Panama Pensionado Visa

Local tax regime and what it means for you

Panama runs a territorial tax system: income is taxed based on where it is sourced, not on where you live or where the money is paid. Under this model, foreign‑source income such as US Social Security, Canadian CPP/OAS, corporate or government pensions from abroad, ETF dividends in a US brokerage, and rental income from properties outside Panama is not taxed in Panama. Panama focuses on Panamanian‑source income: salary from a Panamanian employer, profits from a local business, and rents from Panamanian real estate.

For Pensionado holders living on 1,000 USD/month or more of foreign pension plus withdrawals from foreign brokerage accounts, the local tax bill is usually 0 USD as long as you do not generate Panamanian‑source income. If you start a business that invoices Panamanian clients or buy rental units in Panama, that portion of your income becomes taxable locally under standard Panamanian rules.

Capital gains on foreign investments

Capital gains from selling index funds, ETFs, or stocks held in a foreign brokerage are treated as foreign‑source gains under Panama’s territorial regime when the issuer, broker, and underlying activity are outside Panama. Those gains are generally not taxed in Panama. By contrast, gains from selling Panamanian securities on the local market or Panamanian real estate are Panamanian‑source and subject to local capital gains rules and withholding.

Tax residency triggers and filing

Panama treats you as a tax resident when you spend more than 183 days in the country in a calendar year (or have Panama as your center of vital interests), regardless of your visa category. The Pensionado visa by itself does not automatically trigger tax residency; it is the day count and ties that matter. Once you are a tax resident with Panamanian‑source income, you obtain a local tax ID (RUC or personal NIT) and file annual returns; deadlines and procedures are set by the Dirección General de Ingresos (DGI). If you have no Panamanian‑source income, many retirees do not file, but that position should be confirmed with a local advisor based on your facts.

Tax treaty status

VISA FACTS list the US–Panama tax treaty status as unknown. In practical terms, you must assume there is no effective income tax treaty coordinating treatment of your US‑source income unless your tax advisor identifies a specific article that applies. Social Security, US dividends, and capital gains are therefore taxed primarily under US domestic law, with Panama relying on its territorial system rather than a treaty to avoid double taxation.

For US Citizens and Green Card Holders

US persons on a Panama Pensionado remain fully taxable by the IRS on worldwide income. The Pensionado framework and Panama’s territorial system do not change US obligations.

FEIE (Form 2555) only covers earned income: salary from remote work, self‑employment, and consulting. The 2024 exclusion is 126,500 USD. Pension payments, annuities, Social Security, dividends, capital gains, and rental income are not eligible for FEIE. Since the Pensionado route is aimed at pension income and Panama does not tax foreign‑source income, many retirees have little or no earned income and cannot benefit from FEIE at all. For those still doing remote consulting on the side, qualifying under the Physical Presence Test (330 full days outside the US in any rolling 12‑month period, including days in Panama) is often more straightforward than the Bona Fide Residence Test, but either route requires careful day‑tracking.

The Foreign Tax Credit (Form 1116) only helps when you pay foreign income tax on the same income the US is taxing. With a pure territorial regime like Panama’s and 0% tax on foreign‑source pensions, dividends, and capital gains, there are usually no Panamanian taxes to credit against US liability on those streams. You might use Form 1116 only for Panamanian‑source items such as local rental income, a local job, or a business serving Panamanian clients.

FBAR (FinCEN 114) applies once the aggregate value of your non‑US financial accounts — bank, brokerage, certain pensions — exceeds 10,000 USD at any time in the year. This threshold is global across all accounts, not per account. FATCA Form 8938 can also apply at higher thresholds starting at 50,000 USD for some filers. The VISA FACTS mark a local bank account as “not specified,” but in practice many Pensionado holders open at least one Panamanian account to receive pension payments or pay local expenses; that alone is enough to trigger FBAR if combined balances pass 10,000 USD.

For this visa, you need coordinated advice: a US CPA specializing in expat taxation to structure FEIE vs. FTC, handle FBAR and Form 8938, and manage retirement‑account distributions, and a Panamanian tax advisor to confirm your tax residency status and any local filing. The 1,500–3,000 USD spent in year one on this specialized guidance is commonly offset by avoiding multi‑year FBAR penalties and optimizing US elections on pensions, Roth conversions, and investment sales.