US Expat Taxes in Panama
Latin AmericaTax Treaty
No
Tax System
territorial
Social Security
No Agreement
FEIE Qualification in Panama
Physical Presence Test
Panama's proximity to the US makes the 330-day test achievable with careful planning. The country's use of the US dollar simplifies financial tracking. Document all US trips including connecting flights through US airports.
Bona Fide Residence Test
A Panamanian cédula (residency card) through the Friendly Nations Visa, Pensionado Visa, or other residency programs strongly supports bona fide residence. Registration with the DGI (tax authority) adds supporting evidence.
Common Visa Types:
Panama Tax System
Only taxes income earned within its borders. Foreign-sourced income is generally not taxed.
Tax Rates
Only Panama-source income is taxed. Employment: 0-25%. Corporate: 25%. Capital gains on real estate: 10%. No tax on foreign-source income.
No Totalization Agreement with the US — you may owe Social Security taxes in both countries.
US-Panama Tax Treaty
The US does not currently have an income tax treaty with Panama. This means you may not be able to use treaty benefits to reduce your tax liability, but the FEIE and Foreign Tax Credit are still available.
Banking & FBAR in Panama
Major Banks (USD)
FBAR Reminder
All Panamanian bank accounts must be reported on FBAR if aggregate foreign balances exceed $10,000. Despite Panama using the US dollar, accounts at Panamanian banks are still foreign accounts. Panama's banking secrecy has decreased significantly but accounts still require FBAR reporting.
FATCA Compliance
Panama signed a Model 1 IGA with the US in 2014. Panamanian banks report US person data to the DGI, which shares with the IRS. Panama has moved away from banking secrecy and most banks require FATCA documentation from US citizens.
Common Pitfalls for Americans in Panama
Despite using the US dollar, Panamanian bank accounts are still foreign accounts requiring FBAR reporting
No tax treaty means no treaty-based relief for any double taxation situations
Panama's territorial system generates minimal local taxes, limiting Foreign Tax Credit benefits
Panama's previous reputation as a tax haven increases IRS scrutiny of US expats' Panama-based finances
No totalization agreement means potential double Social Security taxation for employed workers
Cost of Living Overview
Monthly Estimate
$1,200-$2,800
vs. US
30-50% lower than US average, but Panama City can be comparable to mid-tier US cities
Notes
Panama City is modern and relatively expensive by Latin American standards. The interior and beach areas like Boquete and Pedasi are much more affordable. Using the US dollar eliminates currency risk. Healthcare quality is good, especially in Panama City.
FAQ: US Taxes in Panama
If Panama uses the US dollar, do I still need to file FBAR?
Yes. FBAR reporting is based on where the account is held, not the currency. Accounts at Panamanian financial institutions are foreign accounts regardless of being denominated in US dollars. If your aggregate foreign account balances exceed $10,000 at any point during the year, you must file FinCEN 114.
Does Panama's territorial tax system benefit US expats?
It simplifies your Panamanian tax situation since foreign-source income is not taxed in Panama. However, as a US citizen, you still owe US tax on worldwide income. The FEIE is typically the best strategy since minimal Panamanian taxes mean minimal Foreign Tax Credits.
What is the Friendly Nations Visa and how does it affect taxes?
The Friendly Nations Visa grants permanent residency to citizens of about 50 countries, including the US. It requires opening a Panamanian bank account with at least $5,000 and either employment, a business, or real estate investment in Panama. The visa supports FEIE bona fide residence claims but does not change your US tax obligations.
Is there a tax treaty between the US and Panama?
No. There is no income tax treaty between the US and Panama. This means no treaty-based withholding reductions and no mutual agreement procedures. You must rely entirely on the FEIE, Foreign Tax Credit, or housing exclusion to mitigate any double taxation.
How does Panama's Pensionado Visa work for US retirees' taxes?
The Pensionado Visa requires proof of at least $1,000/month in pension income and grants numerous discounts (healthcare, dining, entertainment). The pension income is not taxed in Panama (territorial system). However, it remains taxable on your US return and pension income does not qualify for FEIE (only earned income qualifies).
Related Articles
February 5, 2026
FBAR 2026: Deadline, Requirements & Penalties — Complete Guide for Americans Abroad
February 15, 2026
FEIE vs. Foreign Tax Credit 2026: Which One Saves You More? (5 Real Scenarios)
February 1, 2026
2026 Tax Deadlines for Americans Abroad: Every Date You Need
February 13, 2026