Of all the questions Americans ask before they move to Panama, the tax question is the one most often answered badly online. People hear "territorial tax system" and assume it means a tax holiday. People hear "FATCA" and assume the IRS will somehow stop following them. Both ideas are wrong, and both can cost you money.
This is a plain-language overview of how Panama's tax system works, what changes for an American who moves there, and what stays exactly the same. It is not tax advice. Anyone making the move should engage a cross-border CPA who handles both US and Panamanian filings.
Panama's territorial tax system, in simple language
Panama taxes income earned inside Panama. It generally does not tax income earned outside Panama, regardless of who earns it or where they live. This is the territorial principle, and it is the single most important fact in this article.
If you are a US retiree living in Boquete, drawing Social Security and quarterly distributions from a 401(k) in Vanguard, your income is foreign-sourced from Panama's perspective. Panama, in most cases, does not tax it. If you start a Panamanian consulting business and bill clients in Panama City, that income is local-sourced — and Panama taxes it on its ordinary income schedule.
The territorial system is the reason Panama is attractive to retirees and remote workers whose income lives elsewhere. It is also the reason the system is misunderstood: people read "foreign-sourced income is not taxed" and forget that Panama is one of two tax jurisdictions in their life. The other is the United States, and the United States doesn't follow the territorial principle for its citizens.
The unavoidable fact: US citizens file with the IRS forever
The United States taxes its citizens on worldwide income regardless of where they live. Moving to Panama does not change this. You can be a Panamanian permanent resident, never set foot in the US for a decade, and still owe a 1040 every April. The only exit from US tax filing as a US citizen is to renounce US citizenship, which is a serious step with its own tax consequences.
Three pieces of US tax compliance follow an American to Panama and matter materially:
FATCA reporting
The Foreign Account Tax Compliance Act requires US persons with non-US financial assets above certain thresholds to report them annually on Form 8938 with their 1040. The thresholds are different for residents abroad versus US residents and for single versus joint filers, but they're not enormous — many retirees with Panamanian bank accounts and brokerage accounts cross them without realising. Penalties for missed filings are not gentle.
FBAR (FinCEN 114)
If the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the year, you file an FBAR with the Treasury. This is separate from your tax return and has separate penalties. The $10,000 is aggregate across all accounts, not per account, and includes accounts you have signature authority over even if they're not in your name.
FEIE and the Foreign Tax Credit
The Foreign Earned Income Exclusion (FEIE) lets a qualifying US person abroad exclude a portion of earned income from US tax — wages, salary, or self-employment income. For retirees living on Social Security, pension distributions, and investment income, FEIE generally does not help, because that income is not "earned" in the IRS sense. The Foreign Tax Credit, which credits foreign taxes paid against US liability, also generally doesn't help because Panama doesn't tax the income in the first place. The net effect: most US retirees in Panama pay roughly the same US tax bill as they would in Florida.
This is one of the most counter-intuitive facts of the move. Panama does not tax your pension. The US still does. Plan accordingly.
What the move does change on the US side
Even if your federal liability is roughly unchanged, the move changes several adjacent things:
- State income tax. Leaving a no-income-tax state (Florida, Texas, Nevada) for Panama doesn't help on the state front because you weren't paying anyway. Leaving a high-tax state (California, New York, New Jersey) requires actually establishing non-residency by their state-specific rules, which can be harder than people think.
- Estate planning. Your will, your healthcare directives, your trust structure — none of these automatically translate. Most cross-border accountants work alongside a US estate attorney to make sure things still function when you spend most of the year in another country.
- Banking. Some US banks close accounts of customers with foreign addresses. Some don't. Keep at least one US-domiciled account with a bank that knows you've moved.
- Medicare premiums. Medicare Part B premiums keep coming out of your Social Security whether you use Medicare in Panama (you can't) or not. Many retirees pause Part B and pick up private Panamanian coverage instead — get cross-border advice before you do.
For a broader walk-through of the move itself, see our US roadmap to moving to Panama.
