Americans in Panama tax guide: Panama taxation and US rules
Panama uses a territorial income tax system, so its income tax generally applies to Panama-source income rather than foreign-source income. Americans living there still report worldwide income to the United States for the 2025 tax year and may also face FBAR, FATCA, and local filing rules.
If you are planning a move, our guide to moving to Panama from the US covers residency and relocation basics, while our guide to retiring in Panama explains retirement-specific considerations. The IRS also explains the continuing filing rules for US citizens and resident aliens abroad and the foreign tax home requirement for the FEIE.
At a glance, these 3 rules frame the tax picture for Americans in Panama:
- Territorial tax: Panama generally taxes income sourced to activities, property, or business carried on in Panama rather than foreign-source income.
- FBAR and FATCA: US reporting can still apply to Panamanian bank and investment accounts even when Panama does not tax the underlying foreign-source income.
- Panama-source income: Salary for work physically performed in Panama, local business income, and rent from Panamanian property can create local tax obligations.
A US employee who performs services from Panama may have Panama-source salary because the work is performed there, while income from a US investment account can fall outside Panama’s territorial income tax. The US return still starts from worldwide income, so local source rules do not end federal reporting.
How does the Panama tax system work?
Panama taxation is territorial, so taxable income is tied primarily to sources within the country rather than to worldwide income. For an American resident, taxes in Panama can apply to local wages, business profits, rents, or gains even though the same person still reports worldwide income on a US return.
A Panama tax result depends on where the income-producing activity or asset is located. The IRS uses separate US sourcing rules, including its guidance on sourcing income for nonresident aliens, so do not assume the two countries classify every item the same way.
The key distinction is source: local-source income can be taxable in Panama, while genuinely foreign-source income is usually outside its income tax base.
| What Panama taxes | What it usually does not tax | Why it matters to US expats |
|---|---|---|
| Salary for services performed in Panama | Salary for services performed entirely outside Panama, subject to sourcing rules | Work location can determine local tax even when the employer is foreign |
| Income from a business carried on in Panama | Qualifying foreign business income not produced in Panama | Business activity can create local filing and registration duties |
| Rent from property located in Panama | Income from foreign property | The location of the property is central to sourcing |
| Gains from Panama assets or transactions treated as Panama-source | Gains that are genuinely foreign-source under local law | Asset location and transaction facts matter |
Panama taxes income from activities carried on inside the country, but a US citizen can still have federal tax on foreign-source amounts. For FEIE eligibility, the IRS separately applies the 330-full-day Physical Presence Test or the Bona Fide Residence Test.
The following 3 examples show how tax in Panama can differ by income type:
- Employment: A US citizen employed by a foreign company but physically working from Panama can have locally sourced compensation because the services are performed in Panama.
- Self-employment: A consultant performing client work while physically in Panama can create Panama-source service income even when clients are outside the country.
- Investments: Dividends or interest from genuinely foreign investments are typically outside the territorial income tax base, but the United States may still tax and report them.
For practical taxation in Panama, identify the source of each income stream before deciding whether it belongs on a local return. Source can depend on where services are performed, where property sits, and whether a business activity is carried on inside the country.
Territorial taxation
Panama’s territorial system focuses on income produced within Panama, including wages for work performed there, local business activity, rent from local real estate, and certain gains from Panama assets. Foreign-source income is typically outside the local income tax base, but source classification depends on the facts.
The following 4 income categories commonly point toward Panama-source treatment:
- Wages or professional fees for services physically performed in Panama.
- Profit from a trade or business carried on in Panama.
- Rental income from real property located in Panama.
- Gains from the sale of Panamanian real estate or other locally sourced assets.
The following 3 categories are commonly outside the territorial income tax base when they are genuinely foreign-source:
- Salary for services performed entirely outside Panama.
- Rent from property located outside Panama.
- Foreign investment income not produced by an activity or asset sourced to Panama.
For US purposes, foreign-source classification follows separate federal rules. The IRS guidance on foreign-source income and Form 1042-S reporting illustrates why a US source analysis should not be substituted for Panama’s own source rules.
Example box: A remote worker performing services from Panama can have local service income; a landlord renting an apartment in Panama has local rental income; an investor receiving dividends from a foreign portfolio may have income outside Panama’s territorial base. The US tax treatment is separate in all 3 cases.
Who qualifies as a tax resident in Panama?
