxes work to make the most of your move.

In this guide, we break down when you need to file a return, what tax rates apply to individuals and businesses, and how to stay compliant with the US tax obligations while abroad.

How does the Panama tax system work?

Territorial taxation

Panama taxes individuals and businesses only on income earned from activities within Panama.

Income earned outside of Panama is not subject to Panamanian taxation. This means that if you are retired and living off US pensions or investments, this income is generally not taxed in Panama.

Who qualifies as a tax resident in Panama?

You are considered a tax resident of Panama if you spend more than 180 days in the country during a calendar year. Residents are taxed at progressive rates on their Panama-sourced income.

Nonresidents who render services in Panama for less than 180 days are subject to a 15% withholding tax on their gross income.

If you are a US citizen or green card holder, this withholding tax may be eligible for the foreign tax credit (FTC) on your US tax return. This credit helps reduce your US tax liability by the amount of foreign taxes paid. You must file Form 1116 with the Internal Revenue Service (IRS) to claim the credit.

Who needs to file a tax return in Panama?

Filing requirements in Panama depend on both your tax residency status and the type of income you earn.

If you are a tax resident and:

• You receive only employment income from one Panamanian employer (with proper withholding at source), you generally do not need to file a tax return.
• You have multiple employers, self-employment income, or other taxable income not subject to withholding, you must file an annual tax return.

In most cases, nonresidents are not required to file a tax return, because the tax is already withheld and remitted by the payer.

Pro tip. If you are a digital nomad earning freelance income from Panamanian clients, a retiree renting out property in the country, or a business owner running a company in Panama, you will likely need to file a tax return in Panama. As a US citizen or green card holder, you must also continue filing US tax returns each year, regardless of where you live or earn income.

Panama’s tax year and filing deadlines

The tax year in Panama follows the calendar year, running from January 1 to December 31.

• Filing deadline: March 15 following the end of the tax year.
• Tax extension: You can request a 2-month extension, moving your deadline to May 15.
• Payment: Taxes owed are due at the time of filing to avoid penalties.

Income taxes in Panama

As we mentioned before, Panama taxes individuals only on income earned within Panama. The individual income tax rates are progressive – the more you earn, the higher your tax rate on additional income.

Individual income tax rates in Panama

 

Pro tip. Panama applies an alternative calculation method for individuals engaged in business activities (similar to corporations). If this method results in a loss, you can request an exemption.

You may also be eligible for the following deductions to reduce your taxable income (you must be classified as a tax resident to take advantage of them):

• a basic deduction of $800
• $250 for each dependent
• mortgage interest (up to $15,000 per year)
• donations to non-profit organizations (up to $50,000 per year)
• political contributions (up to $10,000 per year)
• uninsured medical expenses incurred in Panama
• educational expenses

Capital gains tax

Capital gains are taxed separately from regular income. Taxpayers pay a flat 10% rate on capital gains, including the sale or transfer of real estate.

When selling property, a 3% withholding tax is applied on the greater of the sales price or assessed value. If the final tax liability is less than the withholding, you may request a refund or apply it against other taxes owed.

Social security contributions

Employees are required to contribute 8% of their salary to Panama’s social security system. Employers contribute an additional amount separately.

Other taxes on individuals

Stamp duty is charged at a rate of 0.001 per balboa (PAB) on official documents, including invoices, checks, and similar financial paperwork. Real property tax applies to real estate located in Panama, with rates ranging from 1.75% to 2.1% based on the property's assessed value.

The country does not impose a capital duty, capital acquisitions tax, inheritance or estate tax, or a net wealth or net worth tax.

Corporate and business taxes in Panama

Panama taxes businesses only on income sourced within its territory. If you are operating a business or managing a branch in Panama, it is important to understand your corporate tax obligations.

Corporate tax

The standard corporate income tax in Panama is 30%, applied to the greater of net taxable income after allowable deductions or 4.67% of gross taxable income.

Small companies with annual turnover under $150,000 are exempt from the alternative gross income calculation and are taxed only on net profits.

Corporations must pay estimated taxes in three installments throughout the year. The corporate tax return is due three months after the fiscal year-end, typically by March 31 if using the calendar year.

Branches of foreign companies are taxed in Panama at the same corporate rate as locally incorporated companies. There is no additional branch remittance tax, making Panama an attractive jurisdiction for foreign businesses.

Value-added tax (VAT)

Panama imposes a 7% VAT (known locally as ITBMS) on most goods and services. Businesses must register for VAT if their monthly turnover exceeds $3,000 or if their annual turnover exceeds $36,000.

Local and municipal business taxes in Panama

While corporate taxation is uniform nationwide, businesses are also subject to local taxes, including:

• franchise tax: $300 annually for all corporations
• annual license tax: 2% of net worth (reduced to 1% for companies operating in Free Zones)
• banking institutions tax: scaled tax based on total assets

Tax incentives for investors

Panama offers several tax incentives to attract investment:

• full or partial exemptions for companies located in Free Zones
• reduced rates for small businesses with gross income under $200,000
• tax exemptions for certain export income, interest from government securities, and specific financial instruments

Pro tip. If you are planning to open a business in Panama, exploring Free Zone opportunities like the City of Knowledge (Ciudad del Saber) can significantly reduce your tax burden. Located near Panama City, the City of Knowledge offers tax exemptions and incentives for companies focused on technology, education, research, and innovation.

Tax treaty between the US and Panama

Currently, there is no tax treaty between the United States and Panama.

US tax obligations for Americans in Panama

If you are a US citizen or green card holder living in Panama, your tax obligations do not end when you move to Panama – you must continue to file US tax returns each year.

 

The filing threshold depends on your income level and filing status. For example, if you are single, you must file if your gross income exceeds $14,600 for the 2024 tax year.

The standard US tax filing deadline is April 15. Expats automatically receive a two-month extension, moving the deadline to June 16, 2025. If you need additional time, you can request a further extension until October 15.

US expats in Panama may need to file the following tax forms:

• Form 1040 – The standard tax return required for all US citizens, regardless of location. The typical filing deadline is April 15, but expats receive an automatic extension to June 16 (in 2025).
• Form 8938 (FATCA report) – Required if foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point ($400,000 and $600,000 for married taxpayers filing jointly).
• Form 2555 (Foreign Earned Income Exclusion FEIE) – Allows expats to exclude up to $126,500 (2024 limit, adjusted annually) of foreign income from US taxes.
• Form 1116 (Foreign Tax Credit) – Used to claim a credit for taxes paid to Panama or other foreign countries, helping to avoid double taxation.
• FBAR (FinCEN Form 114) – Required if the combined value of foreign bank accounts exceeds $10,000 on any day during the tax year. It must be filed separately from your tax return.

Stay compliant with US expat taxes in Panama

Living in Panama means balancing local and US tax obligations – but you do not have to manage it alone. At Taxes for Expats, we have over 20 years of experience helping Americans in Panama stay compliant and avoid costly mistakes.

Let us help you file your US taxes accurately, claim every eligible exclusion, and stay IRS-compliant – without the risk of unnecessary penalties.