Panama sits 73rd out of 217 in our world ranking, with a FiScore of 5.9 out of 10. That mid-table position is misleading in an interesting way: Panama's domestic rates are ordinary, and its treatment of foreign income is not.
The headline numbers
| Tax | Rate |
|---|---|
| Personal income (Panamanian-source) | 0 to 25% |
| Corporate (Panamanian-source) | 0 to 25% |
| VAT (ITBMS) | 7% |
| Foreign-source income | 0% |
Panama is territorial. Income arising outside Panama is not taxed, whether or not you bring it in. A consultant living in Panama City with clients in Europe, invoicing from a Panamanian company for work delivered abroad, is in a genuinely favourable position.
On domestic income the rates are unremarkable, and that is the point most guides skip: Panama is not a low-tax country, it is a no-foreign-tax country.
The Friendly Nations Visa
This is the route most people arrive by. It offers residence to nationals of a long list of countries, through one of three doors:
- employment with a Panamanian company that employs at least ten locals;
- property worth at least 200,000 USD;
- a bank deposit of 200,000 USD held for three years in a general licence Panamanian bank.
There is also an income route, requiring around 36,000 USD a year of foreign income.
Successful applicants get two years of temporary residence, then apply for permanent residence. It is one of the more accessible programmes in the Americas, and considerably cheaper than most European equivalents.
Where the source rule gets sharp
Territorial systems all live or die on the definition of source, and Panama's is worth understanding before you plan around it.
Income is Panamanian if the work is performed in Panama or the service is consumed in Panama. A foreign client does not automatically make foreign income, and a Panamanian company does not automatically make Panamanian income.
The practical line most advisers draw: work delivered to clients outside Panama, for use outside Panama, is foreign-source even if you were physically in Panama City when you did it. That is more generous than Georgia, where physical presence controls. But it is a line drawn by practice and rulings rather than a bright statutory rule, and it deserves local advice rather than an article.
If you are American
Panama is heavily marketed to Americans, and the reasons are real: the dollar is legal tender, the flights are short, the time zone works, and the Friendly Nations list includes the United States.
None of that changes the tax position. The United States taxes its citizens on citizenship. Panama taking 0% on your foreign income means there is no foreign tax credit to offset your US bill, so beyond the earned income exclusion you pay the US rate. Panama is a quality-of-life and residence decision for an American, with a tax benefit that depends entirely on your own structure.
The drawbacks
The reputation is a working cost. Panama has spent years on and off international grey lists, and the 2016 leak that carried its name still colours how banks and tax offices react to a Panamanian address.
Banking is slow and demanding, both locally and when a European institution sees Panama on a form.
Local income is taxed normally, up to 25%. If your business genuinely serves the Panamanian market, none of the above applies to you.
Bureaucracy is heavy, and most processes require a local lawyer rather than being doable alone.
So, who is Panama for?
- A service business with clients outside Panama: the core case, and a strong one.
- An American wanting a nearby, dollar-based residence: excellent on lifestyle, neutral on US tax.
- A retiree with foreign pension income: the pensionado route is well established and generous on discounts, though pensions themselves depend on your home country's treaty position.
- Anyone whose income arises in Panama: no advantage at all.
The full table of Panamanian rates is on our Panama page, and the comparison tool puts it next to anywhere else.
Sources
Figures verified in August 2026 against the Panamanian tax authority, PwC Tax Summaries and firms established in Panama City. An error reported to us gets fixed.
This page informs, it does not advise. Before deciding anything, talk to a professional who will look at your situation, as our terms of use set out.