You can’t just “decide” you’re a non-resident for tax
Your home country sets the criteria for tax residency, and the tax authority applies them unilaterally. Your perception of the situation doesn’t matter — only the facts do. And one country’s rules differ sharply from another’s. Two cases dominate for our readers: the United States (the hard case) and the United Kingdom.
If you’re a US citizen or green-card holder — read this first
The US is one of only two countries that tax on citizenship, not residency. Moving to Panama does not make you a US non-taxpayer. As long as you hold US citizenship or a green card, you file a US return on your worldwide income every year, wherever you live.
What moving abroad does give you:
- The Foreign Earned Income Exclusion (Form 2555): roughly USD 130,000 of earned income excluded in 2026 if you meet the physical-presence or bona-fide-residence test
- The Foreign Tax Credit (Form 1116): credit for income tax paid abroad — but Panama’s territorial regime means you often pay little or no Panamanian tax, so there’s little to credit
- It does not remove FBAR/FATCA reporting, self-employment tax, or filing itself
The only way to truly exit the US tax system is to renounce citizenship (or formally abandon the green card) — which can trigger the §877A exit tax (see below). Be honest with yourself about which path you’re on before you start.
If you’re a UK resident — the Statutory Residence Test
The UK uses the Statutory Residence Test (SRT). It works in three layers:
| Layer | What it checks |
|---|---|
| Automatic overseas tests | E.g. < 16 days in the UK, or full-time work abroad with limited UK days → automatically non-resident |
| Automatic UK tests | E.g. 183+ days in the UK, or your only home is in the UK → automatically resident |
| Sufficient ties test | Combines UK days with ties (family, accommodation, 90-day, work, country). The more ties, the fewer UK days you’re allowed |
Split-year treatment can make part of your departure year non-resident. And beware temporary non-residence: if you return to the UK within roughly 5 years, certain gains and income realized while away can be taxed on return.
No tax treaty with Panama
Many expats expect a bilateral treaty to resolve “dual residence” in their favor. There is no comprehensive income-tax treaty between Panama and the US (only a TIEA for information exchange), nor a full one with the UK.
Consequences:
- No automatic “tie-breaker” to settle dual residence
- No automatic credit of Panamanian tax against home-country tax beyond unilateral foreign-tax-credit rules
- Panama is treated by several authorities as a low-tax jurisdiction, which can trigger anti-avoidance scrutiny (CFC rules in particular)
The 18-month timeline to leave cleanly
The big mistake most people make: believing they become a “non-resident” the day they board the plane. That’s false. A change of tax residency is a process that spans at least 18 months.
| Period | Key steps |
|---|---|
| M-18 to M-12 | Firm decision. Net-worth review. Exit-tax assessment. Global tax plan. |
| M-12 to M-9 | Engage a cross-border tax adviser if net worth > USD 500k. Start the Panama visa. |
| M-6 to M-3 | Sell or let your home property. Wind down home-country tax-advantaged accounts. Choose insurance. |
| M-3 to M-1 | Panama housing found. Panama accounts started. Cease/transition home-country work. |
| M0 (departure) | Flight to Panama. Notify the tax authority (US: keep filing as expat; UK: file form P85). |
| M+1 to M+3 | Settle in Panama. Bank account. Cédula. Contador engaged. |
| M+10 to M+12 | DGI Panama tax-residency certificate. First post-departure home filing. |
| M+13 to M+18 | Non-resident status recognized (UK) / clean expat filing position (US). |
⚠️ The fatal rushed-departure mistake: you trigger an exit tax you could have planned around, you forget to report a foreign account → heavy penalties, your final home-country assessment lands on you, and you end up with murky health cover for 3-6 months. Count on 18 months minimum.
The exit tax
US — IRC §877A (only if you renounce)
The US exit tax applies only when you expatriate (renounce citizenship or give up a long-held green card) and you’re a “covered expatriate” — meaning you hit any of:
- Average annual net income tax above an inflation-indexed threshold (~USD 200k+) for the 5 prior years, or
- Net worth of USD 2 million or more, or
- Failure to certify 5 years of tax compliance on Form 8854
A covered expatriate is taxed as if they sold all worldwide assets at fair market value the day before expatriation (a mark-to-market tax), above an exclusion amount. If you’re not renouncing, §877A doesn’t apply — but you also haven’t left the US tax system.
UK — no general exit tax, but watch CGT and temporary non-residence
The UK has no broad exit tax on unrealized gains for individuals. But: gains on UK land and property remain taxable, and the temporary non-residence rules can tax gains/income realized abroad if you return within ~5 years. Time disposals of big assets for after you’re clearly non-resident.
💡 If you hold more than ~USD 500k in appreciated assets or a controlling stake in a company, consult a cross-border tax adviser 12-18 months before departure. USD 2,500-5,000 for a full study can save you tens of thousands.
Foreign-account reporting (FBAR / FATCA / CRS)
While you remain a tax-resident (UK) or a US person (US), you must report foreign accounts.
