Taxes in Panama

Living in Panama has many benefits; incredible climate, amazing wildlife, rich history and low taxes.  Wait, how did “low taxes” slip in there?  The truth is, the Panamanian government has become known for the light tax burden it has placed on those who live in Panama.  In addition, not only do Panamanians enjoy this benefit, but foreigners and retirees enjoy these and other benefits as well.  Here’s a brief rundown:

Income tax
The Panamanian personal income tax structure relies on a sliding scale, starting at a minimum of 7% of the first $9,000, and going to a maximum rate of 27%. Whether you live in Panama or you are a foreign resident, you are only taxed against Panamanian-based income. Taxable income includes wages and salaries, other business profits, pensions/bonuses, income from copyrights, royalties, trademarks, stock sales, bonds, and securities. You are able to deduct all medical expenses incurred while living in Panama, all donations made to charities, home mortgage interest and loans for Panamanian home improvements.

Retirees
If you qualify for the Panamanian pensionado program, you are entitled to a one-time exemption of duties on the importation of household goods (up to $10,000), and an exemption, every two years, of duties on the importation or local purchase of a car.  If you buy or build a new house, you won’t pay property taxes for up to 20 years, nor will you pay taxes on foreign-earned income.

Inheritance tax
Panamanian inheritance taxes have been completely abolished. Despite this, taxes on gifts of property located in Panama are in effect, and the rate depends on the degree of relationship between those involved. This does not apply to property owned anywhere outside Panama.

Property tax
Panamanian properties with a registered value of $30,000 are exempt from property tax.  For properties valued at more than $30,000, the rates are as follows:

• 1.75% from $30,000 to $50,000
• 1.95% from $50,000 to $75,000
• 2.1% over any property value above $75,000

Above that, it pays to live in Panama!  If you buy or build a Panamanian residential property, you may qualify for a property tax exemption for up to 20 years if the construction permit is issued by Sept. 1, 2006 and the occupancy permit issued and improvements registered by Sept. 1, 2007.  On Panamanian residences where the construction permit is issued after Sept. 1, 2006, the following exemptions will apply:

• Value up to $100,000, 15-year exemption
• Value from $100,000 to $250,000, 10-year exemption
• Value over $250,000 five-year exemption

The exemption is transferable during the exemption period to any new buyer. The land itself is not exempted and would continue to incur property tax, if its value is above $30,000.

Capital gains tax
When living in Panama, capital gains should be included in the annual tax return, and are taxed at whatever level the individual is being assessed for income tax. Unless you have owned the property for a minimum of two years and are not in the business of selling and buying property, you may choose to pay a flat 10% of the gross profit.

Conclusion
This represents a sampling of the various taxes when living in Panama.  Panamanians enjoy a light tax burden and that is passed along to foreigners as well.  Any substantive investigation of Panamanian tax law should be performed with proper legal assistance, but you will no doubt find that the Panamanian tax structure is a beautiful feature of this beautiful country.