Country filing guide
US Expat Taxes in Panama
Quick answer
What living in Panama changes—and what it does not
Your country matters, but it does not answer every U.S. tax question by itself. Use this map to identify the next fact to verify before relying on a filing strategy.
| Question | What to verify | Next step |
|---|---|---|
| U.S. filing | Country of residence is not the only question. Check filing status, income type, thresholds, and the tax year. | Read the filing guide |
| Foreign earned income | FEIE analysis turns on foreign earned income, tax home, and either the Physical Presence or Bona Fide Residence test. | Check FEIE basics |
| Tax paid abroad | FEIE and the Foreign Tax Credit are different tools. Compare them before assuming one is better for your facts. | Compare FEIE and FTC |
| Foreign accounts | FBAR and FATCA are separate reporting questions. Account ownership, signature authority, and balances can matter. | Check account reporting |
Income Tax Treaty
No
Tax System
territorial
Social Security
No agreement in force
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 residence and visa routes
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 U.S.–Panama Social Security agreement is listed as in force. Confirm which system covers your work.
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. U.S.
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.
Your next decision
Filing from Panama? Start with the question you can answer now.
Country rules are only one part of the analysis. Use the right starting point for your facts, then move to a reviewed filing path when the decision depends on details.
Estimate FEIE fit
Use the basic calculator to frame the Physical Presence and Bona Fide Residence questions.
Open next stepCheck foreign-account reporting
Review the account facts that can point to FBAR or FATCA reporting before you file.
Open next stepGet a fact-specific path
Not sure whether FEIE, the Foreign Tax Credit, or another filing path fits? Book a consultation.
Open next stepFAQ: U.S. 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).
Check the current official rules
Use the IRS for U.S. international-filing guidance, Treasury for income-tax treaty documents, and the Social Security Administration for agreements currently in force.
A records-first U.S. filing map for Panama
Residence and the U.S. filing starting point in Panama
A U.S. citizen or green-card holder generally continues to analyze U.S. worldwide-income filing while living in Panama. Local residence is a separate question. Start a year-by-year timeline that identifies arrival, visa or residence status, days present, homes available, work performed, family location, local registration, and departure or renewal dates. 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. 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. Do not treat a visa label or a local tax number as a substitute for the U.S. return analysis.
FEIE and earned income for Americans in Panama
The Foreign Earned Income Exclusion applies only to qualifying earned income and requires the relevant tax-home and presence or residence test. Salary, self-employment receipts, and services performed abroad need a work-location record. Pensions, Social Security, dividends, interest, rent, and capital gains need separate treatment. Track every trip to the United States, including partial days where the current rules count them, and preserve the residence evidence behind a bona fide claim. Compare the FEIE with the Foreign Tax Credit rather than assuming the exclusion is best.
The Panama local tax system and the U.S. return
Panama is described in the country record as having a territorial tax system, with local-rate context of Only Panama-source income is taxed. Employment: 0-25%. Corporate: 25%. Capital gains on real estate: 10%. No tax on foreign-source income.. The local result may depend on residence, source, remittance, employment, business activity, and the tax year. Preserve the local registration, return, assessment, payment receipt, withholding records, and any refund. A local exemption or reduced rate can change the foreign taxes available for a U.S. credit; it does not generally turn off U.S. citizenship-based reporting.
Treaty and social-security questions for Panama
The country record currently marks the U.S.–Panama income-tax treaty as not present in the source record. Its listed provisions should be checked against the current treaty text, protocol, saving clause, and residence facts. Social-security coordination is recorded as no agreement in force in this data set. Do not use a treaty headline to decide a pension, employment, self-employment, or state result without identifying the exact article and tax year.
Banks, accounts, and FATCA in Panama
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. 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. Build one account inventory with the legal owner, joint owners, signature authority, institution, account type, currency (USD), maximum value, year-end value, and closure date. Compare it with the current FBAR and Form 8938 instructions. A foreign bank’s FATCA request is a documentation issue, not automatically an IRS assessment. Keep bank correspondence and secure records separate from the U.S. income calculation.
Income source and work-location records
For an employee, contractor, or business owner in Panama, record where services were physically performed, which entity paid, where the customer or employer is located, and where the work was managed. A Panama payer does not automatically make every item foreign-source, and a U.S. payer does not automatically make services U.S.-source. Keep contracts, invoices, payroll, travel records, foreign withholding, local filings, and entity books. Separate personal income, business income, distributions, and investment returns before applying a credit or exclusion.
Pensions, funds, and savings products from Panama
Ask whether a local pension, insurance policy, mutual fund, ETF, savings plan, or employer account is a pension arrangement, trust, foreign corporation, or another product for U.S. purposes. The local label may not answer the U.S. classification. Preserve plan documents, investment menus, annual statements, distributions, beneficiary records, and any annual information statement. If the product contains foreign pooled funds, screen Form 8621 and PFIC questions. If it is a pension, review treaty and Form 8938 questions separately from current income.
Residence routes and documentation in Panama
Common residence routes in the country record include Friendly Nations Visa, Pensionado Visa, Self-Economic Solvency Visa, Digital Nomad Visa (2022). For each route, preserve the application, approval, renewal, local address, work permission, health coverage, and evidence of actual use. A residence permit may support a bona fide-residence analysis, but the taxpayer’s conduct and full-year facts still matter. If the taxpayer is a digital nomad, retiree, student, contractor, or family member, connect the visa record to the actual income and household timeline rather than relying on a visa marketing description.
Common Panama pitfalls to test before filing
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 These are screening prompts, not conclusions. For each one, identify the year, owner, transaction, document, and form affected. Add gifts, inheritances, foreign entities, local funds, rental property, state ties, and IRS or bank notices to the same inventory. The country-specific articles linked from this record include fbar-requirements-americans-abroad, feie-vs-foreign-tax-credit, 2026-expat-tax-deadlines; use them to frame questions, then check the current primary sources.
A records-first annual workflow for Panama
Collect identity, residence, travel, income, account, pension, entity, local-tax, state, prior-return, and notice records. Classify each item, calculate the federal return, reconcile the foreign tax credit or FEIE, review FBAR and Form 8938 overlap, and compare the U.S. return with the local return. Save the final return, acceptance records, payment evidence, conversion rates, and unresolved issues for next year. Current official source material to check includes the current IRS, Treasury, and local authority sources. A paid consultation can turn the map into a written preparation scope before work begins.
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U.S. Forms and Guides for Americans in Panama
Use these foundational resources to connect your Panama facts to the federal forms that may apply. The correct filing set depends on your income, accounts, residence, and ownership details.