Panama and a US annuity: territorial tax, dollar currency, no treaty, and a $500,000 example
Written by Hans Goldstein, EA, licensed insurance agent · CA 4273294Admitted to practice before the IRS
Short answer: Panama taxes only Panamanian-source income, and a US annuity is foreign-source, so Panama does not tax it. There is no US-Panama income tax treaty, so the US tax applies alone and no credit is needed. In my $500,000 example you pay $2,200 a year, 6.3% of the $35,000 check, all to the US. Panama has no wealth tax and no inheritance tax, and it uses the US dollar, so there is no currency risk on the check.
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How Panama taxes a resident’s annuity
Panama taxes on a territorial basis: citizens and residents are taxed on income earned from Panamanian sources (PwC, checked 18 Oct 2026). Article 694 of the Código Fiscal makes the taxable income that which is “produced, from any source, within the territory” of Panama, wherever it is received (Código Fiscal art. 694, checked 18 Oct 2026). The 2026 rates are 0% up to $11,000, 15% from $11,000 to $50,000, and 25% above (PwC, checked 18 Oct 2026). An annuity paid by a US insurer under a contract bought in the US is foreign-source, so on my reading of art. 694 it falls outside Panamanian income tax, whether you call it a pension or investment income. I found no tax-authority ruling on purchased US annuities, so if you will also have Panamanian income, get a local adviser’s written view.
SPIA, DIA and MYGA
A SPIA, and a DIA once it pays, are foreign-source payments outside Panamanian tax, so the US exclusion ratio is the only tax calculation. A MYGA or deferred annuity that is accumulating is treated the same way on the Panama side: foreign-source, no Panamanian tax on the build-up or the withdrawal. The US taxes the gain when you withdraw it (IRC 72(e)). Interest on deposits in Panamanian banks is a separate question and is exempt (PwC, checked 18 Oct 2026).
The pensionado visa has its own $1,000 a month lifetime income rule, covered on the Panama pensionado page. I did not find a tax rule that gives pensionados a different income tax treatment.
Treaty: none
Panama is not on the IRS list of United States income tax treaties (IRS, checked 18 Oct 2026). So there is no annuity article, no saving clause and no re-sourcing rule. The US foreign tax credit offsets only US tax on foreign-source income (IRS Pub 514, checked 18 Oct 2026), and the taxable part of a US insurer’s annuity is generally US-source, so a Panamanian tax on it would be hard to credit. That does not bite today, because Panama charges none.
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Estimates use the September 9, 2026 ImmediateAnnuities.com payout survey (life only) and a 15% cushion. Illustrative, not a quote.
Who taxes first, and does it cancel out?
Nothing needs to cancel. Panama does not tax the payment, so the US tax is the only tax: you pay what you would pay living in the US, and nothing on top.
Wealth tax, inheritance and exit
Panama has no net wealth tax and no inheritance, estate or gift tax; real estate pays an annual property tax (PwC, checked 18 Oct 2026). A US annuity is in no Panamanian wealth base. I did not find an exit tax on individuals in the sources I read. US tax on you as a citizen stays wherever you live (IRS).
Refund or death benefit
A refund feature cuts the check by roughly 5% in my model and pays heirs if you die early. Panama has no inheritance, estate or gift tax, so a refund or death benefit to a Panamanian-resident heir is not taxed on that ground (PwC, checked 18 Oct 2026). Whether Panama treats a cash refund as return of capital is not settled, and it matters little with no income tax on the payment. On the US side the refund feature lowers your investment in the contract by its actuarial value, which shrinks the exclusion (IRC 72(c)(2); IRS Pub 939, checked 18 Oct 2026).
Dollar risk: none against the balboa
Panama uses the US dollar as its primary means of payment. The balboa is issued in coins only and has been fixed one-to-one to the dollar since 1904, and Panama has no central bank of its own (IMF, checked 18 Oct 2026). A dollar annuity pays in the money you spend, so there is no currency swing of the kind seen in Mexico or Costa Rica. Inflation in dollar prices still applies.
The US side, the same wherever you live
You stay taxable in the US on worldwide income as a US citizen (IRS). On a non-qualified life-only immediate annuity (SPIA) only the gain share of each check is taxable: the exclusion ratio is your investment divided by the expected return (26 U.S.C. 72, IRC 72(b)). The expected return is the yearly payment times the Table V multiple, which is 20.0 at age 65 (IRS Pub 939, Table V). " "Once you have recovered your premium the exclusion stops and every dollar is taxable (26 U.S.C. 72(b)(2), IRC 72(b)(2)). A deferred income annuity (DIA) is taxed the same way once payments start. Money from an IRA is different: every check is taxable.
