How to Declare Rental Income to the DGI in Panama

Income generated by a rental property in Panama is Panamanian-source income and is subject to income tax. That applies to both Panamanian and foreign owners, and to both residents and non-residents. The difference lies in the taxation mechanism: residents declare that income on their annual income tax return, while non-residents have a withholding at the source that acts as a final tax.

Failing to meet this obligation doesn't just generate fines and interest — it can block you from obtaining the DGI tax clearance certificate (paz y salvo) needed to sell the property down the road. This guide explains the full process so you can comply correctly without paying more than you owe.

First things first: are you required to file?

The obligation to declare rental income to the DGI applies to any individual or legal entity that receives rental income from properties located in Panama. There's no minimum exempt threshold: if you receive $500 a month in rent, that $6,000 a year is taxable income you must include in your return.

The only exceptions are:

Non-residents with withholding applied. If you're a non-resident owner and the tenant or the property management company is correctly withholding 10% from each rent payment, that withholding is the final tax on that income in Panama. You don't need to file an additional annual return for that income as long as the withholding has been applied correctly.

Legal entities under a special regime. Companies taxed under special regimes (free trade zones, multinational company headquarters, etc.) may have different treatment. Consult an accountant or tax attorney if your property is held under an entity with a special regime.

The regime for residents: the annual income tax return

If you're a resident in Panama — Panamanian or foreign with permanent residency — rental income is added to your other Panamanian-source income and declared on the annual income tax return, filed with the DGI through the e-Tax 2.0 system.

When is it filed? The annual income tax return for individuals is due no later than March 15 of the year following the fiscal period being declared. If the 2026 fiscal period ends on December 31, 2026, the return must be filed before March 15, 2027.

Which form is used? Form 03 — Sworn Income Tax Declaration for individuals. For legal entities (corporations), Form 02 is used. Both are available on the DGI's e-Tax 2.0 system.

How is the tax calculated? Rental income is added to the taxpayer's other taxable income, and the progressive income tax rate for individuals is applied. The current rates are:

Annual taxable income bracket	Tax rate
Up to $11,000	0% (exempt)
$11,001 – $50,000	15%
Over $50,000	25%

But the tax isn't calculated on gross rental income — it's calculated on net income, which is gross income minus deductible expenses related to the property. That deduction is the mechanism that legally reduces the taxable base, and one that many owners don't take full advantage of simply out of not knowing about it.

Deductible expenses: how to legally reduce your taxable base

Panama's Fiscal Code allows you to deduct from rental income the expenses necessary to produce that income. The key is that the expenses must be directly related to the leased property and must be documented with invoices or receipts in the owner's name.

These are the most common deductible expenses:

Mortgage interest. If the property is financed with a bank mortgage, the interest paid to the bank is deductible — not the principal paid down, only the interest portion of each payment. To identify that portion, the bank issues an annual interest-paid certificate that you should request to include in your return.

Property tax (IBI). The property tax paid to the DGI on the leased property is a deductible expense. Keep the payment receipts for the April, August, and December installments.

Insurance premiums. Property insurance (against fire, structural damage) is deductible. If you also carry rental or landlord liability insurance, that applies as well.

Maintenance and repair expenses. Repairs necessary to keep the property in rentable condition are deductible. Paint, plumbing, electrical work, air conditioning maintenance: anything necessary to produce the income and backed by invoices.

Management fees. If you use a management company that collects rent and manages the property, its commission (typically 8%–12% of the monthly rent) is a deductible expense.

Depreciation of the property. The Fiscal Code allows you to depreciate the value of the building (not the land) over its useful life. The depreciation rate for residential buildings is 4% annually on the historical construction cost. Depreciation reduces the taxable base without representing an actual cash outlay, making it one of the most valuable deductions for a landlord.

Vacancy periods. The months the property sat vacant without generating income are periods in which expenses were still incurred (maintenance, insurance, IBI). Those expenses remain deductible even though there was no rent that month.

An example that illustrates the impact of deductions: an owner with gross rental income of $18,000 a year ($1,500/month) might have deductions of $6,000–$8,000 a year between mortgage interest, maintenance, IBI, and management, reducing their taxable base to $10,000–$12,000. That completely changes the resulting tax compared with calculating it on the gross $18,000.

The 5% withholding: the monthly tax advance

For tenants that are legal entities (companies), the Fiscal Code establishes an obligation to withhold 5% of the monthly rent and remit it to the DGI as an advance payment of the landlord's income tax. That withholding isn't the final tax — it's an advance that the owner deducts from whatever is ultimately owed on their annual return.

In practical terms: if a company rents your apartment for $2,000 a month, it must withhold $100 (5%) and pay you $1,900. Those $100 withheld show up on your annual return as tax already paid, which is deducted from the total tax calculated on your income for the year.

When the tenant is an individual (not a company), there's generally no obligation to withhold. The owner is the one who declares and pays directly on their annual return.

It's important to distinguish this 5% withholding for residents from the 10% withholding that applies to non-residents — they are two distinct mechanisms with different rates and purposes.

The regime for non-residents: the 10% withholding as final tax

If you own a property in Panama but aren't a resident of the country, your rental income is subject to a 10% withholding on gross income that applies as a final tax. That means you don't need to file an income tax return in Panama for that income, but you do need to make sure the withholding is being applied correctly.

