Foreign residents pay tax in Panama only on money earned inside this country. Regardless of your residency status, personal income tax is only applied to Panamanian sourced income. Americans retirees are not taxed on pensions, Social Security, or similar income earned in the States. Still, the IRS requires that U.S. citizens file U.S. tax returns, even if they’re not living in the States and even if they have no tax liability (as long as they meet the minimum income requirements). You will not be taxed on your first US$101,300 (2016) of earned income (double that for a couple). When it comes to taxation, this is as good as it gets for the foreign resident or retiree.
More on the Foreign Earned Income Exclusion
Income Tax: Personal income tax in Panama is based on a sliding scale, ranging from a minimum of 15% after the first US$11,000 to a maximum rate of 25%. For temporary residents, the tax is only applied to Panamanian-sourced income.
Panama Tax Rates for Real Estate
When buying real estate in Panama there will be applicable taxes rates for every circumstance, including:
Rental Income Tax: If you receive rental return on your property, you will be liable for income tax up to a maximum of 25% (on returns greater than US$250,000). However, if you invest in a hotel or condo-hotel you may be exempt from income tax for 15 years. This does not apply to any private residence, only hotels and condo-hotels.
Transfer tax: Real estate transfer taxes in Panama are paid by the seller, and are 2% of either the updated registered value of the property or the sale price—whichever is higher. The updated value is the registered value, plus 5% per annum of ownership. If the property is bought by a corporation, it is customary for the shares of the company to be sold, thus eliminating the need to pay transfer tax.
Property Tax: Properties with a registered value of US$30,000 or lower do not pay property tax. Properties worth more than US$30,000 are taxed as follows:
- 1.75% from US$30,000 to US$50,000
- 1.95% from US$50,000 to US$75,000
- 2.1% over any property value above US$75,000
Capital Gains Tax: If you are not in the business of selling and buying property, you pay a flat 10% of the gross profit.
Construction and improvements: Various property tax exemptions are in place, ranging from 5 to 20 years. If you buy resale, the remaining exemption time is yours.
Exemptions on Taxes in Panama
If you invest at least US$50,000 in tourist-related infrastructure in designated special tourism areas of Panama’s interior, you can benefit from:
- A 20-year exemption on any import taxes due on materials, furniture, equipment, and vehicles;
- A 20-year exemption on real estate taxes for all assets of the enterprise;
- Exemption from any tax levied for the use of airports and piers;
- Accelerated depreciation for real estate assets of 10% per year.
The investment amount does not include the price of the land. The minimum investment requirement for projects in the metropolitan area is US$300,000.
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