US tax obligations while living in Panama
Panama is a top retirement and nomad destination for Americans: a territorial tax system, the US dollar as de-facto currency, the famous Pensionado visa with deep local discounts, and a 90-minute flight to Miami. No US-Panama treaty, but the territorial system already leaves US-source income untaxed locally.
TL;DR
Where Americans live in Panama
Panama hosts an approximately 30,000+ US expat population. The community concentrates in several cities with established expat infrastructure — international schools, English-speaking medical providers, American-style amenities, and active social communities. Below are the primary destinations.
Panama's local tax — what you need to know
Panama uses a territorial tax system — only Panama-source income is taxed (up to 25%). Foreign-source income, including US salary, US business income, and US investments, is NOT taxed in Panama. The balboa is pegged 1:1 to the US dollar and USD circulates, so most US expats live effectively in dollars.
Special tax regime details
Territorial taxation — foreign-source income is not taxed in Panama. The Pensionado visa grants major statutory discounts (transport, healthcare, entertainment). No tax treaty and no totalization with the US, so rely on FEIE/FTC on the US side; self-employed US persons owe full US SE tax (no totalization relief).
✗ No US-Panama income tax treaty
Without a tax treaty, double taxation is mitigated only through the unilateral Foreign Tax Credit (Form 1116) and FEIE (Form 2555). Withholding on US-source passive income (dividends, interest, royalties) is at the default 30% rate (rather than a treaty-reduced rate), which can materially affect investment returns for residents of Panama. The treaty's absence does not mean no relief — FTC and FEIE still work — but planning is more constrained.
Social Security totalization agreement
The US does NOT have a Totalization Agreement with Panama. This means if you're self-employed and a US citizen / Green Card holder, you owe US Self-Employment Tax (15.3% on net SE earnings up to the Social Security wage base) IN ADDITION to any Panama social security contributions. This is a significant compliance cost — planning should consider whether to incorporate locally to avoid SE Tax exposure.
Residency and visa pathways to Panama
Pensionado (retiree — $1,000/month lifetime pension, with deep statutory discounts), Friendly Nations Visa (US citizens eligible, via employment or $200k real estate), Qualified Investor. Pensionado is among the world's best-known retiree visas.
Banking and FATCA notes for Panama
Panama banking is robust but onboarding is paperwork-heavy — banks (Banco General, Banistmo, Multibank) require residency, references, and source-of-funds documents, with strict FATCA compliance. Many US expats keep US accounts (the USD economy makes this easy) and use local accounts for bills. Declare Panamanian accounts on FBAR/8938.
FAQ — US Expats in Panama
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