U.S. Taxes for Americans Living in Panama: The 2026 Guide

Key takeaways

• Panama's territorial tax system does not change what the IRS expects. The United States taxes its citizens and green card holders on worldwide income wherever they live.
• Panama generally taxes only income produced within its territory, so many Americans who live on US pensions, investments or foreign clients owe little or no Panamanian income tax.
• There is no US–Panama income tax treaty and no social security totalization agreement, so relief from double tax comes only from US domestic rules, and self-employed Americans generally owe US self-employment tax regardless of anything paid in Panama.
• Panamanian banks report US account holders to the IRS through Panama's FATCA agreement, so FBAR and Form 8938 compliance matters.
• A Panamanian sociedad anónima is always a corporation for US tax purposes, which can trigger Form 5471 and controlled foreign corporation rules for its American owner.

Do Americans living in Panama still file US taxes?

Yes. US citizens and resident aliens report worldwide income regardless of residence. Living in Panama changes how much tax is due, not whether a return is required.

Filing threshold (tax year 2026). The requirement generally tracks the standard deduction, which Rev. Proc. 2025-32 sets for 2026 at $16,100 for single filers and married filing separately, $24,150 for heads of household and $32,200 for married filing jointly. These figures are indexed annually. Self-employed individuals generally must file once net self-employment earnings reach $400.

Deadlines for 2026 returns.

Item	Date	Source
Regular due date (and date by which tax must be paid to avoid interest)	April 15, 2027	IRS
Automatic 2-month extension for taxpayers living and working abroad	June 15, 2027	IRS
Further extension with Form 4868	October 15, 2027	IRS
FBAR (FinCEN Form 114)	April 15, 2027, automatic extension to October 15, 2027	FinCEN

The June 15 extension requires living outside the United States and Puerto Rico, with your main place of business or post of duty there, on the regular due date, plus a statement attached to the return. Interest still runs from April 15.

When does Panama treat you as a tax resident, and what does it tax?

Residency. Article 762-N of the Código Fiscal treats an individual as a Panamanian tax resident if he or she is present in Panama for more than 183 days, consecutive or not, in a fiscal year or in the immediately preceding year. A person who has established a permanent home in Panama is also treated as resident. The Dirección General de Ingresos (DGI) restates this test on its own registration pages.

Tax residency is separate from immigration status. A Pensionado, Friendly Nations or Qualified Investor visa is an immigration permit; it does not by itself make you a tax resident, and tax residency does not depend on holding one. Panama's Fiscal Code does not appear to set a specific rule for the date on which residency starts within a year; this is worth confirming with a local accountant before relying on a specific start date.

What Panama taxes. The tax base is set by the charging provision, Article 694 of the Código Fiscal, which makes the object of the tax taxable income produced from any source within the territory of the Republic of Panama, wherever it is received. That is a territorial base: foreign-source income is generally outside the charge, whether or not you are a resident. Article 695 confirms the mechanics by computing taxable income after removing foreign-source income from gross income. Residency matters mainly for treaty access and tax residence certificates, not for the scope of the base.

Two qualifications matter:

• Dividend tax. Panama levies a dividend tax under Article 733 of the Código Fiscal, reported at 10% on distributions of Panamanian-source profits and 5% on distributions of foreign-source profits.
• Law 526 of 2026 (economic substance). Signed on May 28, 2026, this law requires Panamanian entities that belong to a multinational group and earn foreign-source passive income (dividends, interest, royalties, capital gains, real estate and other capital income) to demonstrate economic substance in Panama. Entities that fail are taxed at a flat 15% on that income, reported to apply from fiscal period 2027. It does not change the territorial treatment of individuals. On October 9, 2026, the EU removed Panama from its list of non-cooperative tax jurisdictions, citing this reform.

Rates (individuals, fiscal year 2026). Under Article 700 of the Código Fiscal, as amended by Law 8 of 2010 and published by the DGI, taxable income up to $11,000 is taxed at 0%, income from $11,000 to $50,000 at 15% on the excess over $11,000, and income above $50,000 at $5,850 plus 25% on the excess. The brackets are not indexed.