US persons
- FBAR (FinCEN Form 114): all foreign accounts if the aggregate exceeds USD 10,000 at any point in the year (your Panama bank, Wise USD/EUR, PayPal, brokerage, crypto exchange)
- FATCA (Form 8938): filed with your 1040 above higher thresholds (higher for those living abroad)
- Penalties for non-willful FBAR failures run to ~USD 10,000+ per violation; willful failures are far worse
UK residents
- Report worldwide income while UK-resident; CRS automatically shares your Panama account data with HMRC, so undeclared accounts get noticed
- Once genuinely non-resident, your UK reporting narrows — but document the transition
Typical accounts a new Panama expat reports
| Account | Reported by |
|---|---|
| Personal Wise USD | FBAR / Form 8938 (US); worldwide income (UK while resident) |
| Personal Wise EUR | FBAR (US) |
| Panama bank (personal) | FBAR (US) |
| SA account (Multibank, if applicable) | FBAR + likely Form 5471 (US CFC) |
| PayPal Business SA | FBAR (US) |
| Binance / Kraken / Coinbase | FBAR if custodial (US) |
That’s typically 4-6 accounts to report each year while you remain in the home-country net.
Notifying your home-country tax authority
US
You don’t “deregister” — you keep filing a 1040 as a US person abroad. Update your address, claim FEIE/FTC where relevant, attach FBAR/8938. If you renounce later, you file a final return + Form 8854.
UK
- On departure: file form P85 (or report leaving via Self Assessment) with your exact departure date and new Panama address.
- The following filing season: complete Self Assessment with the residence pages (SA109), claiming split-year treatment if applicable.
- Keep evidence of your departure date (flight, Panama lease) — this date is crucial and must be documented.
⚠️ Anticipate a residence enquiry: authorities can open a residence review in the 18-24 months after you leave. Prepare ahead: Panama utility bills, your lease, flights, and the DGI tax-residency certificate. With a clean file, you answer in 30 minutes.
Your home-country accounts: keep, close, transform
| Account / product | Keep? | Recommended action |
|---|---|---|
| Main current/checking account | Yes (one) | Simplify, report on FBAR |
| Ordinary savings | Yes | Keep for home-currency savings |
| Tax-advantaged accounts (US: IRA/401k; UK: ISA) | Mixed | IRA/401k: keep, no new contributions without earned-income basis. ISA: loses its tax-free status for non-residents — you can keep it but can’t add to it |
| Brokerage (taxable) | Yes, but | Many US brokers restrict non-resident accounts — confirm before moving |
| Pension (US 401k / UK SIPP) | Yes | Leave invested; mind withholding on withdrawals |
| Business accounts | No | Close if the activity is wound down |
Note (US): some US brokerages freeze or close accounts once your address is abroad. Sort out a broker that accepts overseas residents before you move.
Health insurance: international vs local
Once out of your home public system, you have no home cover abroad (Medicare doesn’t travel; the NHS is residence-based). 3 options to bridge:
| Option | Annual premium | For whom |
|---|---|---|
| International private (Cigna Global, Allianz, GeoBlue, IMG) | USD 1,500-5,000 | Families, potentially costly care, frequent travelers |
| Local Panamanian (ASSA, Mapfre Panama) | USD 600-1,500 | Healthy singles on a tighter budget |
| Hybrid (local + international top-up) | Variable | Best coverage-to-cost for many |
Timing: buy at least 30 days before departure. Underwriting and policy activation take time.
The first 12 months in Panama — consolidation
Months 1-3 — Administrative setup
- Housing with a stable address (1-year lease minimum). Keep utility bills in your name (proof of residence)
- Personal Panamanian bank account: Banco General, Banistmo, Banesco (within 30-60 days)
- Optional registration with your embassy in Panama City
- A Panama phone number (proof of effective settlement)
Months 3-6 — Economic consolidation
- Engage a Panamanian contador
- Set up your payment stack: Wise + LS
- First operational flows — document every transaction
Months 6-12 — Documenting tax residency
The DGI Panama tax-residency certificate is the central document that formalizes you as a Panamanian tax resident in the eyes of your home authority.
- Procedure: file (passport, cédula, carné, proof of presence, Renta filed) → DGI Asuntos Internacionales department
- Cost: ~USD 50
- Timeline: 4-8 weeks
- Validity: 1 year, renewable
⚠️ The step you must not skip: most expats never request a tax-residency certificate from DGI Panama. The consequence: 3-4 years later, the home authority asks them to prove Panamanian tax residency. Without an official certificate = reconstructing proof from scattered documents. Request the certificate within the first 12 months. USD 50 and 8 weeks.
Inside Panama’s Memo #6: Leaving home tax residency for Panama
What you’ve just read is the skeleton. Inside Panama’s Memo #6 details each step with:
- Notification templates (US expat filing checklist; UK P85 / SA109 walkthrough)
- A detailed 18-month plan, week by week
- Account strategy (IRA/401k/ISA/SIPP) with concrete examples
- Case studies: spouse who stays behind, founder facing the §877A exit tax, retirees
- Non-resident taxation breakdown: rents, dividends, capital gains, pensions
- An in-depth FAQ on 25+ concrete questions
PDF + mobile HTML format, 40 pages, updated May 2026.
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⚖️ This article is informational and country-general. Tax residency is fact-specific and the rules differ sharply by nationality. Always confirm your position with a cross-border tax adviser qualified in your home country before acting.
Read also
- Finding a Panamanian contador — Memo #2
- Dormant SA + Friendly Nations visa — Memo #4
- Friendly Nations visa step by step — Memo #5
- Getting paid without a business bank in Panama — Memo #1
- Trading personally or via an SA — Memo #3
Article published on 20 May 2026 by the founders of Inside Panama, a brand of LAS FUNDADORAS HERMANAS S.A. (RUC 155776412-2-2025).