Panama is famous for being a low tax area, but that doesn’t mean it is tax free. Residents have to pay not only income tax, but also other forms of taxes such as capital gains tax and value added tax (VAT).
Tax affairs being so variable according to individual circumstances, expats are strongly advised to consult a Panamanian accountant to work out specific liabilities. The following information should be considered merely a guide.
Income tax
Anyone who moves to Panama will be subject to income tax if they live there for more than 183 days during a calendar year. Income tax is deducted at source at a maximum rate of 25% - rates vary according to income.
However, residents can benefit from deductions for medical expenses, bank loans to finance education or building a house, charitable donations and other outgoings.
Income tax rates are as follows:
| Revenue (in US$) | Tax rate |
| 0 to 11,000 | 0% |
| 11,000 to 50,000 | 15% |
| 50,000 | 25% |
Panama has taxation treaties with several countries which guard against residents having to pay tax in Panama and their home country.
Panama's fiscal year is based on the calendar year starting on 1 January and ending on 31 December. Tax returns must be delivered to the National Tax Department by 15 March of the following year. Individuals whose sole source of income is a single salary do not have to file an income tax return, as the employer withholds part of each payment for taxes.
Capital gains tax
Capital gains tax varies according to the type of property involved. Only properties located in Panama are subject to the capital gains tax. The standard rate is 10% of the realized gain from the sale.
VAT
The value-added tax (VAT), known in Panama as the Impuesto a las Transferencias de Bienes Corporales Muebles y la Prestacion de Servicios, is levied at a rate of 7%. It applies to all products and services, except on food, medical supplies and health care.
Taxes on hotels and other accommodation services, catering, as well as alcoholic beverages are levied at a rate of 10% while tax on tobacco products is levied at 15%.
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