Local filing. Individuals file the annual declaración jurada de rentas by March 15 of the following year (March 15, 2027 for fiscal 2026), with an extension to April 15 available on request — the extension does not move the payment date. Panama's fiscal year is the calendar year, the same as the US year, so there is no timing mismatch. Sources describe a filing obligation for individuals with Panamanian-source gross income above $11,000, though secondary sources disagree on whether someone with only foreign-source income must still file; confirm with a local accountant.

Is there a US–Panama tax treaty?

No. Panama does not appear on the IRS list of US income tax treaties, and the IRS table of treaties in effect (updated through September 26, 2025) does not include it. There is no tie-breaker, no saving clause and no treaty rate on pensions, dividends or interest.

What does exist:

• A Tax Information Exchange Agreement, signed November 30, 2010, and announced by Treasury as in force in 2011. It covers information requests, including bank data, for tax years beginning on or after November 30, 2007, and provides no tax relief.
• A FATCA Model 1 intergovernmental agreement, in force since October 25, 2016, according to Treasury's FATCA table.

The IRS notes that where there is no treaty, income is taxed in the same way and at the same rates shown in the instructions for the applicable US return. Relief is unilateral: the Foreign Earned Income Exclusion, the foreign housing exclusion and the foreign tax credit. On the Panamanian side, US-source income is generally outside the charge.

How do you avoid paying tax twice?

Because Panama does not tax most foreign-source income, the usual question is which US tool reduces US tax. For the general mechanics of the FEIE, the Foreign Tax Credit, the stacking rule and worked examples outside Panama-specific figures, see our guide on FEIE vs. Foreign Tax Credit.

Foreign Earned Income Exclusion (Form 2555). For 2026, up to $132,900 of foreign earned income can be excluded (Rev. Proc. 2025-32, section 4.39; indexed annually). You generally need a tax home in a foreign country and must meet the bona fide residence test or the physical presence test (330 full days abroad in a 12-month period). Earned income is sourced where the work is physically performed, so salary for work done in Panama is foreign-source even when paid by a US company. The exclusion applies only to earned income, not to pensions, Social Security, dividends, interest or rent. It does not reduce self-employment tax.

Foreign tax credit (Form 1116). The credit offsets US tax with foreign income tax actually paid. It is useful when Panama taxes the income, typically wages from a Panamanian employer or Panamanian-source business, rental or capital gains. Credits are computed separately by category (mainly general and passive), and unused credits can generally be carried back one year and forward ten years under IRC section 904(c). Income you exclude under Form 2555 cannot also generate a credit for the tax attributable to it.

When each tends to fit:

• Remote worker or freelancer serving clients outside Panama, with no Panamanian tax: the exclusion generally fits; the credit has nothing to offset.
• Employee of a Panamanian company paying Panama's 15–25% rates: compare both.
• Retiree with US pension, IRA or Social Security income: neither tool removes the US tax, because the income is not foreign earned income and Panama generally does not tax it.

Social security: will you pay both?

There is no US–Panama totalization agreement; Panama is absent from the SSA's list of agreements in force.

Employees. US Social Security and Medicare taxes (FICA) generally apply to US citizens working abroad for an "American employer," so a US company that keeps you on its payroll while you work from Panama generally continues to withhold FICA. If you are hired by a Panamanian employer, Panama's Caja de Seguro Social (CSS) applies; the employee contribution is reported at 9.75% of salary under Law 462 of 2025, which raised the employer's share in stages from 13.25% (April 2025) toward 15.25% in March 2029.

