US Expat Taxes in 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 taxes income on a territorial (source-based) basis. 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

No U.S.–Panama income-tax treaty is currently listed as in force. Any treaty benefit should be checked against the current treaty text, protocol, saving clause, and residence facts. No U.S.–Panama Social Security totalization agreement is currently listed as in force. 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

Panamanian bank accounts held at Panamanian institutions may be reportable on FBAR when the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000. Despite Panama using the US dollar, accounts at Panamanian banks are still foreign accounts for US reporting. Account definition, ownership, and exceptions still apply. 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 Panama 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

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 on this site can help frame these questions; use them, then check the current primary sources.

• 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

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.