Besides being known for its historic canal, Panama is also famous for its lax tax system.

Personal income tax operates on a sliding scale. This ranges from a minimum rate of 7% after the first $9,000 is earned, to a maximum of 27%. Wages and salaries qualify as taxable income, as well as company profits, pensions, copyright income, bonuses, royalties, trademarks, stocks, bonds, and securities.

If you are living in the country under a pensionado visa, you receive a one-time exemption of duties on the importation of household goods (up to $10,000), and an exemption every two year of duties on the importation or local purchase of a car.

Individual Tax

Panama's tax code contains only three tax brackets:

• Earnings between $0 to $11,000 requires no taxes to be paid.
• Earnings between $11,000 to $50,000 requires 15% to be paid, but the first $11,000 earned isn't taxed.
• Earnings $50,000 or over requires $5,850 to be paid on the first $50,000, with an addition 25% on the amount over $50,000 to be paid.

In Panama, deductions can be claimed on all medical expenses, charity donations, mortgage interests, education expenses and loans for home improvements.

If you purchase or build a house, you are not required to pay property taxes for up to 20 years. This is the reason why so many hotels, commercial buildings and sky-rise condos were built in mass starting in the mid-nineties.

Reporting Taxes in Panama

It is not required to file a tax return in Panama if one's salary is their only form of income, and there is no desire to take any deductions other than the standard $800 in Panama. In this situation, the employer simply withholds the required amount from each paycheck, but tax return does not need to be filed.

If one does have other forms of income and needs to file a tax return, it must be received by March 15. Upon request, one can receive an extension that is good until May 15.

Tax Refunds in Panama

One can receive a refund if they have sources of income other than salary, such as real estate income or capital gains.

VAT in Panama

Panama's version of the VAT tax is called Impuesto de Transferencia de Bienes Muebles y Prestación de Servicios, or ITBMS for short. In English, that means movable goods and services transfer tax.

Almost all goods sold in Panama incur this ITBMS tax at a rate of 7%. The ITBMS tax also occurs in real estate in the case of short term rental income. If a condo is rented out for six months or less, one must pay 7% ITBMS.

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