Taxes For US Expats Living In Panama– A 2023 Guide

Taxes For US Expats Living In Panama– A 2023 Guide

Panama Taxes at a Glance

  • Primary Tax Forms: Personal income tax return
  • Tax Deadline: March 15
  • Currency: Balboa
  • Population: 4.3 million
  • Number of US Expats in Panama: Approx. 20,000 – 30,000 
  • Capital City: Panama City
  • Primary Language: Spanish
  • Tax Treaty: No
  • Totalization Agreement: No

Living as an Expat in Panama

With links to the Atlantic and Pacific oceans, Panama has a tropical climate and is nestled between Costa Rica and Colombia. Full of vibrant music, specialty coffee, and over 1,400 islands, Panama is home to over 20,000 US expats. If you’re an American living in Panama or considering making the jump, knowing how Panana taxes for US expats work is essential.

Taxes are already complicated, but when you’re an expatriate in Panama, you’re responsible for income tax for paying taxes to both countries.

US Expat Taxes in Panama

When living abroad in Panama, you must file both a Panama tax return and a US tax return. The good news is the income tax rate in Panama is easy to figure out, especially since the Panamanian Balboa is equal to the US dollar.

But, since there is no tax treaty between the US and Panama, you’re on the hook to pay taxes on the same income to both countries. Fortunately, there are some US tax breaks expats can take advantage of to lower their tax bill, which we’ll walk you through later in this guide.

Here’s what you need to know about taxes for foreigners in Panama:

Who Has to File Taxes in Panama?

Both residents and non-residents are required to file taxes in Panama. But unlike some other countries, both residents and non-residents are only taxed on their Panama-earned income. Foreign-earned income is not taxed in Panama.

If you work for an employer that withholds taxes, you do not need to file a tax return, and your taxes will be automatically withheld. But, if you’re self-employed, have multiple jobs without income withheld, or have a more complicated tax situation, you will need to file a tax return.

How much you’ll pay in taxes also depends on if you’re a resident or non-resident.

Who Qualifies as a Tax Resident in Panama?

Since you’re taxed differently depending on whether you’re a resident or non-resident of Panama, you must understand which category you fall into. In general, you’re considered a resident of Panama if you are present for at least 183 days in a calendar year.

Income Tax in Panama

Here’s how much you’ll pay in income tax if you’re a Panama resident:

  • If you earn between $0 to $11,000 annually, you will not pay income tax.
  • If you earn between $11,001 and $50,000, you’re taxed at 15% on all income above $11,000.
  • If you earn over $50,000, you’ll pay $5,850 in income tax, plus 25% on all income over $50,000. 

Non-residents are taxed at a flat rate of 15% of their Panama-sourced income plus the 2.75% educational tax rate.

Other Tax Situations in Panama

Corporate Tax

Companies in Panama pay a flat 25% tax rate on taxable corporate profits.

Value-added Tax (VAT)

Panama’s VAT is known as the movable goods and services transfer tax. The standard tax rate is a flat 7%.

Wealth Tax

There is no wealth tax in Panama.

Inheritance Tax

There is no inheritance tax in Panama.

Property Tax

For property taxes in Panama, if the property is valued under $120,000, it does not qualify. However, anything over that amount will be taxed between 0.5% to 0.7%.

Capital gains taxes are paid at 10% of the calculated gain. For real estate transactions, a 3% withholding is made at the closing as an advance payment against the 10% capital gains tax. There are no wealth, gift, or inheritance taxes.

Social Security

Employees contribute 9.75% of their wages to Social Security in Panama. Employers contribute 12.25% to this fund.

Do the US and Panama have a Tax Treaty?

Although the US has tax treaties with many countries, the US and Panama do not have a tax treaty. This means US expats are subject to paying double taxes on their income.

Does Panama Have a Totalization Agreement with the US?

No, the US does not have a totalization agreement with Panama. You could end up paying into both countries’ Social Security funds.

What Tax Forms Do US Expats in Panama Need to File?

You may not have to file a tax return, depending on your source of income. If you are self-employed, own a business, or work for an employer and earn additional income, you must file a personal tax return. You do not need to file a tax return if you only have one job with an employer that withholds taxes.

The tax year in Panama is the same as in the US (January 1 – December 31), and income taxes must be filed by March 15.

If you are required to file a tax return, you will file it with the Panama Ministry of Economy and Finance.

Get Help with Your Expat Taxes

Hopefully, this guide helped you better understand what tax forms US expats in Panama must file during tax season. But if you still have questions or are unsure if you qualify as a resident or non-resident in Panama, we’re here to help.

Don’t just guess. Get the best advice from one of our expat expert CPAs and EAs.
Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.
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