When you think of Panama, you might remember history class, learning about the famous waterway connecting the Pacific and Atlantic oceans. But there's more to this country than the Panama Canal.
In recent years, Panama has become an attractive destination for retirees seeking tax advantages and a lower cost of living.
Panama offers several perks for U.S. retirees. In addition to low property taxes and generally tax-free medication, living in Panama boasts a one-time exemption on import tax (generally for household goods and personal effects), no double taxation on foreign-earned income, and loads of immigration discounts.
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Sound interesting? Buckle your seatbelts and prepare for takeoff to this Central American destination.
Can I live in Panama as a U.S. citizen?
The U.S. Embassy of Panama published a list of what’s required to retire in Panama. First, you will need a passport and round-trip ticket to enter the country.
Then, if you plan on staying for retirement, you will need to apply for a visa in Panama with the following documents:
- Notarized proof of income of at least $1,000 per month (this can be Social Security, IRAs, pensions, etc.)
- A clean criminal background
- Registration form (you obtain this through the Immigration Office in Panama City, the country’s capital)
- Certificate of health by a Panamanian doctor
These and other documents must be submitted through a Panamanian attorney. Be sure to check the Embassy for all eligibility requirements.
Benefits of retiring in Panama
The Pensionado visa is “considered to be among the best retirement programs in the world,” according to the Panama Embassy. And for good reason, too.
Currently, a U.S. citizen retiring in Panama may enjoy:
- 25% discounts on utility bills
- 25% discount on airline tickets, and 30% discount on other modes of transport
- 10% discount on medicines (medication is generally tax-free)
- 50% discount on movie theatres and sports and cultural events
- 15% off dental and eye exams
- 50% off hotels Monday through Thursday, and 30% off on weekends
You might also receive a one-time import tax exemption for household goods (up to $10,000).
What are household goods? According to U.S. Customs and Border Protection, these goods include furniture, paintings, linens, instruments, tableware, etc.
If you take these goods to Panama within the specified monetary limit, they should generally be tax-exempt (as long as you have an appropriate visa).
But that’s not the only Panama savings.
Cost of living in Panama vs. U.S.
Panama has a lower national average cost of living than many places in the United States. To illustrate this, let’s compare Panama to a U.S. state with a similar climate, like Florida, for example.
According to the online database Numbeo, as of October 2024:
- Consumer prices in Panama City are 36.5% lower than in Miami, Florida (excluding rent).
- Rent prices in Panama City are 54.8% lower than in Miami.
- A one-bedroom apartment in Panama City's city center costs an average of $758.33 per month, compared to $2,154.55 in Miami. (A city-center one-bedroom apartment in Florida reportedly costs an average of $1,800 per month, while a comparable apartment would cost about $700 in Panama.)
- Grocery prices in Panama City are 28.3% lower than in Miami.
Property taxes in Panama
Thanks to Law 66, enacted six years ago, Panama's property tax rate schedule is relatively straightforward.
- Current tax brackets In Panama on a primary residence vary from .5% to .7% of a property’s assessed value.
- Furthermore, if the property is $120,000 or less and meets certain requirements, it can be exempt from tax.
Imagine waking up on the beach without paying property taxes.
Plus, even secondary residences qualify for some tax relief in Panama. Vacation homes pay $0 in property taxes if they are worth $30,000 or less. Other secondary property varies between .6% to .8% of the asset’s value.
Note: Sometimes, in the U.S., vacation homes are treated differently for tax purposes than main residences., which can result in a higher tax burden. So, moving to Panama could be a way to reduce your property tax.
Here are a couple of other fast facts:
- You’ll pay no property tax in Panama for three years on certain new constructions priced between $120,000 and $300,000 (some conditions may apply)
- You may be able to receive a 10% discount on property taxes paid early if you fill out paperwork at the General Revenue Directorate (the taxpayer’s office) in Panama City
It's worth noting that Panama is generally considered to be just south of the “Hurricane Belt” (where Atlantic hurricanes develop). So, the country tends to experience tropical storms rather than hurricane-level ones. Fewer major storms could mean lower home insurance rates.
Does Panama tax US Social Security income?
Under Panama tax law, you’ll still need to pay the IRS federal taxes on Social Security and U.S.-source income. However, Panama doesn’t tax foreign-sourced income.
But health insurance is another matter.
According to the Social Security Administration, Medicare generally doesn’t cover services outside the U.S. If you want to be covered in Panama, you may need to invest in private health insurance.
Yet there may be some good news.
- Panama's private insurance rates can range between $50 and $200 a month.
- Panamanian health insurance is significantly cheaper compared to some parts of the U.S., where plans can cost an estimated $393 to $489 per month.
Be sure to consult with a tax professional if you have concerns about whether you can deduct medical expenses on your federal tax return.
Lastly, while Panama may have zero income tax on foreign-sourced income, the country still has what is essentially a 7% Value-Added Tax (VAT).
Is Panama still a tax haven?
Panama has faced controversy regarding its status as a tax haven in the past decade. However, these issues are generally unrelated to individual retirees.
What happened? A widely reported leak revealed files from a Panamanian firm, implicating some in fraud or foreign tax evasion regarding offshore financial activities. The firm’s founders were acquitted, and while tourism dipped following the so-called “Panama Papers” incident, the decline could have been due to several factors.
For example, Panama is considered a developed country in Latin America due to its growing infrastructure, but it still experiences intermittent power outages.
The fruits of living in Panama
Retiring in a new country can be challenging, but the spoils may be worth the work.
On a personal note, several years ago, I attended a travel agency video call where I saw some of what life in Panama has to offer. Retired couples were interviewed about their experience living in the country. They praised how straightforward life was, expressing how much easier it was to learn Spanish being surrounded by Spanish speakers. One couple seemed to enjoy the local fruit cart that brought them fresh produce every morning.
So, while the cost of living may be rising where you are, there may be prudence in considering a move. There are many places retirees tend to go — Hawaii, Florida, Italy, Canada, and Mexico. But don’t forget Panama.
After all, where else can you leave the U.S. and still be a part of American history?
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