A natural person can qualify as a Panama tax resident by spending more than 183 days, consecutive or nonconsecutive, in Panama during the fiscal year or the immediately preceding fiscal year. A person can also qualify by establishing a permanent home in Panama, with DGI looking for evidence of a genuine personal connection and that Panama is the center of the person’s economic or family relationships.
The 3 residency indicators below show the facts Panama’s DGI commonly examines.
| Residency indicator | Why it matters |
|---|---|
| More than 183 days in Panama | This is the principal objective day-count test |
| Permanent home in Panama | A genuine, available home can support residency when backed by real personal ties |
| Center of personal and economic interests | Family, employment, business, and other material ties help show where the person’s life is centered |
The following 3-step decision path is a practical screening tool, not a substitute for a DGI determination:
- Count days: Were you in Panama for more than 183 days under the applicable fiscal-year rule?
- Check your home: If not, do you have a genuine permanent home available in Panama rather than simply owning investment property?
- Check ties: Do your family, work, business, and economic relationships show Panama as your center of vital interests?
Panama taxes for expats still depend on source after residency is established because the country uses territorial taxation. US citizens and green card holders should separately test US filing, FBAR, FATCA, and other information-return requirements.
Who needs to file a tax return in Panama?
A Panama income tax return is commonly required when a person has taxable local income that is not fully settled through withholding, such as self-employment, multiple income sources, or rental activity. A pure salaried employee should not assume that complete payroll withholding eliminates Panama filing. DGI includes pure salaried employees among its income-tax declaration categories and provides a separate declaration form for employees whose only income is salary.
The following 3 filing categories help identify the likely local requirement:
- Likely to file: Self-employed professionals, business owners, landlords, and people with Panama-source income not fully covered by withholding.
- May not need to file: A pure salaried employee whose single Panamanian employer fully withholds the tax due.
- Needs case-specific review: A nonresident receiving Panama-source income subject to withholding or a person with mixed local and foreign income.
Example box: A salaried employee with complete local payroll withholding may have no separate filing duty; an independent consultant with Panama-source fees generally has a filing issue to review; a landlord reporting rent from a Panama apartment should expect local tax compliance; a foreign-portfolio investor may have no local income-tax filing solely because of foreign investment income.
US filing uses a separate threshold system. See our guide on when an expat needs to file a US return, and compare your US facts with the IRS minimum income to file taxes.
Confirm your local filing position with a Panama tax professional before relying on a general rule, especially if withholding, business registration, or nonresident sourcing is involved.
Panama’s tax year and filing deadlines
For an individual using Panama’s calendar tax year, the 2025 tax year ran from January 1 through December 31, 2025. The statutory individual return deadline is March 15, 2026; a requested filing extension runs to April 15, and income tax due is generally payable by March 31.
For a calendar-year individual, filing and payment are separate: the normal return date is March 15, while the annual income-tax payment date is March 31.
| 2025 Panama individual tax item | Statutory timing |
|---|---|
| Tax year | January 1–December 31, 2025 |
| Individual income tax return | March 15, 2026 |
| Requested filing extension | April 15, 2026 |
| Annual income tax payment | March 31, 2026 |
March 15, 2026 fell on a Sunday. Panama can issue administrative extensions or other relief around nonbusiness days, so taxpayers should confirm the operative e-Tax 2.0 deadline rather than assume a weekend automatically changes the statutory date.
For cross-country planning, see our foreign-country tax filing deadline guide. US due dates follow a separate calendar, as the IRS explains in when taxes are due.
Panama tax rates at a glance
For 2025 local tax, Panama’s headline individual rates run from 0% to 25%, the standard corporate income tax rate is 25%, and the standard ITBMS rate is 7%. Property and capital-gains rules use separate rates, while CSS payroll contributions changed under Law 462 in 2025.