Who withholds? The obligation to withhold falls on the tenant or, more commonly in practice, on the property management company. The management company withholds 10% of each rent payment, remits it to the DGI on behalf of the owner, and pays you the remaining 90%.

What happens if the tenant is an individual who doesn't withhold? If you rent directly to an individual with no management company involved and that person doesn't withhold, responsibility for paying the tax falls on the non-resident owner. In that case, you must register with the DGI as a taxpayer with Panamanian-source income and declare and pay that withholding yourself.

Can expenses be deducted under the 10% withholding regime? No. The 10% withholding is applied to gross income with no possibility of deducting expenses. That's the most important difference compared with the annual return regime for residents, where deductions can significantly reduce the taxable base. For non-residents with significant deductible expenses, it's worth consulting a Panamanian tax advisor to see whether there's an option to be taxed under the return-filing regime instead of the fixed withholding.

How to register with the DGI if you don't have a RUC

To be able to declare rental income to the DGI, the owner must have a Unique Taxpayer Registry Number (RUC). If you're a Panamanian individual, your RUC is your cédula number. If you're a foreigner with permanent residency, your RUC is generated from your foreign resident ID card (cédula de extranjero).

If you're a non-resident foreigner with property in Panama generating rental income, you must register with the DGI as a foreign taxpayer. That process is done at DGI offices with a valid passport, a copy of the property deed, and documentation of the income. Your Panamanian attorney or accountant can handle that registration for you.

The penalties for not filing

Failing to meet the obligation to declare rental income to the DGI carries concrete consequences worth knowing before deciding to ignore it:

Fines for not filing the return. The DGI applies fixed fines for not filing the return by the deadline, regardless of whether tax is owed. Those fines accumulate for each undeclared fiscal period.

Interest on unpaid tax. If tax was owed and wasn't paid, the DGI calculates late-payment interest on that amount from the date it should have been paid to the date it's actually paid.

Inability to obtain DGI tax clearance. The DGI's paz y salvo is an essential requirement to sell a property in Panama. If the owner has outstanding income tax debts from undeclared rental income, that clearance won't be issued and the sale can't close. Many owners discover this problem when they try to sell and find they have years of pending returns to resolve before closing.

Audit processes. The DGI has access to information on rental contracts registered with MIVIOT and can cross-reference that information against owners' income tax returns. The discrepancy between having registered contracts and not declaring the corresponding income can trigger audit processes.

The practical process: how to file in e-Tax 2.0

Panama's income tax return is filed through the DGI's e-Tax 2.0 system (etax2.mef.gob.pa). The process for rental income within the annual return follows these steps:

1. Log into the system with your RUC and access password. If you don't have an access password, you can request one at DGI offices or online through the same portal.

2. Select the appropriate form. Form 03 for individuals, Form 02 for legal entities.

3. Declare the gross rental income. The total rent received during the fiscal period, before any deductions.

4. Itemize deductible expenses. Each deductible expense category has its own field on the form. Enter the amounts with supporting documentation available.

5. The system automatically calculates the net taxable income and the tax. Verify the calculations are correct before signing and submitting.

6. If tax is owed, you can pay online. The e-Tax 2.0 system allows direct payment by credit or debit card, or generates a payment slip to pay at a bank.

For those with multiple properties or complex tax situations, hiring a licensed Panamanian public accountant (CPA) to prepare and file the return is the safest option. The cost of that service is generally deductible as an advisory expense, and it can save you far more than it costs through properly optimized tax filing.

Frequently asked questions about declaring rental income to the DGI

Do I have to file even if the rent is very low?
Yes. There's no minimum threshold below which rental income is automatically exempt from filing. However, if your total net taxable income — including all your income sources — doesn't exceed $11,000 a year, you won't owe tax (0% rate at that bracket), though you still must file the return.

Can I deduct the cost of furnishing the unit?
Furnishings in a leased furnished property can be deducted as depreciation over their useful life (typically 5–10 years depending on the type of item), not as an expense in the year of purchase. Consult an accountant to correctly apply depreciation on furniture.

What happens if the tenant pays me in cash and I don't have receipts?
The income is taxable regardless of the payment method. If you receive cash, you must still declare it. Lack of payment documentation doesn't exempt you from the tax obligation; moreover, the absence of a paper trail for the income can create additional problems if the DGI audits your accounts.

Is Airbnb income declared the same way as traditional rental income?
Income from short-term rental platforms is taxable income and must be declared. The tax treatment may differ somewhat from traditional rental depending on whether the activity is considered pure leasing or a business activity. Consult a Panamanian tax advisor if this is your situation.

If I sell the property, do I also have to declare the gain?
The gain on the sale of a property is subject to capital gains tax (3% of the sale price or 10% of the net gain, whichever is lower). That tax is paid to the DGI before closing as an advance payment and is separate from the annual income tax return for rental income. If the final calculation on the annual return differs from the advance paid, it's adjusted on the return.

Compliance isn't just about avoiding fines — it's about protecting your investment

Declaring rental income to the DGI isn't just an abstract tax obligation. It's the condition that protects your ability to freely dispose of your property in the future. A landlord with years of undeclared income can find themselves blocked when it comes time to sell, mortgage, or refinance their property because they can't obtain the DGI's tax clearance certificate.

Getting that situation sorted out before it becomes urgent — rather than waiting for it to surface at the closing of a sale — is the financially smarter move. The cost of catching up on overdue returns, even including fines and interest, is generally lower than the cost of losing a deal because you couldn't produce the clearance certificate when it was required.