Tax Outlook for Expats Moving to Panama 

When moving to Panama or any other foreign country, you need to be aware of two things related to your tax situation:

  1. How living abroad will impact your US tax requirements, and

  2. What your tax filing requirements will be in the foreign country you are moving to.

Taxes in Panama

Everything you need to know about taxes as an expat in Panama

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Income Tax in Panama

  • Unlike American and European tax systems, Panama only taxes you on revenue generated from Panamanian sources. This includes all income.

  • If you earn income from Panamanian sources, the first $11,000 earned is tax-free. After that, you'll be taxed 15% for income $11,000-50,000 and 25% above $50,000. If you are an employee of a Panamanian company you do not need to file income tax returns - your taxes should be deducted from your paychecks automatically.

  • Deductions can be made for medical expenses in Panama, local donations, education expenses, and loans for home improvement.

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Property Tax

Panama has some of the lowest property taxes in the Americas. Primary residences are taxed at 0.5-0.7% unless valued at under $120,000, in which case they are tax free. All other property types (commercial property, vacation homes) are taxed at 0.6-1% unless valued at under $30,000, in which case they are tax-free. You can also get tax exemptions of up to 15 years on newly built properties.

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Capital Gains Tax

Capital gains tax in Panama is a flat 10% of gross sale profit.

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Social Security

The U.S. and Panama do not have a tax treaty or Social Security totalization agreement, so Americans employed in Panama may have to pay Social Security in both places.

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Interest Rates in Panama

Panama does not tax interest on accounts held at licensed Panama banks.

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Foreign Earned Income Exclusion

The US requires all citizens to file a tax return, but also allows significant exclusions for expats. For 2021 you can exclude the first $108,700 of foreign earned income from your US taxes if you qualify. You can qualify by either the Physical Presence test or the Bona Fide Resident test. Most expats use the Physical Presence test, which requires you to be present in a foreign country (not necessarily just Portugal) for 330 of a 365 day period. Note that Social Security doesn't qualify as foreign earned income.

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Foreign Tax Credit

The foreign tax credit system allows you to offset taxes you paid in Portugal for your U.S. expat taxes (or vice versa) dollar for dollar. Note that you can't use the credit on income that has already been excluded by the Foreign Earned Income Exclusion.

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Foreign Housing Exclusion or Deductions

American expats who claim FEIE and whose income exceeds the FEIE threshold can use this to exclude or deduct eligible expenses like rent, parking, furniture rental, utilities, and more from their taxes. For 2021, Americans can exclude or deduct up to $15,218.

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Foreign Bank Account Reporting

  • The U.S. requires all citizens to report foreign bank accounts over a certain value. If you have foreign financial accounts with a combined value over $10,000 at any point in the year, you'll have to file an FBAR. 

  • If you have foreign accounts and assets (stocks, bonds, real estate, insurance, etc.) above a certain threshold, you'll have to file a Form 8938, also known as FATCA. For single filers the threshold is $200,000 at the end of the year or if combined assets were over $300,000 at any time of the year. For couples the limit is $400,000 on the last day of the year or if combined assets were over $600,000 at any time of the year.