The fastest rate check is this: individuals top out at 25%, corporations generally pay 25%, standard ITBMS is 7%, and employees contribute 9.75% to CSS.
| Tax type | 2025 rate or treatment | Who it affects |
|---|---|---|
| Individual income tax | 0% to B/.11,000; 15% on the next band; 25% above B/.50,000 | Individuals with taxable Panama-source income |
| Corporate income tax | 25% standard rate on net taxable income | Companies with taxable Panama-source business income |
| VAT/ITBMS | 7% standard; 10% on alcohol and lodging; 15% on tobacco | Taxable sellers/service providers and consumers |
| Capital gains | Common nonordinary gains can face 10% final tax; real estate has a 3% advance and securities a 5% advance | Sellers of covered assets |
| Property tax | Ordinary property: 0%–1%; qualifying main home/family patrimony: 0%–0.7% | Owners of taxable Panama real estate |
| Social security | Employee 9.75%; employer 13.25% through February 28, 2027 | Covered payroll in Panama |
Property owners can compare these local bands with our guide to buying property in Panama. The US uses separate federal income tax rates and brackets, so a local rate should never be read as the taxpayer’s total cross-border rate.
The IRS applicable federal rates are US reference rates used for certain federal tax calculations; they do not determine any Panamanian rate in this table.
Is Panama a tax haven for US expats?
Panama can be attractive because foreign-source income is generally outside its territorial income tax base, but that does not make a US citizen’s worldwide income tax-free. For 2025, Americans still apply US federal filing, FBAR, FATCA, FEIE, and Foreign Tax Credit rules where the requirements are met.
The key distinction is between a local territorial exemption and a US filing exemption – they are not the same rule.
| Myth | Fact |
|---|---|
| “Foreign income is not taxed locally, so I do not file in the US.” | US citizens and resident aliens generally remain subject to US worldwide-income reporting rules. |
| “Living in Panama automatically makes salary tax-free everywhere.” | Panama source rules depend on where services are performed, and US tax relief requires separate eligibility. |
| “A Panamanian bank account is outside US reporting.” | FBAR or Form 8938 can apply when federal thresholds are met. |
Panama’s territorial system can reduce local tax on genuinely foreign-source income, but it does not switch off US citizenship-based taxation. The practical question is which country taxes each item and which US exclusions, credits, or reporting forms apply.
Income taxes in Panama
Income tax in Panama applies on a territorial basis, with individual taxable income generally subject to 0%, 15%, or 25% brackets. Separate charges can apply to capital gains, social security, property, and consumption, so the income-tax bill should not be treated as the taxpayer’s total local cost.
Panama income tax and US federal income tax use different definitions, deductions, and reporting systems. Our US expat tax guide explains the federal side, while the IRS separately defines taxable income and adjusted gross income.
Income tax and payroll charges are separate obligations even when both come out of the same paycheck.
| Charge | What it is |
|---|---|
| Individual income tax | Progressive tax on taxable Panama-source income |
| CSS contribution | Payroll-based social security contribution under Panama’s social-security law |
The detailed sections below separate individual rates, capital gains, social security, and property-related taxes so each calculation is easier to check.
Individual income tax rates in Panama
For individuals, the top Panama tax rate is 25% on net taxable income above B/.50,000; income up to B/.11,000 is taxed at 0%, and the middle band is taxed at 15%. Panama income tax for expats applies only to income that falls within the local taxable base.
At B/.50,000 of net taxable income, the income tax is B/.5,850; above that point, 25% applies only to the excess.
| Net taxable income | Marginal rate | Tax at the top of the band |
|---|---|---|
| Up to B/.11,000 | 0% | B/.0 |
| B/.11,000.01–B/.50,000 | 15% of the amount over B/.11,000 | B/.5,850 at B/.50,000 |
| Over B/.50,000 | B/.5,850 + 25% of the amount over B/.50,000 | Depends on excess |
Based on our client scenario at TFX:
- A taxpayer with B/.30,000 of net taxable Panama-source income has B/.19,000 in the 15% band. The resulting individual income tax is B/.2,850.
- A taxpayer with B/.80,000 of net taxable Panama-source income owes B/.5,850 on the first B/.50,000 plus B/.7,500 on the B/.30,000 excess. The total is B/.13,350.
Employees can have income tax withheld through payroll, while self-employed individuals and other filers can have estimated-payment obligations. For US comparison data, the IRS publishes individual income tax rates and tax-share statistics, but those federal statistics do not set Panama’s brackets.
Capital gains tax
Panama applies a 10% final rate to covered nonordinary capital gains, but collection can begin with an advance withholding. A nonordinary real-estate sale generally carries a 3% advance based on the greater of sale price or cadastral value, while covered securities sales can carry a 5% advance.