Self-employed. US self-employment tax applies to a US citizen's net self-employment earnings worldwide, and the Foreign Earned Income Exclusion does not reduce it. Without a totalization agreement there is no certificate of coverage to exempt you from either system. Law 462 of 2025 extended mandatory CSS affiliation to independent workers, with contributions reported at 9.36% for the old-age, disability and death program and 8.5% for sickness and maternity. Proposals to exempt independent workers were introduced in the National Assembly in 2025; check current status before relying on either position. Whether the obligation applies to a foreigner whose clients are all outside Panama is a genuinely unsettled question, not resolved by any official ruling found for this guide.

Benefits and credits. Work credits earned in Panama cannot be combined with US credits to qualify for US benefits. IRS Publication 514 disallows a foreign tax credit for social security taxes paid to a country with which the US has a totalization agreement; since Panama has none, that bar does not apply, but whether a particular CSS contribution qualifies as a creditable income tax should be reviewed case by case.

Which US forms apply to accounts and assets in Panama?

• FBAR (FinCEN Form 114). Required if the combined maximum value of your foreign financial accounts exceeded $10,000 at any time during the calendar year. The threshold is aggregate and not indexed. It is filed electronically with FinCEN, not with your tax return.
• Form 8938. For taxpayers living abroad, the threshold is more than $200,000 at year-end or $300,000 at any time (single or married filing separately), and $400,000 or $600,000 for joint filers. These thresholds have not been indexed since the form was introduced. Form 8938 and the FBAR overlap but neither replaces the other.
• Local bank treatment. Panama's Model 1 IGA requires Panamanian financial institutions to identify US persons and report their accounts to the DGI, which forwards the data to the IRS. Panama has also applied the OECD Common Reporting Standard since 2018 under Law 51 of 2016 and Executive Decree 124 of 2017. The DGI published an updated FATCA and CRS guidance document on October 23, 2025.

Local pensions, retirement accounts and investment funds

CSS pensions. A Panamanian social security pension is foreign-source income for US purposes and generally taxable in the US when received. There is no treaty article to exempt it.

Private pension plans. Contributions to Panamanian voluntary pension funds are reported to be deductible locally up to 10% of gross income, capped at $15,000. The US does not treat them as qualified plans; depending on structure, one may be a foreign trust or nonqualified deferred compensation. Rev. Proc. 2020-17 exempts certain "tax-favored foreign retirement trusts" from Forms 3520 and 3520-A if conditions are met, including that the trust is generally tax-exempt or tax-favored locally and subject to information reporting to the local tax authority. No IRS guidance confirms whether a specific Panamanian plan meets those conditions. The relief does not cover the FBAR or Form 8938.

Investment funds. A non-US mutual fund organized as a corporation generally meets the passive income or passive asset test for a passive foreign investment company (PFIC). Panamanian funds structured as companies are therefore likely PFICs, which brings Form 8621 and punitive default taxation unless an election is available. For the full mechanics of the default regime and the available elections, see our guide on PFICs. Confirm the fund's legal form before investing.

US accounts held from Panama. Panama generally does not tax US-source investment income, so IRAs, 401(k)s and US brokerage accounts usually remain the simplest place for an American in Panama to invest.

Running a business or company in Panama

Check classification first. Treasury Regulation section 301.7701-2(b)(8) lists "Panama, Sociedad Anonima" as a per se corporation. An S.A. is always a corporation for US purposes and cannot elect to be disregarded or treated as a partnership. A Panamanian sociedad de responsabilidad limitada (S.R.L.) is not on the list. It is an eligible entity that, under section 301.7701-3, defaults to corporate treatment when all members have limited liability, and it can elect other treatment on Form 8832.

Consequences of corporate classification:

• CFC rules. If US shareholders own more than 50%, the company is a controlled foreign corporation. Form 5471 is generally required, with a $10,000 penalty per form for failure to file.
• NCTI (formerly GILTI). For tax years beginning after December 31, 2025, the One Big Beautiful Bill Act renamed GILTI as net CFC tested income and removed the deemed tangible return. The section 250 deduction, available to corporate shareholders, was cut from 50% to 40%. An individual shareholder of a Panamanian S.A. that pays little or no Panamanian tax on foreign-source profits can face current US tax on those profits. A section 962 election may reduce it; it needs modeling.
• Subpart F can apply to passive income held in the company.

