Panama Personal Tax Guide 2026
Panama operates a territorial tax system where only Panama-source income is taxed. Progressive PAYE rates: 0% up to PAB 11,000, 15% from PAB 11,001–50,000, and 25% above PAB 50,000. Foreign-source income is completely exempt.
Territorial Tax System
Panama's tax system is based on the territorial principle: only income derived from activities carried out or assets located within Panamanian territory is subject to tax. This means that a Panama resident earning foreign-source income (e.g., dividends from a US company, rental income from a property in Spain, or consulting fees from a UK client) is not taxed in Panama on that income. This territorial system is one of Panama's most attractive features for expats and international businesses.
The tax authority is the Dirección General de Ingresos (DGI), which administers all national taxes. The tax year is the calendar year (January 1 to December 31).
PAYE Tax Brackets 2026
Personal income tax in Panama is calculated using progressive brackets. The first PAB 11,000 of annual Panama-source income is tax-free. Income between PAB 11,001 and PAB 50,000 is taxed at 15%, and income above PAB 50,000 is taxed at 25%.
- 0%: Up to PAB 11,000
- 15%: PAB 11,001 – PAB 50,000
- 25%: Over PAB 50,000
Example: An individual with PAB 60,000 of Panama-source income pays: PAB 0 on the first PAB 11,000, PAB 5,850 on the slice from PAB 11,001–50,000 (15% of PAB 39,000), and PAB 2,500 on the slice above PAB 50,000 (25% of PAB 10,000). Total tax: PAB 8,350. Effective rate: 13.9%.
Allowable Deductions
Individuals can deduct certain expenses from their Panama-source income before calculating tax. Common deductions include: social security (CSS) contributions (employee share 9.25%), contributions to private pension plans (up to PAB 5,000 annually), mortgage interest on primary residence (up to PAB 25,000 annually), education expenses (up to PAB 20,000 per dependent), and medical expenses. Keep proper receipts and documentation.
Filing Requirements
Individuals with Panama-source income above the tax-free threshold (PAB 11,000) must file an annual tax return with the DGI. The filing deadline is typically March 31 of the following year. Returns are filed electronically through the DGI's online portal (e-Tax). Late filing penalties apply: 10% of tax due for the first month, plus 2% per additional month (maximum 50%).