Panama Rental Income Tax Guide 2026
Rental income from Panama real estate is taxed as ordinary income at progressive PAYE rates (0-25%). Only Panama-source rental income is taxable. Deductions for expenses reduce the net taxable amount.
Taxation of Rental Income
Rental income from properties located in Panama is considered Panama-source income and is subject to personal income tax at progressive PAYE rates (0-25%). The net rental income (gross rent minus allowable expenses) is added to the individual's other Panama-source income and taxed as a single pool under the progressive brackets.
Rental income from foreign properties is not taxable in Panama due to the territorial system.
Allowable Deductions
Landlords can deduct the following expenses from gross rental income:
- Property management fees
- Maintenance and repairs
- Insurance premiums
- Property taxes paid
- Mortgage interest on the property
- Utilities (if paid by landlord)
- Depreciation of the building (2% annually)
- Legal and professional fees
All deductions must be properly documented with receipts or contracts.
ITBMS on Rentals
Commercial real estate rentals are subject to ITBMS (VAT) at 7%. Residential rentals are exempt from ITBMS. Landlords of commercial properties must register for ITBMS and charge the tax to tenants, filing monthly returns.