Private interest foundations. The fundación de interés privado is widely used in Panama for asset holding. Its US classification depends on its terms and activities under the trust and business-entity regulations. The IRS has not issued guidance specific to Panamanian foundations: one may be treated as a foreign trust (Forms 3520 and 3520-A) or as a foreign corporation (Form 5471). Get a written analysis before funding one.

Law 526 of 2026. It applies to entities in a multinational group, reported as two or more related entities resident in different jurisdictions. An American owning a Panamanian company alongside a US LLC should check whether that captures them.

Buying, renting and selling property

• Your home. The US section 121 exclusion (up to $250,000 of gain, $500,000 for joint filers) applies to a foreign principal residence if you meet the two-out-of-five-year ownership and use tests. On the Panamanian side, under Article 701(a) of the Código Fiscal, a seller whose ordinary business is not real estate pays a 10% tax on the gain; a 3% advance on the higher of the sale price or the cadastral value is generally paid at transfer, with Law 208 of 2021 reported to allow a sworn declaration computing actual gain instead. A 2% real estate transfer tax also applies. Panamanian tax paid on the gain can generally support a US foreign tax credit in the passive basket for gain not excluded under section 121.
• Currency. Panama uses the US dollar as legal tender alongside the balboa, which is pegged at par. A dollar-denominated mortgage on Panamanian property generally does not create the section 988 currency gain that arises on foreign-currency mortgages elsewhere.
• Rental income. Rent from Panamanian property is Panamanian-source and taxable at Article 700 rates. For US purposes it is reported on Schedule E, with depreciation generally over 30 years for foreign residential property under the alternative depreciation system. Panamanian tax on the rent is generally creditable.
• Property tax. Under Law 66 of 2017, a home registered as patrimonio familiar tributario or vivienda principal is exempt from property tax up to a cadastral value of $120,000; registered value above that is taxed at reduced rates. Only one property per owner qualifies. Bills to raise the exemption to $180,000 have been proposed.

Employment, equity compensation and remote work for a US employer

Source. For US purposes, wages are sourced where the work is performed. Days worked in Panama produce foreign earned income eligible for the exclusion; days worked during US visits produce US-source income that cannot be excluded.

Panama's view. Panama taxes income from work whose economic effect occurs in Panama. Whether a remote employee working physically in Panama for a foreign employer with no Panamanian clients has Panamanian-source income is not uniformly described by commentators; most treat such income as foreign-source, and Panama's remote-worker visa framework is reported to treat foreign employment income as not taxable. Absent a DGI ruling on your facts, treat this as unsettled.

Payroll. A US employer generally continues US federal income tax withholding (adjustable on Form W-4 if you expect to claim the exclusion) and FICA. Panamanian payroll and CSS registration generally arise only for a Panamanian employer or a local presence.

RSUs and stock options. The US generally allocates equity compensation over the vesting period by where you worked, so after a mid-vesting move part may be foreign-source and excludable. How Panama treats equity compensation granted by a foreign employer for work partly performed in Panama is not clearly settled in available sources.

State tax. Moving abroad does not automatically end US state tax residency — see our guide on state taxes after moving abroad.

Leaving Panama

Panama does not appear to impose an exit or departure tax on individuals. Before leaving, consider deregistering your RUC or NT number and settling CSS and property-tax obligations.

On the US side, leaving Panama changes nothing unless you renounce citizenship or abandon a long-term green card. If you do, the expatriation rules apply — see our guide on the US exit tax. For 2026, you are a covered expatriate if your average annual net income tax for the prior five years exceeds $211,000 (Rev. Proc. 2025-32, section 4.37), among other tests, and the exclusion from the mark-to-market exit tax is $910,000 (section 4.38). Both are indexed. Form 8854 is required.