For a typical nonordinary real-estate sale, the 3% payment is an advance against a 10% tax on the taxable gain, subject to the statutory election and refund rules.
| Asset or transaction | Typical treatment | Withholding or advance |
|---|---|---|
| Panama real estate outside ordinary business inventory | 10% on taxable gain; special election rules can apply | 3% of the greater of sale price or cadastral value |
| Bonds, shares, participation interests, and similar covered securities | 10% final treatment can apply under the capital-gains regime | Buyer generally withholds 5% of total sale value as an advance |
| Sale of a business interest | Depends on the legal form and asset sold | Review securities and source rules before closing |
If you sell a Panama apartment as a nonordinary capital asset, expect the 3% advance to be handled at transfer and the final 10% gain calculation to determine whether further tax or a refund position exists. See our capital gains tax guide for expats for the separate US side.
US capital-gain calculations may also require currency conversion. The IRS provides foreign currency and exchange-rate guidance and separate material on net investment income, capital gains, and losses.
Social security contributions
Panama’s Law 462 kept the employee CSS contribution at 9.75% of salary and raised the employer contribution to 13.25% from the April 2025 contribution month through February 28, 2027. Independent workers have separate contribution rules, including a 9.36% IVM rate on contributable income.
For covered employees in 2026, 9.75% is withheld from the employee, and 13.25% is paid by the employer, before separate occupational-risk charges.
| Contributor | 2026 contribution | Who pays / coverage |
|---|---|---|
| Employee | 9.75% of salary | Employee; CSS sickness/maternity and pension financing under the statutory allocation |
| Employer | 13.25% of salary through February 28, 2027 | Employer; rises to 14.25% from March 1, 2027 |
| Independent worker | 9.36% of contributable income for IVM; 8.5% for voluntary sickness/maternity coverage | Independent worker under Law 462 rules |
Social security vs. income-tax withholding: CSS contributions finance Panama’s social-security system, while income-tax withholding is a prepayment of income tax. The two are calculated under different laws and can both appear in payroll.
Panama does not have a US Social Security totalization agreement, so cross-border coverage deserves case-specific review. Our guides to bilateral Social Security agreements and US Social Security tax explain the US concepts.
The IRS discusses the federal tax treatment of Social Security income and maintains a broader IRS FAQ library. Those federal rules are separate from Panama’s CSS contribution rates.
Other taxes on individuals
Beyond income tax, a person in Panama can encounter property tax, a 2% real-estate transfer tax on covered sales, documentary or transaction charges, and ITBMS on taxable purchases. Panama does not impose a broad net wealth tax, but ownership and transactions can still produce separate local costs.
These 4 non-income-tax items have different triggers, so ownership costs should not be mixed into the income-tax calculation.
| Tax or charge | Trigger | Who pays | Recurring or transactional |
|---|---|---|---|
| Property tax | Owning taxable Panama real estate | Property owner | Recurring |
| Real-estate transfer tax | Covered transfer of Panama real estate | Typically seller under the transfer regime | Transactional |
| ITBMS | Taxable goods and services | Collected by registered seller from customer | Transactional |
| Municipal taxes and fees | Local business/activity or municipal service | Depends on activity and municipality | Recurring or transactional |
See our foreign property tax guide before assuming a local property levy works like a US deduction. The IRS separately explains US treatment of gifts and inheritances and interest, dividends, and other income.
Panama property tax overview for owners
Panama property tax is based on cadastral value and uses different brackets for ordinary property and approved family-patrimony or main-home treatment. Ordinary property is exempt up to B/.30,000, while a qualifying main home or family patrimony can receive a 0% band up to B/.120,000.
A qualifying main home gets the larger 0% band: B/.120,000 instead of B/.30,000 for ordinary property.
| Ownership category | Cadastral-value band | Rate |
|---|---|---|
| Ordinary property | Up to B/.30,000 | 0% |
| Ordinary property | B/.30,000.01–B/.250,000 | 0.60% |
| Ordinary property | B/.250,000.01–B/.500,000 | 0.80% |
| Ordinary property | Over B/.500,000 | 1.00% |
| Approved family patrimony / main home | Up to B/.120,000 | 0% |
| Approved family patrimony / main home | B/.120,000.01–B/.700,000 | 0.50% |
| Approved family patrimony / main home | Over B/.700,000 | 0.70% |
The following 3 checks help owners identify the relevant property-tax treatment:
- Primary home: Confirm whether the property has been approved by the DGI as a main home or family patrimony; ownership alone does not automatically apply the preferential bands.
