Panama Taxes for Expats and Digital Nomads (2026)

Panama tax residency: the 183-day rule

Foreigners who stay in Panama for more than 183 days in the tax year, continuous or not, and earn taxable income work out their tax under the general rules and pay it at the progressive rates of Fiscal Code article 700 (Executive Decree 170 of 1993, article 81). Practitioners add a second test: setting up a permanent home in Panama can make you resident even below the day count.

Residence decides less in Panama than in most countries. Article 9 of the same decree taxes income produced in Panamanian territory regardless of the earner's nationality, domicile or residence, so becoming resident never widens the tax base to your worldwide income. What residence changes is how Panamanian income is taxed (on a return at the article 700 rates rather than by withholding) and whether the DGI, Panama's tax authority, will issue you a Certificado de Residencia Fiscal to show another country.

No residence card does the counting for you. The remote worker visa sits inside Panama's non-resident migration category, and a Friendly Nations or Qualified Investor card gives you the right to live there, but in each case tax residence follows the days you actually spend in the country.

Panama income tax rates for 2026

The rates apply only to taxable income from Panamanian sources. Fiscal Code article 700, as amended by Law 8 of 2010, sets them at nothing on the first $11,000, 15% from $11,000 to $50,000 and 25% above (PwC Panama individual tax summary, reviewed August 4, 2026). Amounts are in balboas, which are fixed at par with the US dollar, and the dollar itself is legal tender.

On top of income tax, independent professionals pay educational insurance (seguro educativo) of 2.75% on their Panamanian net income (DGI return instructions, lines 115 and 118). Its base starts from total income and subtracts salaries taxed at source, exempt income, foreign-source income and deductible costs, so foreign-source income stays outside it.

Personal deductions are narrow and mostly tied to spending in Panama: medical costs incurred in Panama, school costs, interest on education loans, and mortgage interest on your main home in Panama up to $15,000 a year (DGI return instructions, lines 84 to 88). The basic deduction applies only to spouses filing jointly.

Social security is the other layer. Law 51 of 2005, article 71, in its consolidated text after the 2025 reform, obliges every national or foreign worker who provides services within Panama to join the Caja de Seguro Social, the self-employed for the disability, old age and death branch at 9.36% of declared income, with health cover optional under article 76. A remote worker sitting in Panama provides services within the country, so the Index charges the 9.36% on the full profit.

Foreign income and remote work in Panama

Panama is one of the territorial tax countries, and the return itself shows it: individuals subtract their foreign-source income on line 18 under Fiscal Code article 694, paragraph 2. Interest, dividends and gains count as Panamanian only when the capital or asset is used or invested in Panama, so income from foreign shares, foreign bank accounts and foreign pensions is untaxed for every resident, not only newcomers.

Work is where the rules pull in 2 directions. Article 9(a) of Executive Decree 170 makes income from professions and services performed within Panama Panamanian-source. Article 10(b), which mirrors Fiscal Code article 694, paragraph 2(b), makes directing from an office in Panama transactions that are completed or take effect abroad foreign-source, and extends that to holders of special temporary visitor visas paid directly by head offices abroad.

The remote worker visa is built on the second reading. Executive Decree 198 of 2021 grants it to employees of foreign companies and self-employed teleworkers who perform functions that take effect abroad and receive foreign-source income, and the applicant signs a sworn statement not to accept work or services in Panama (National Migration Service requirements). No tax law or DGI ruling states that a holder's income is untaxed, so the Index taxes the work under article 9(a).

In practice that leaves 2 groups. Employees of foreign companies on the visa, and residents living on foreign investment income or pensions, sit on the clear side of the line. Freelancers who do the billable work in Panama are taxed on it in the Index, and reach 0% income tax only if the DGI accepts article 10(b) for their business set up abroad.

David's note

I would build the paper trail for the foreign-source reading from the first month, not when a question arrives: a business registered abroad that signs the contracts and issues the invoices, clients and payers outside Panama, and fees paid into an account that shows where they came from. Article 10(b) turns on transactions taking effect abroad, and that is a fact you prove with documents years later, not a label you choose at the time.

Filing a tax return in Panama

Independent professionals file the sworn income tax return online by March 15 after the end of the tax year, and anyone who cannot make that date can request an extension by March 15 and file by April 15 (DGI return instructions, sections 3 and 4). The tax due is paid by March 31. The same return sets estimated tax for the following year, which is paid with the educational insurance in 1 lump sum or 3 equal parts by June 30, September 30 and December 31.

Running your own company from Panama

Panama has no controlled foreign company rule for individuals, so a foreign company's undistributed profit is not attributed to you. Dividends paid out of profits that were not produced in Panama are foreign-source under article 10(d) of Executive Decree 170, so they reach you untaxed too.

That makes the owner's side simple and moves the question to the company's own income. A company formed in Panama follows the same source rules as an individual: income produced in Panama is taxed, income from transactions that take effect abroad is not, and a Panamanian company that needs no local operating license and earns only foreign-source profit pays dividends that article 10(d) treats as foreign-source.

A Panamanian company carries 1 risk a foreign one does not. The EU moved Panama from Annex I to Annex II of its list of non-cooperative tax jurisdictions on October 9, 2026, where it is waiting for an in-depth Global Forum review, and member states coordinate defensive tax measures against the jurisdictions in Annex I. If Panama returns to Annex I, EU clients paying a Panamanian company or bank meet those measures; a resident individual paid through a company registered elsewhere mostly does not.

A company does not change where the work happens. If you own a company formed in the United States or anywhere else and do the work from Panama, the source question in the section above still decides whether your own pay is taxed, and the company's paperwork is what you prove the foreign-source reading with.

US citizens living in Panama

The US has no income tax treaty and no Social Security totalization agreement with Panama, so a US citizen living there keeps filing a US return on worldwide income. Because Panama adds little or no tax on foreign-source earnings, the foreign earned income exclusion does most of the work: up to $132,900 for 2026 (IRS, IR-2025-103) for someone who passes the physical presence test of 330 full days abroad in 12 months.

Self-employment tax of 15.3% (IRS) still runs on all net profit when the exclusion is claimed (IRS, self-employment tax abroad), and with no totalization agreement nothing moves it to Panama. A Panamanian bank account also counts toward the FBAR, due once your foreign accounts together pass $10,000 at any point in the year (FinCEN).

Panama tax mistakes: Panamanian clients and the 0% assumption

Leaving does not end that exposure. Under article 9(i) of Executive Decree 170, fees paid to someone living abroad for services that benefit a person or company in Panama, and that the payer deducts as an expense, are Panamanian-source, and the Panamanian payer withholds the tax before paying you.

The remote worker visa has its own clock: 9 months, extendable once for the same period. A holder who wants to stay longer needs a residence route before the extension runs out, and the day count for tax starts over each tax year either way.