Worked example: $500,000 SPIA at 65, illustrative
A US citizen, age 65 at the start, pays $500,000 of after-tax money for a life-only SPIA. I assume a payout of 7.0%, or $35,000 a year (illustrative, not a quote). Expected return is 20.0 x $35,000 = $700,000, so the exclusion ratio is $500,000 / $700,000 = 71.4%. Each year $25,000 is excluded and $10,000 is taxable until the $500,000 is recovered, about year 20. After that the full $35,000 is taxable. " "I assume the $10,000 lands in the 22% federal bracket, which for a single filer in 2026 is taxable income from $50,400 to $105,700 (IRS, Rev. Proc. 2025-32, checked 18 Oct 2026). That is $2,200 a year of US tax. Panama charges nothing on the foreign annuity, and there is no treaty, so the US tax is the whole bill.
| Per year, in US dollars | Amount |
|---|---|
| SPIA check (illustrative) | $35,000 |
| US: excluded / taxable | $25,000 / $10,000 |
| US tax at 22% | $2,200 |
| Panamanian tax | $0 |
| Foreign tax credit | None needed, no treaty |
| Total tax | $2,200 (6.3% of the check) |
| Left after tax | $32,800 |
After year 20 the whole $35,000 is taxable in the US, about $7,700 at 22%. Panama does not use an age-based share, so there is no age-70 line; the US exclusion at 70 would use the Table V multiple of 16.0 (IRS Pub 939, Table V).
Reading it. No treaty and no Panamanian tax means the US tax stands alone. A MYGA or DIA changes timing only: the US taxes the gain when you draw it, and Panama adds nothing on either.
How to use this
If you are weighing Panama, tell me your age and whether the money is IRA or after-tax. I will size the annuity while you still live in the US. If you will have Panamanian income too, a local adviser should confirm the foreign-source treatment in writing.
I am a US-licensed insurance agent and an Enrolled Agent (EA, admitted to practice before the IRS). I can only help with annuities while you still live in the US, and I do not give Panamanian tax or legal advice: get a local adviser’s written view before you move. The payout in the example is an illustrative assumption, not a quote. This is education, not tax advice.
Married? Make the income outlive either of you. In Panama spouses may add their incomes together, so two smaller annuities, one on each spouse, can work as well as one larger one. If a single-life annuity is on one spouse and that spouse dies first, the payments stop, and the surviving spouse may have to show income of their own at the next renewal. A joint and survivor annuity, which keeps paying until the second death, or a separate annuity on each spouse closes that gap. Joint and survivor pays less per dollar than single life, so ask for both quotes and compare.
Frequently asked questions
Related reading
- Moving abroad on a fixed income: the hub
- Where a US annuity is tax-smart abroad
- The exclusion ratio when you live abroad
- Panama pensionado visa income requirement
- Wealth tax by country and US annuities
- Costa Rica vs Panama pensionado with an annuity
- Costa Rica US annuity tax for retirees
- Mexico US annuity tax for retirees
Sources
- PwC: Panama, taxes on personal income (reviewed 4 Aug 2026)
- Código Fiscal de Panamá, art. 694 (income produced within Panama)
- PwC: Panama, other taxes (no wealth, inheritance, estate or gift tax)
- IRS: United States income tax treaties, A to Z
- IRS Publication 514: foreign tax credit limited to US tax on foreign-source income
- IMF Country Report 21/173, Panama 2021 Article IV: balboa fixed 1:1 to the US dollar since 1904
- 26 U.S.C. 72 (annuities: exclusion ratio in 72(b), refund feature in 72(c)(2))
- IRS Publication 939 (Rev. December 2025): Table V multiples, refund feature, end of exclusion
- IRS: 2026 inflation adjustments (22% bracket, Rev. Proc. 2025-32)
- IRS: US citizens and resident aliens abroad
Goldstein & Co. LLC dba Goldstein Insurance Services · Hans Goldstein, licensed insurance agent, CA lic. #4273294 · NPN 20602398 · 213-414-2808 · hans@hansgoldstein.com
Education, not tax, legal or immigration advice. Rules, thresholds and exchange rates change; confirm with the consulate or immigration authority and a local tax adviser before you act, and get answers in writing. Hans Goldstein is a licensed insurance agent (CA 4273294) and can only offer annuities to residents of states where he is licensed. Annuity payments are guaranteed by the issuing insurer’s claims-paying ability, not by any government. Payout figures are illustrations from a published survey, not quotes. Immediate annuities are generally irrevocable.