Mistakes Americans commonly make in Panama

1. Treating "territorial" as "tax-free." Your US return, FBAR and possibly Form 8938 remain due every year. If several years were missed, see our guide on the Streamlined Filing Compliance Procedures before filing anything.
2. Claiming foreign tax credits with no Panamanian tax. If Panama taxed nothing, there is nothing to credit.
3. Forgetting self-employment tax. With no totalization agreement, and an exclusion that does not reach SE tax, freelancers in Panama generally owe US self-employment tax on their net earnings.
4. Holding a home or bank account in a Panamanian S.A. without Form 5471. The S.A. is a per se corporation, and Form 5471 penalties are steep.
5. Using a private interest foundation without a US classification analysis. The foundation may require Form 3520 and 3520-A filings, with substantial penalties if missed.
6. Assuming visa status sets tax status. A Pensionado visa is not a tax residence certificate.
7. Buying Panamanian funds without checking PFIC status. Corporate-form funds generally trigger Form 8621 and unfavorable default taxation.
8. Assuming the IRS will not see Panamanian accounts. Panama reports them under FATCA.

Checklist

Before moving: decide which test you will use for the exclusion (physical presence or bona fide residence) and plan travel days; if self-employed, model US self-employment tax and possible CSS contributions together; get advice before forming a Panamanian S.A., S.R.L. or foundation.

First 90 days: open local accounts and start tracking maximum balances for the FBAR; register with the DGI for a RUC or NT number if you will have Panamanian-source income or buy property; if you buy a home, register it as vivienda principal or patrimonio familiar tributario; keep a day count from your arrival date for both the 183-day test and the 330-day test.

Every year: file the US return by June 15 (with the abroad statement) or extend to October 15; pay any tax by April 15; file the FBAR by April 15 (automatic extension to October 15) and Form 8938 if over threshold; file Panamanian returns by March 15 if you have Panamanian-source income; file Forms 5471, 8621, 3520 or 3520-A as applicable.

Before leaving: settle Panamanian tax, CSS and property-tax obligations and deregister if appropriate; if considering renunciation, get covered-expatriate testing done first.

Frequently asked questions

Do I have to pay US taxes if I live in Panama?

Generally yes. The exclusion and credit reduce the tax but do not remove the filing obligation.

Is my Social Security taxed in Panama?

Generally no, because it is foreign-source income. It remains taxable in the US under normal rules.

Does Panama have a tax treaty with the United States?

No. There is a tax information exchange agreement and a FATCA agreement, but no income tax treaty and no totalization agreement.

Can I use the Foreign Earned Income Exclusion in Panama?

Yes, for earned income if you meet the tax home and residence or presence tests. It does not cover pensions or investment income, or reduce self-employment tax.

Do I have to report my Panama bank account to the IRS?

Yes, on the FBAR if your combined foreign accounts exceeded $10,000 at any time in the year, and on Form 8938 if you exceed its higher thresholds for taxpayers abroad.

Is a Panama corporation tax-free for an American?

Not necessarily. A Panamanian S.A. may be a controlled foreign corporation, with Form 5471 and current US tax under the NCTI and Subpart F rules.

When to hire a professional

• US expat tax preparer (CPA or enrolled agent): for annual returns, the exclusion versus credit decision, FBAR and Form 8938.
• US international tax attorney or CPA: before forming or acquiring a Panamanian S.A., S.R.L. or private interest foundation, or for Form 5471, PFIC or trust reporting.
• Panamanian Contador Público Autorizado (CPA): for Panamanian returns, DGI registration and CSS questions. The DGI has stated that returns must be validated by a CPA.
• Panamanian attorney: for real estate purchases, patrimonio familiar registration and Law 526 group analysis.
• Streamlined or voluntary disclosure specialist: if you have missed prior US filings — see our guide on the Streamlined Filing Compliance Procedures.