- Rental property: A rental or investment property normally uses the ordinary bands unless a specific exemption applies.
- Cadastral value: Confirm the value recorded with the land and tax authorities before calculating the annual levy.
Property tax can be paid in 3 installments, generally April 30, August 31, and December 31. The DGI states that a 10% early-payment discount can apply when the full annual amount is paid before April 30, and the account has no arrears.
Corporate and business taxes in Panama
Businesses operating in Panama can face a 25% corporate income tax, 7% standard ITBMS, an annual Operation Notice tax, entity fees, and municipal charges. The section matters to corporations and sole proprietors, but the exact obligations differ by legal form, turnover, source of income, and municipality.
Before selecting an entity, compare our guide to business structures for expats abroad with the benefits and disadvantages of an offshore corporation.
The main business taxes are separate: income tax applies to taxable profit, ITBMS to taxable sales, and registration or municipal levies can apply even when income tax is low.
| Business charge | What it applies to | Commonly affected business |
|---|---|---|
| Corporate income tax | Taxable Panama-source net income | Panamanian companies and taxable local operations |
| ITBMS | Taxable sales/services after registration threshold | Sellers and service providers |
| Operation Notice tax | Capital of a business holding an Operation Notice | Covered operating businesses |
| Annual entity fee | Registered legal entity status | Companies and other covered legal entities |
| Municipal taxes/fees | Local commercial activity and permits | Businesses operating in a municipality |
US business owners should also keep the federal layer separate. The IRS explains small-business income and expenses and publishes corporate foreign tax credit statistics for the US system.
Corporate tax
The standard Panamanian corporate income tax rate is 25% on taxable net income for 2025. Companies with more than B/.1.5 million of annual taxable gross income can fall under Panama’s CAIR calculation. Under the alternative method, 4.67% is applied to taxable gross income to determine the alternative taxable base, which is then subject to the 25% corporate income tax rate.
The standard rule is 25% of net taxable income, while CAIR can change the taxable base for companies above the B/.1.5 million annual threshold.
| Corporate situation | Local treatment |
|---|---|
| Standard company with Panama-source taxable income | 25% of net taxable income |
| Company above the CAIR threshold | Compare traditional result with the CAIR base; relief from CAIR can be requested under statutory procedures |
| Foreign-source business income not produced in Panama | Generally outside the territorial income-tax base, subject to sourcing rules |
| Panama branch of foreign company | Corporate income tax applies to attributable Panama-source income; separate distribution-equivalent tax rules can also apply |
A local operating company selling services performed in Panama normally has Panama-source business income. An offshore service company whose income is genuinely produced outside Panama can have different local income-tax treatment, but management, personnel, contracts, and where services are performed can change the source result.
US owners of a Panamanian corporation should separately test whether Form 5471 or another US international information return applies to their ownership. Form 1120-F can apply when the foreign corporation itself has a US income-tax filing obligation, while Form 5472 applies only to specified reporting corporations with reportable related-party transactions. None of these US forms determines the Panama tax due.
Value-added tax (VAT)
Panama’s VAT-style tax is ITBMS, with a standard rate of 7% on taxable transfers of goods and services. Businesses generally enter the ITBMS system when annual taxable turnover exceeds B/.36,000, while 10% and 15% rates apply to specified categories such as lodging, alcohol, and tobacco.
Based on our client scenario at TFX: For an ordinary taxable B/.100 purchase subject to the 7% standard rate, the ITBMS is B/.7, making the total B/.107.
| ITBMS category | Rate | Who collects it |
|---|---|---|
| Standard taxable goods and services | 7% | Registered seller/service provider |
| Alcohol and lodging | 10% | Registered seller/provider |
| Tobacco products | 15% | Registered seller |
The following 4 categories include common ITBMS exemptions or special treatment:
- Medicines.
- Basic school supplies, uniforms, and textbooks.
- Food and agricultural products covered by the exemption rules.
- Medical, laboratory, water, and electricity services covered by statutory exemptions.
A US expat buying ordinary taxable household goods should expect ITBMS to be part of the local purchase price. US information filings are separate; our guides to Form 720 and ways to save on an American expat tax return cover federal topics rather than Panamanian VAT.
