Are you dreaming of living in paradise but worried about navigating the tax system in a new country? Stop right there—because Panama’s tax system might just be your golden ticket! Imagine keeping more of your hard-earned money while living the dream in a beachfront property. Whether you’re retiring or investing, knowing how taxes work in Panama can literally … change your life. In today’s episode, I’m revealing the 7 things you MUST know about Panama’s tax system—secrets that could save you thousands of dollars every single year. Stay tuned, because what you learn today could be the key to unlocking your perfect lifestyle in paradise!
#7 – Panama is a Territorial Tax System
First things first… Panama has a territorial tax system. What does that mean? It means that Panama ONLY taxes income earned within Panama itself. If you’re earning money from investments, businesses, or employment outside Panama, it’s not subject to Panama’s income tax. So, if you’re retired and your income comes from pensions, rental properties, or investments back home, Panama won’t take a bite out of that. Pretty nice, right?
#6 – Low Personal Income Tax
If you choose to work in Panama—whether you’re running a business here or you’re employed by an actual company—Panama’s personal income tax rates are relatively low. There’s a progressive tax system, with rates ranging from 0% to 25%. The first $11,000 you make is tax-free, and then it gradually goes up from there. It’s actually quite reasonable compared to many other countries, especially if you’re coming from a high-tax country like the U.S. or Europe.
#5 – Corporate Tax in Panama
If you’re thinking about setting up a business in Panama, you’ll want to know that the corporate tax rate is a flat 25% before write-offs or tax credits. And again, this applies to income earned within Panama. So, if your business has a foreign branch that services clients outside Panama, you won’t pay taxes on that foreign income. It's a big reason why so many international businesses have set up shop here.
#4 – No Capital Gains Tax on Foreign Investments
Here’s another win for expats: there’s no capital gains tax on foreign investments! If you’re investing in the stock market back in the U.S. or holding real estate Europe, Panama won’t tax the capital gains you make from those investments. However, if you’re buying and selling real estate within Panama, there IS a capital gains tax… but don’t worry—it’s only 10%... significantly lower than in many other countries.
#3 – Property Taxes Are Low (Or Even Nonexistent)
Property taxes in Panama can be incredibly low… as low as half a percent. But better yet, they can even be nonexistent! Panama has a tax exemption for new properties that can last anywhere from 5 to 20 years, depending on when the property was registered along with its value. For example, at Casa Bonita, a beautiful beachfront property near Panama City, there are no property taxes until 2032. And, according to Law 66 enacted in October of 2017, if your main property is valued under $120,000, you won’t pay any property tax at all! For higher-value properties, the rates are progressive but still very manageable.
#2 – Sales Tax is 7%
In Panama, the sales tax—known as ITBMS-- is 7% for most goods and services. This is lower than in many other countries, so your day-to-day shopping, dining, and other expenses are pretty affordable. However, there are higher rates for specific items like alcohol and tobacco. However, some essential goods--like medicine and food at grocery stores-- are exempt from sales tax altogether.
DISCLAIMER:
Before we finish our countdown, a quick disclaimer: The information in this episode is intended for general informational purposes only and is not meant to be considered legal or financial advice. Tax laws can vary based on your individual circumstances, and it’s always a good idea to consult with a qualified tax professional or tax lawyer for personalized guidance. We want you to make informed decisions, so be sure to get the right advice for your unique situation.
#1 – Tax Treaties and Avoiding Double Taxation Finally, let’s talk about double taxation. Panama has signed tax treaties with several countries, including the U.S., to prevent you from being taxed on the same income twice. For U.S. citizens, this is especially important because the U.S. taxes its citizens on their worldwide income. However, with the right planning and help from a good accountant, you can make sure you’re taking advantage of all the deductions and exemptions available to avoid double taxation. For the tax year 2024, a US citizen can make $126,500 in Panama without the US tax kicking in. Make sure you check the website irs.gov, or contact your US tax accountant for more information.
So, there you have it—7 key things you need to know about Panama’s tax system! Whether you’re already living here or planning your move, understanding how taxes work will help you make better financial decisions.