Sources

Source	URL	Used for	Page date
IRS — Rev. Proc. 2025-32	https://www.irs.gov/pub/irs-drop/rp-25-32.pdf	2026 standard deduction, FEIE, expatriation thresholds	2025
IRS — United States income tax treaties A to Z	https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z	No Panama treaty	Accessed 17-Oct-2026
IRS — Table 3: List of Tax Treaties	https://www.irs.gov/pub/irs-lbi/table-3-list-of-tax-treaties.pdf	No Panama income tax treaty in force	Updated through 26-Sep-2025
IRS — Automatic 2-month extension abroad	https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-automatic-2-month-extension-of-time-to-file	June 15 deadline rule	Accessed 17-Oct-2026
IRS — Topic no. 304, Extensions of time to file	https://www.irs.gov/taxtopics/tc304	October 15 extension via Form 4868	Accessed 17-Oct-2026
26 C.F.R. §301.7701-2 (Cornell LII)	https://www.law.cornell.edu/cfr/text/26/301.7701-2	Panama S.A. per se corporation	Accessed 17-Oct-2026
U.S. Treasury — US–Panama TIEA	https://home.treasury.gov/news/press-releases/tg1144	TIEA signed 30-Nov-2010	2010
U.S. Treasury — FATCA agreements table	https://home.treasury.gov/about/offices/tax-policy/foreign-account-tax-compliance-act	Model 1 IGA in force 25-Oct-2016	Accessed 17-Oct-2026
SSA — Status of Totalization Agreements	https://www.ssa.gov/international/status.html	No US–Panama totalization agreement	Accessed 17-Oct-2026
DGI — Personas naturales, tarifas (Article 700)	https://dgi.mef.gob.pa/DInforme/Tarifa	Individual tax brackets	Accessed 17-Oct-2026
DGI — RUC NT persona natural (Article 762-N)	https://dgi.mef.gob.pa/Ruc/Ruc-NTNatural	183-day residency test	Accessed 17-Oct-2026
Ley 1 de 2014	https://www.organojudicial.gob.pa/uploads/wp_repo/blogs.dir/cendoj/ley-1-de-2014.pdf	Article 694 territorial charging provision	2014
Ley 8 de 2010	https://www.organojudicial.gob.pa/uploads/wp_repo/blogs.dir/cendoj/novedades_normativas/ley_8_2010.pdf	Articles 694, 695, 697, 699	2010
Ley 18 de 2006	https://panama.justia.com/federales/leyes/18-de-2006-jun-20-2006/gdoc	Article 701 real estate gains	2006
Ley 106 de 1974	https://faolex.fao.org/docs/pdf/pan130343.pdf	2% real estate transfer tax	1974
Ley 66 de 2017	https://s3-legispan.asamblea.gob.pa/legispan/NORMAS/2010/2017/LEY/Administrador%20Legispan_28388-C_2017_10_17_ASAMBLEA%20NACIONAL_66.pdf	Property tax exemption	2017
DGI — Guía de orientación sobre CRS y FATCA	https://dgi.mef.gob.pa/Internacional/IFP/	CRS/FATCA guidance	23-Oct-2025
EU Delegation to Panama (EEAS) — removal from EU list	https://www.eeas.europa.eu/delegations/panama/panama-removed-eu-list-non-cooperative-jurisdictions-tax-purposes_en	EU delisting confirmed, 9-Oct-2026, citing Law 526	09-Oct-2026
PwC Worldwide Tax Summaries, Panama (secondary)	https://taxsummaries.pwc.com/panama	Individual and corporate tax overview	2026
La Estrella de Panamá; Pérez-Llorca; TVN; La Prensa; Proskauer; KPMG (secondary)	—	Issue-spotting only: Law 526, Law 462 CSS rates, Article 733 dividend tax, NCTI mechanics, Rev. Proc. 2020-17	2020–2026

A note on scope: this guide is general information, not tax or legal advice. Whether a given fact pattern — a private interest foundation, a Panamanian S.A., a CSS obligation as a freelancer — triggers the rules described here depends on your own situation. Get advice from a US preparer experienced with Forms 1116, 5471, 8621 and 8938 and a Panamanian Contador Público Autorizado before you rely on anything in this guide.