Panama Taxes for Expats: Territorial System Explained (2026)

Panama taxes for expats are one of the most compelling reasons people choose Panama over other retirement and relocation destinations. Panama operates on a territorial tax system — you only pay Panamanian income tax on income earned inside Panama. Income earned abroad is not taxed in Panama, regardless of your residency status.

How the Territorial Tax System Works

Panama only taxes income generated from economic activity within Panama. If you receive a US pension, Social Security, remote work income from a foreign employer, rental income from property abroad, or foreign dividends — none of that is subject to Panamanian income tax. This is a well-established principle in Panamanian law, not a temporary incentive or a grey area.

In practice: most expats who retire to Panama on Social Security, pension, or foreign investment income owe zero Panamanian income tax. The territorial system is why Panama is recognized internationally as a tax-efficient destination for mobile individuals. Its territorial approach is described in detail on Wikipedia ↗.

Panama Income Tax Rates

Annual Panama-Sourced Income	Rate
$0 – $11,000	0%
$11,001 – $50,000	15%
Above $50,000	25%

Property Tax in Panama

Property taxes are low. The first $120,000 of registered property value is exempt — many homes in Boquete, Pedasí, and Playa Venao fall below this threshold entirely. Above $120,000: 0.5% up to $700,000, and 0.7% above. New construction is commonly exempt for 20 years under Law 6. For a full breakdown see our Panama property tax guide.

US Citizens — You Still File US Taxes

Important: the US taxes citizens on worldwide income. Moving to Panama doesn’t eliminate your US filing obligation. What Panama’s territorial system means for Americans is that your foreign income won’t be taxed twice — Panama won’t tax income you’ve already reported to the IRS. Key tools: the Foreign Earned Income Exclusion (FEIE) excludes up to ~$126,500/year of foreign-earned income, and the Foreign Tax Credit (FTC) offsets US taxes against any taxes paid abroad. Work with a US expat tax specialist — cost runs $400–$800/year for a standard expat return.

No Inheritance Tax. No Wealth Tax.

Panama has no inheritance tax and no annual wealth tax. Assets held in Panama pass to heirs without a Panamanian death duty. Combined with the territorial income tax system, this makes Panama genuinely tax-friendly for internationally mobile individuals — which is why it attracts retirees and investors from high-tax countries in Europe and North America.

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