Panama property tax: the post-2017 picture
Panama's property tax (Impuesto de Inmuebles) was substantially reformed in 2017. The headline change: a primary-residence exemption was introduced, applying to the first portion of the registered value. Above that, a progressive rate schedule applies, with separate (higher) rates for non-primary properties.
For most retirees building a Cabana, Casa, or Villa as a primary residence in Panama, the property tax burden is modest by US standards — often a small fraction of what an equivalent home would generate in California, New York, or even Florida. The exact treatment of a given parcel depends on registered valuation, primary-residence status, and any historical exemptions still in effect. The pre-2017 "20-year exemption on new construction" was reformed; what counts now varies. Confirm the current treatment with a Panamanian notary before assuming any number.
There are also small municipal taxes and trash/utility levies that vary by municipality. None of them rivals the property tax line in most US jurisdictions, but they exist.
Transfer tax and capital gains on Panamanian property
Buying property in Panama typically involves a 2% transfer tax on the registered value, paid by the seller in most contracts but negotiable. Capital gains on the sale of Panamanian property are taxed under a separate schedule (currently around 10% on the gain, with a 3% withholding mechanism at sale). Selling within a Panamanian corporation has different mechanics than selling personally; this is exactly the question your cross-border accountant should price into the decision about how to hold title. See buying property as a foreigner in Panama for the broader process.
Why a fixed-price build helps tax planning
One of the under-appreciated benefits of building with a fixed-price modular system is the paper trail. The price is set in writing before the work begins. The invoices are dated. The completion is documented. Your CPA — both the Panamanian one and the US one — gets clean numbers, not a series of contractor payments stretched across two tax years with no clear deliverable.
For US estate purposes, the cost basis in your Panamanian home is easy to establish: it is the documented build cost. For Panama property tax registration, the valuation conversation has a defensible starting number. For your own peace of mind, there are no surprise capital calls that scramble the year's tax planning.
How FRESH solves this
FRESH® by Gatun Lake Construction is built around fixed-price, fixed-timeline contracts. You don't need to manage a build from another country. You don't need to estimate construction costs across two tax years. You pick one of three engineered standard models, get a fixed price and a fixed timeline in writing, and a Panamanian builder takes it from there.
- The Cabana, from $50,000 — single retiree or guest house.
- The Casa, from $100,000 — couple's primary home or lock-and-leave.
- The Villa, from $120,000 — generous open living.
The contract is dated, the price is set, and your cross-border CPA gets exactly the kind of documentation an audit defence prefers. The full technical case lives on the system page; the three standard models are on the models index.
For the residency side of the move, see the Pensionado guide; for the day-to-day budget, see cost of living in Panama for North Americans.
Frequently asked questions
Does Panama tax my Social Security?
Generally no — Social Security is US-sourced income, and Panama's territorial system does not tax foreign-sourced income. The IRS still treats it under its usual Social Security rules.
Does the IRS know about my Panamanian bank account?
Almost certainly. Panama participates in FATCA information exchange. Panamanian banks report US-person accounts to the IRS. You should be reporting the same accounts on your FBAR and Form 8938 — the goal is for the two sides of the report to match.
Can I still contribute to my US IRA while living in Panama?
Traditional and Roth IRA contributions require earned income. If your only US-side income is Social Security and investment dividends, you have no earned income to base a contribution on. A cross-border CPA can model whether any Panamanian earned income changes the calculus.
What happens to my US estate if I die in Panama?
Your US estate is administered under your US estate documents; your Panamanian property is administered under Panamanian probate. Coordinating the two is one of the main reasons to engage cross-border estate counsel before the move.
Is hiring a cross-border CPA really necessary?
For anyone with US filing obligations and assets in two countries, yes. The cost is typically a few thousand dollars a year and saves materially more than that in mistakes avoided.
Build with certainty
The tax side of moving to Panama is real work, and it is work that benefits from clean documentation on the home side. Build your quote in minutes to see a fixed-price envelope for your standard model, or explore the three FRESH models and pick the one that fits.