If you have more questions or need specific advice, don’t hesitate to reach out! And if you enjoyed this episode, be sure to hit that subscribe button for more insider tips on living and thriving in Panama.
Thanks for tuning in.
See you in Panama!
#7 – Panama is a Territorial Tax System
First things first… Panama has a territorial tax system. What does that mean? It means that Panama ONLY taxes income earned within Panama itself. If you’re earning money from investments, businesses, or employment outside Panama, it’s not subject to Panama’s income tax. So, if you’re retired and your income comes from pensions, rental properties, or investments back home, Panama won’t take a bite out of that. Pretty nice, right?
#6 – Low Personal Income Tax
If you choose to work in Panama—whether you’re running a business here or you’re employed by an actual company—Panama’s personal income tax rates are relatively low. There’s a progressive tax system, with rates ranging from 0% to 25%. The first $11,000 you make is tax-free, and then it gradually goes up from there. It’s actually quite reasonable compared to many other countries, especially if you’re coming from a high-tax country like the U.S. or Europe.
#5 – Corporate Tax in Panama
If you’re thinking about setting up a business in Panama, you’ll want to know that the corporate tax rate is a flat 25% before write-offs or tax credits. And again, this applies to income earned within Panama. So, if your business has a foreign branch that services clients outside Panama, you won’t pay taxes on that foreign income. It's a big reason why so many international businesses have set up shop here.
#4 – No Capital Gains Tax on Foreign Investments
Here’s another win for expats: there’s no capital gains tax on foreign investments! If you’re investing in the stock market back in the U.S. or holding real estate Europe, Panama won’t tax the capital gains you make from those investments. However, if you’re buying and selling real estate within Panama, there IS a capital gains tax… but don’t worry—it’s only 10%... significantly lower than in many other countries.
#3 – Property Taxes Are Low (Or Even Nonexistent)
Property taxes in Panama can be incredibly low… as low as half a percent. But better yet, they can even be nonexistent! Panama has a tax exemption for new properties that can last anywhere from 5 to 20 years, depending on when the property was registered along with its value. For example, at Casa Bonita, a beautiful beachfront property near Panama City, there are no property taxes until 2032. And, according to Law 66 enacted in October of 2017, if your main property is valued under $120,000, you won’t pay any property tax at all! For higher-value properties, the rates are progressive but still very manageable.
#2 – Sales Tax is 7%
In Panama, the sales tax—known as ITBMS-- is 7% for most goods and services. This is lower than in many other countries, so your day-to-day shopping, dining, and other expenses are pretty affordable. However, there are higher rates for specific items like alcohol and tobacco. However, some essential goods--like medicine and food at grocery stores-- are exempt from sales tax altogether.
DISCLAIMER:
Before we finish our countdown, a quick disclaimer: The information in this episode is intended for general informational purposes only and is not meant to be considered legal or financial advice. Tax laws can vary based on your individual circumstances, and it’s always a good idea to consult with a qualified tax professional or tax lawyer for personalized guidance. We want you to make informed decisions, so be sure to get the right advice for your unique situation.
#1 – Tax Treaties and Avoiding Double Taxation Finally, let’s talk about double taxation. Panama has signed tax treaties with several countries, including the U.S., to prevent you from being taxed on the same income twice. For U.S. citizens, this is especially important because the U.S. taxes its citizens on their worldwide income. However, with the right planning and help from a good accountant, you can make sure you’re taking advantage of all the deductions and exemptions available to avoid double taxation. For the tax year 2024, a US citizen can make $126,500 in Panama without the US tax kicking in. Make sure you check the website irs.gov, or contact your US tax accountant for more information.
So, there you have it—7 key things you need to know about Panama’s tax system! Whether you’re already living here or planning your move, understanding how taxes work will help you make better financial decisions.
If you have more questions or need specific advice, don’t hesitate to reach out! And if you enjoyed this episode, be sure to hit that subscribe button for more insider tips on living and thriving in Panama.
Thanks for tuning in.
See you in Panama!
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