Local and municipal business taxes in Panama
A Panama business can owe national registration-related taxes and municipality-specific taxes in addition to income tax and ITBMS. An Operation Notice tax is generally 2% of business capital, subject to a B/.100 minimum and B/.60,000 maximum, while municipal charges depend on activity and location.
Local obligations vary by municipality, but 2 national items are easy to screen first: the Operation Notice tax and the annual legal-entity fee.
| Tax or fee | Who pays | Timing |
|---|---|---|
| Operation Notice tax | Covered businesses with an Operation Notice; 2% of capital, B/.100 minimum and B/.60,000 maximum, with statutory exemptions | Annual |
| Annual legal-entity fee | Most Panamanian companies: B/.300 annually; private-interest foundations: B/.400 | Annual |
| Municipal business tax | Businesses conducting taxable commercial or industrial activity in a municipality | Recurring; rate depends on local schedule |
| Municipal permit/service fee | Businesses needing local permits, inspections, signage, or services | Transactional or recurring |
Panama City, for example, sets business taxes through its municipal tax schedule, and other districts can use different schedules. Confirm the municipality, business classification, gross-sales band, and required permits before budgeting a local amount.
US reporting can also be entity-specific. See our guides to Form 1065 and Schedule K-1 and foreign company tax reporting; the IRS separately explains withholding on specific types of income.
Tax incentives for investors
Panama has statutory incentive regimes for approved free zones, Panama Pacífico, City of Knowledge, tourism, energy, and other qualifying activities. Incentives are not automatic: each regime has eligibility, licensing, activity, and compliance conditions, and a 2026 investor should verify the specific law before modeling a tax benefit.
The useful rule is eligibility first, benefit second – an incentive only matters if the company, activity, and location satisfy the governing regime.
| Incentive category | Who can qualify | Main potential benefit |
|---|---|---|
| Free zones | Approved companies and developers in qualifying zones | Import-duty and other tax exemptions for qualifying operations |
| Colón Free Zone | Approved businesses conducting qualifying zone activities | Special treatment for foreign operations and reexports |
| Panama Pacífico / City of Knowledge | Approved entities under the specific regime | Tax, customs, labor, or immigration benefits defined by the regime |
| Tourism / energy / other sector programs | Projects meeting statutory program conditions | Credits, exemptions, or other targeted incentives |
The following 3 investor questions should be answered before relying on an incentive:
- Is the entity formally approved for the regime?
- Is the planned income-producing activity one the regime covers?
- Does the benefit apply to the specific tax being modeled, rather than merely to customs, immigration, or another area?
For a US owner, a local exemption does not automatically exempt the same income from US tax or information reporting. Our guide to investment options for American expatriates can help frame the separate US investment questions.
Tax treaty between the US and Panama
The United States and Panama do not have a bilateral income tax treaty as of August 25, 2026. The countries do have tax-information-exchange arrangements, but those do not provide the broad residence, withholding, pension, and double-tax relief provisions found in a full income tax treaty.
The IRS US tax treaty list does not include Panama as an income-tax-treaty jurisdiction. Without a treaty, US citizens commonly rely on domestic provisions such as the Foreign Tax Credit when qualifying foreign income tax is paid.
The following 4 topics are commonly addressed by a full income tax treaty but remain governed here by domestic law or other agreements:
- Reduced withholding rates on specified cross-border income.
- Residence tie-breaker rules for dual residents.
- Special pension or retirement-income provisions.
- Mutual-agreement procedures for treaty-defined double-tax disputes.
The practical takeaway is that Panama’s territorial rules do not create a US treaty exemption. A US expat should analyze each income item under both countries’ domestic rules and then test available US credits or exclusions.
US tax obligations for Americans in Panama
For the 2025 tax year filed in 2026, US citizens and resident aliens in Panama generally follow the same federal income thresholds as taxpayers at home, while qualifying taxpayers abroad received an automatic filing extension to June 15, 2026. Foreign accounts and assets can trigger separate FBAR or FATCA reporting.
Taxes in Panama for expats do not replace US worldwide-income reporting. For taxpayers under age 65 in 2025, the basic gross-income thresholds included $15,750 for single filers, $23,625 for head of household, and $31,500 for married filing jointly; special filing rules can require a return below those amounts.
The following 5 federal checks cover the core obligations for a US person living in Panama:
- Form 1040: Report worldwide income when a federal filing requirement applies.
