FREE REPORT: LIVE AND INVEST IN PANAMA
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LIVE AND INVEST IN PANAMA

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Taxes In Panama

Here are all the Must-Know Tax Rates if you are living, investing, buying real estate, or working in Panama. Your Panama Tax Rate resource.


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Taxes for Foreign Residents in Panama

A view of Panama's skyline. taxes in panama
A view of Panama's skyline. taxes in panama

Panama offers a favorable tax system for foreign residents, where personal income tax is only applied to income earned within the country. This makes it an attractive option for retirees, especially Americans, as U.S. Social Security and pension income are not taxed in Panama. However, U.S. citizens are still required to file tax returns with the IRS, even if they are not liable for taxes. Panama’s tax structure is further complemented by various exemptions, making it possible for foreign residents to significantly reduce their tax burdens with proper planning. Here is all you need to know.

Paying Taxes In Panama

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Image Source: Flickr/ Pictures of Money

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

Lief Simon, Director of Overseas Property Alert, Founde of Simon Letter, and Founder, of Global Property Advisor

Reviewed By Lief Simon

Lief Simon is the managing editor of Global Property Advisor, Simon Letter, and Offshore Living Letter. He has purchased more than 45 properties, investing in 23 different countries around the world.

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    Table of Contents

    Income Tax In Panama

    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.

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    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.

    Taxes In Panama: 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:

    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:

    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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    How To Live Tax Free In Panama

    beach chairs on a tropical beach. taxes in panama
    iStock/Min Xu

    You could live in Panama tax-free, even as a U.S. citizen (that is to say, paying no income tax either in Panama or in the United States).

    However, some work and preparation are required. You have to set yourself up properly.

    If you’re retired, you won’t pay taxes on retirement income you bring into Panama or on any dividends or interest income earned outside the country. But, you would still pay taxes in the United States on the dividends and interest income.

    And, depending on the source of the retirement income, you’d pay the same tax to the IRS as you would if you lived in the States (although, if you live in a state that taxes retirement income, you’d avoid that tax by moving to Panama).

    To live completely income tax free in Panama as a U.S. citizen, you must have a business generating earned income for you as an individual and that income must be derived from outside Panama.

    Panama taxes residents on income earned in the country only, so your non-Panama business would pay no taxes in Panama.

    And, assuming it is a business where you can legitimately claim that you are earning your income outside the country, your individual income wouldn’t be taxed there.

    Typically, this means a consulting or an Internet-based business.

    If you start an active business in Panama, with sales in Panama to Panama residents, then that income would be taxable in Panama, as would any related personal compensation you receive.

    In either case, your salary up to the annual Foreign Earned Income Exclusion limit (US$101,300 for 2016) can be excluded for U.S. income tax purposes. The key is that it be truly earned income.

    Lief Simon, Director of Overseas Property Alert, Founde of Simon Letter, and Founder, of Global Property Advisor

    Reviewed By Lief Simon

    Lief Simon is the managing editor of Global Property Advisor, Simon Letter, and Offshore Living Letter. He has purchased more than 45 properties, investing in 23 different countries around the world.

    Start Your New Overseas Life Today

    A world full of fun, adventure, and profit awaits! Sign up for our free daily e-letter, Overseas Opportunity Letter, and we’ll send you a FREE report on the 10 Best Places To Retire In Style Overseas Today 2024






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      Table of Contents

      Taxes In Panama- FAQs

      Yes, Panama is a pure tax haven because it has a tax regime for offshore companies, which allows them to pay minimal taxes on their profits.

      Panama imposes no income, corporate, capital gains, or estate taxes on offshore entities that only engage in business outside of the jurisdiction. Offshore companies can do business locally but will pay local taxes as a result.

      Residents in Panama also pay into Social Security taxes. All expats living in Panama must pay Panamanian Social Security Tax (8% of Panamanian income) and Educational Insurance Tax (1.25% of Panamanian income).

      Latest On Taxes In Panama

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