How income tax works in Panama
Panama income tax is territorial. Individuals are taxed on income earned from Panamanian sources, while foreign-source income is generally outside the personal income tax base.
The personal income tax brackets are 0% up to USD 11,000, 15% on income from USD 11,000 to USD 50,000, and 25% above USD 50,000. Employers withhold tax from wages, and some taxpayers still need an annual return.
Payroll costs are separate from income tax. In 2026, employees generally pay 9.75% social security and 1.25% educational insurance, while employers pay 13.25% social security plus 1.50% educational insurance, with later increases already scheduled in law.
Income tax brackets in Panama
| Bracket | Rate | Notes |
|---|---|---|
| USD 0 - USD 11,000 | 0% | Panama-source taxable income only. |
| USD 11,000 - USD 50,000 | 15% | Tax applies on the excess over USD 11,000. |
| Over USD 50,000 | 25% | Base tax of USD 5,850 plus 25% on the excess. |
Tax rates at a glance
- Personal income tax
- 0-25%Territorial
- Highest bracket tax
- 25%
- Foreign income tax
- 0%
- Salary withholding
- Yes
- Employee social security
- 9.75%
- Educational insurance
- 1.25%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
ExpatsEmployeesFreelancersRemote foundersInvestors
Watch out for
- Employees with only one source of salary income often rely on payroll withholding, but tax returns are still required if they claim deductible expenses or receive representation allowances or benefits in kind.
- Panama-source income is the key test. Non-residents are taxed only on Panama-source income, and the payer generally withholds where required.
- Social security costs are rising after 2026, so employers should model the 2027 and 2029 step-ups now instead of treating the current rates as permanent.
Frequently asked questions
Do expats pay income tax in Panama?
Only on Panama-source income. Foreign-source income is generally outside Panama personal income tax, but payroll withholding, social security and foreign tax rules still matter.
What is the Panama income tax rate?
The personal income tax rate is progressive: 0% up to USD 11,000, 15% from USD 11,000 to USD 50,000, and 25% above USD 50,000.
When is the Panama income tax return due?
The usual deadline is 15 March for individuals, with final payment due by 31 March. Some taxpayers can file on a special basis or request an extension.