- FEIE/Form 2555: A qualifying individual could exclude up to $130,000 of foreign earned income for 2025; eligibility requires the tax-home and residence/presence tests.
- Foreign Tax Credit/Form 1116: Qualifying Panama income tax can potentially offset US tax on the same income, subject to US credit rules and limitations.
- FBAR/FinCEN Form 114: File when aggregate foreign financial accounts exceeded $10,000 at any time during 2025.
- FATCA/Form 8938: For qualifying taxpayers living abroad, thresholds can be more than $200,000 at year-end or $300,000 at any time for a non-joint filer, and more than $400,000 or $600,000 for married joint filers.
See our FBAR vs. FATCA comparison because the 2 forms have different thresholds, asset definitions, and filing methods.
Example box: A US employee living and working in Panama can report salary on Form 1040, evaluate Form 2555 or Form 1116, report Panamanian accounts on FBAR if the $10,000 aggregate test is crossed, and test Form 8938 separately. Local income tax paid does not remove the federal reporting steps.
For 2025 returns, April 15, 2026 was the regular federal deadline; qualifying taxpayers abroad had until June 15, 2026 to file without requesting the automatic 2-month extension, although interest on unpaid federal tax generally runs from April 15. A Form 4868 extension could move the filing date to October 15.
Stay compliant with US expat taxes in Panama
A US expat in Panama should keep source records, file the required federal and foreign-account forms, and resolve missed filings before they compound. For 2025 reporting, the key records include income statements, tax receipts, maximum foreign-account balances, exchange rates, and documents supporting any Form 2555 or Form 1116 claim.
The following 5-step checklist keeps the 2025 return and related reporting organized:
- Separate income by source: Document where services were performed and where property or business activity is located.
- Keep tax-payment evidence: Retain Panama assessments, withholding certificates, and payment receipts used for any US Foreign Tax Credit claim.
- Track foreign accounts: Record each account’s maximum 2025 balance for the FBAR test and asset values for Form 8938.
- Check international forms: Review Form 2555, Form 1116, Form 8938, FBAR, and any foreign-business forms that your facts require.
- Address late filings deliberately: If prior returns or FBARs are missing, review the applicable IRS compliance route before sending isolated late forms.
Our expat IRS tax-form checklist can help identify forms, while our guide to preserving tax and financial records explains what to keep after filing.
If foreign accounts, a Panamanian company, late returns, or multiple income sources are involved, case-specific professional help can reduce filing errors and keep the US and Panama positions consistent.
FAQ
Yes. US citizens and green card holders in Panama generally remain subject to US tax reporting on their worldwide income for the 2025 tax year, even if they also pay tax in Panama. Depending on their circumstances, they may reduce US tax through the Foreign Earned Income Exclusion or Foreign Tax Credit.
Panama generally does not impose income tax on genuinely foreign-source income because it uses a territorial tax system. Income earned from services performed in Panama, a business operated there, or property located there can still be Panama-source income and subject to local tax.
Panama’s individual income tax rates are 0%, 15%, and 25%. Net taxable income up to B/.11,000 is taxed at 0%, income from B/.11,000.01 through B/.50,000 is subject to the 15% bracket, and income above B/.50,000 reaches the 25% marginal rate.
Spending more than 183 days in Panama during the relevant period is one basis for establishing Panama tax residency. A person can also qualify based on a permanent home and center of vital interests, so the day count is not the only factor the Panamanian tax authority can consider.
No. Panama’s territorial system can leave qualifying foreign-source income outside the local income tax base, but US citizens generally still report worldwide income to the IRS. Panama-source salary, business income, rent, and certain capital gains can also remain taxable locally.
An American in Panama must generally file an FBAR when the combined value of foreign financial accounts exceeds $10,000 at any time during the calendar year. For 2025 accounts, the FBAR was due April 15, 2026, with an automatic extension to October 15, 2026.
Yes, if they satisfy the IRS tax-home requirement and either the Bona Fide Residence Test or the Physical Presence Test. For the 2025 tax year, the maximum Foreign Earned Income Exclusion is $130,000 per qualifying individual, claimed using Form 2555.
No. As of August 2026, the United States and Panama do not have a comprehensive bilateral income tax treaty. They do have a tax information exchange agreement, but US expats generally rely on domestic provisions such as the Foreign Tax Credit rather than treaty-based income-tax relief.
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