Introduction: Why Taxes in Panama Attract Expats
Panama is not only known for its canal, tropical beauty, and modern infrastructure—it’s also famous for its tax-friendly environment. For many expatriates, retirees, and international investors, the country’s territorial tax system is one of the biggest incentives to settle here. This guide covers everything from individual income tax to corporate obligations, property taxes, and special considerations for U.S. citizens.
Individual Income Tax in Panama
Panama taxes only income earned within its borders. Residents pay on a sliding scale:
- 0% on the first $11,000 per year.
- 15% on income between $11,000 and $50,000.
- 25% on income above $50,000.
Non-residents are generally taxed at a flat 15% on Panama-sourced income.
Corporate Taxes in Panama
The corporate income tax rate is 25% for most businesses, but special economic zones such as the Colón Free Zone, Panama Pacifico, and SEM (Multinational Headquarters) programs offer reduced rates or exemptions.
Property Taxes in Panama
Property taxes depend on the property’s value:
- Properties under $120,000 are generally exempt.
- Rates range from 0% to 0.7% for higher values.
Panama also applies a 2% transfer tax when a property changes ownership.
VAT (ITBMS) and Other Indirect Taxes
The value-added tax in Panama—called ITBMS—is 7% on most goods and services, with reduced rates for certain items and exemptions for essentials like food.
Business & Municipal Taxes in Panama
In addition to national corporate income tax, businesses operating in Panama are subject to several local and activity-based taxes:
- Municipal Tax (Commercial License Tax) – All businesses must obtain a municipal license from the local municipality where they operate. This tax is typically calculated as a small percentage of gross annual revenue, with a minimum amount set by the municipality. Rates and minimums vary by district.
- Notice of Operation Tax (Aviso de Operación) – This is an annual tax for the right to operate a business in Panama. It is generally calculated as 2% of net worth, with a maximum cap established by law.
- ITBMS Withholding Obligations – Certain large companies are designated as ITBMS (VAT) withholding agents. They must withhold and remit VAT from payments to certain suppliers, particularly those without proper tax registration.
- Special Industry Taxes – Specific sectors such as casinos, alcohol, and tobacco are subject to additional excise taxes.
These taxes, while not as high as in many other countries, are important to factor into any business or investment plan. Working with a local accountant ensures compliance with both national and municipal obligations-
Taxes for U.S. Citizens and Other Expats
U.S. citizens must continue filing annual tax returns with the IRS, no matter where they live. However, the Foreign Earned Income Exclusion (FEIE) allows many expats to exclude a portion of their foreign income from U.S. taxation.
Local Insight: Why the Territorial Tax System is a Game-Changer
One long-term U.S. expat shared:
“One of my biggest worries before moving was how to handle taxes in another country. But Panama’s system turned out to be one of its biggest advantages. The best part is its territorial tax system—residents only pay taxes on money earned inside Panama.
If, like me, you work remotely for a U.S. company, your income isn’t taxable here. The same applies to foreign pensions, investment income abroad, or any earnings not generated within Panama. This is why so many digital nomads and retirees choose this country.
Of course, if you take a local job or run a business that earns income in Panama, you will pay taxes on that portion. The process is straightforward if done correctly.
The catch? U.S. citizens must still file with the IRS. Thanks to the FEIE, most expats won’t owe U.S. taxes if their income is below the annual limit, but filing is non-negotiable.
My top advice: even if you don’t owe Panama taxes on remote work, hire a local accountant. They’re worth every cent. They’ll help you navigate the rules, identify what you must declare, and handle the paperwork so you don’t risk mistakes.”
Tips for Managing Taxes in Panama
- Work with a qualified local accountant familiar with expat situations.
- Understand your residency status to determine your tax obligations.
- Plan for U.S. tax filing if you’re an American citizen.
- Research special regimes if you run a business, such as Panama Pacifico.
Conclusion: Is Panama Tax-Friendly?
Yes—Taxes in Panama are among the most favorable in the region, especially for expats with foreign income. The territorial system, combined with reasonable rates and various exemptions, makes it a strong choice for retirees, digital nomads, and international entrepreneurs.
Disclaimer: This article does not constitute legal or tax advice. Always consult a qualified professional before making financial or tax-related decisions.