Published on and written by Cyril Jarnias
Leaving France to settle in Panama, or simply investing in real estate there, goes beyond a change in climate. Above all, it represents a complete shift in tax logic. On one side, a global, heavily progressive French system with real estate wealth tax, high taxation of capital gains and inheritance. On the other, a country that taxes only what is actually tied to its territory, with no wealth tax, no inheritance tax, and real estate taxation that is often much milder.
For a French national who owns a property in Panama and rents an apartment in Paris, three tax regimes apply: Panamanian (property taxes, capital gains, rental income), French (assets in France), and the France–Panama tax treaty to resolve conflicts.
A Tax Paradigm Shift: From French Worldwide Taxation to Panama’s Territorial Regime
The starting point is the vast gap between the two systems. In France, a highly taxed taxpayer may face a combined burden of approximately 49% top marginal income tax rate, 30% on dividends and securities capital gains (flat tax of 30%, potentially increased by the exceptional contribution on high incomes), up to 1.5% real estate wealth tax on net real estate assets exceeding €1.3 million, and inheritance tax rates that can climb to 60% for transfers outside the direct line.
Capital gains on securities and real estate of Panamanian source are taxed at 10% in Panama.
For a French entrepreneur who actually transfers their tax residence, the deal is brutally clear: you trade an environment with 49% + IFI (real estate wealth tax) + high inheritance taxes for 0% on everything foreign to Panama, and a tax of 10% on gains realized locally.
The France–Panama Tax Treaty: A Safety Net Against Double Taxation
This shift does not prevent France from continuing to tax what it considers “French-source” income. It is precisely to avoid double taxation that France and Panama signed a tax treaty on June 30, 2011, effective from 2012.
This treaty has three major functions for a French real estate investor:
1. It defines who has the right to tax a given income or capital gain (France, Panama, or both, with a tax credit).
2. It resolves cases of dual residence through a “tie-breaker” clause (Article 4).
3. It organizes information exchange and leaves France with the ability to combat fraud.
Allocation of the Right to Tax Real Estate
The treaty follows the OECD model for real estate. Income from a property is taxable in the state where the property is located. In other words:
An apartment in Paris rented out by a Panamanian resident remains taxable in France. A house in Panama City owned by a French resident is taxable in Panama.
The same logic applies to capital gains: gains from the sale of a property are taxable in the state where the property is located. The treaty even extends this approach to certain shares in companies whose value derives mainly from real estate (more than 50% of assets in real estate located in a given state).
In practice, this means that: actions must be carried out in a coherent and thoughtful manner to achieve the set objectives.
The sale of a Paris apartment by a tax resident of Panama remains taxable in France, in accordance with Article 13 of the treaty. Conversely, the sale of a property in Panama City by a French resident falls primarily under Panama’s jurisdiction, with France potentially granting a tax credit or applying the effective rate if it includes the capital gain in income tax.
Definition of Residence in Case of Conflict
Article 4 of the treaty provides a hierarchy of criteria: permanent home, center of vital interests, habitual abode, nationality, and then mutual agreement between tax authorities.
For a French national who keeps a second home in France but lives most of the year in Panama, the challenge is to demonstrate that:
– Their primary residence, family, and economic interests are located in Panama.
– The French domicile is now only a secondary residence.
This qualification is not theoretical: as long as the French General Directorate of Public Finances (DGFiP) considers you to remain a resident of France, it continues to tax your worldwide income, including the rent from your apartment in Panama City or the capital gain on its sale.
Local Taxes in Panama: Attractive but Structured Property Tax
Contrary to popular belief, Panama does not simply refrain from taxing foreign income. It has a genuine internal real estate tax system that targets properties located on its territory, regardless of whether the owner is Panamanian or foreign.
“Impuesto de Inmuebles”: The Panamanian Property Tax
All real estate located in Panama is subject to an annual tax, calculated on the registered cadastral value. It is this value – not the market value – that serves as the basis.
The system is progressive, with a favorable treatment for primary residences or family patrimony (Patrimonio Familiar Tributario / Vivienda Principal).
Table below: Current scale as outlined in the law.
| Type of Property | Value Bracket (USD) | Applicable Rate |
|---|---|---|
| Primary residence | 0 – 120,000 | 0% |
| Primary residence | 120,001 – 700,000 | 0.5% |
| Primary residence | > 700,000 | 0.7% |
| Non-primary property (rental, etc.) | 0 – 30,000 | 0% |
| Non-primary property | 30,001 – 250,000 | 0.6% |
| Non-primary property | 250,001 – 500,000 | 0.8% |
| Non-primary property | > 500,000 | 1.0% |
For a primary residence declared as such, the first $120,000 bracket is completely exempt. Above that, rates remain moderate, capped at 0.7%. For a rental property, the basic exemption is lower ($30,000), and the rate can go up to 1% for the portion exceeding $500,000.
The cadastral value below which property tax can be zero for primary residences classified as family patrimony.
Practical Payment Rules and Particularities
Property tax is generally paid in three installments, with deadlines (e.g., April 30, August 30, December 31). Late payments incur a 10% surcharge, while early payment may benefit from a 10% discount.
The property owner cannot contractually transfer this tax burden to the tenant; legally, it is the owner’s responsibility to pay the tax. In the event of a sale, property tax arrears block the transfer of ownership until resolved. The tax clearance certificate (Paz y Salvo) is only valid for the current quarter, which sometimes forces the seller to pay the following period if the closing is delayed.
For a French national owning property in Panama City, this tax effectively replaces the Panamanian wealth tax (IFI), which does not exist. However, if the same French person retains real estate assets in France exceeding €1.3 million, they remain subject to the French real estate wealth tax on those French assets, even after leaving.
Taxation of Real Estate Capital Gains in Panama: A Two-Tier Mechanism
When you resell a property in Panama, you fall under the scope of Panamanian capital gains tax. The system is simple in broad strokes but operates with a dual mechanism: a mandatory withholding of 3% on the price, and a definitive tax of 10% on the actual capital gain.
The Standard Rate: 10% on Net Capital Gain
The capital gain is calculated as in France: sale price minus acquisition price and qualifying costs (certain acquisition fees, improvements, etc.). The standard rate is 10% on this net capital gain, whether the seller is an individual or a company, Panamanian or not.
Summary table for Panamanian capital gains:
| Item | Panamanian Rule |
|---|---|
| Basis | Sale price – purchase price – deductible costs |
| Capital gains tax rate | 10% |
| Application to foreigners | Same rules as for residents (no surtax based on nationality) |
There is no specific progressive scale for real estate capital gains: the 10% rate is proportional. The buyer is not subject to a standard residential VAT on resale, except in specific cases of new construction.
The Mandatory 3% Withholding: Advance or Final Tax
At the time of sale, the seller must generally pay a withholding of 3% to the tax authorities, calculated on the gross transaction amount or on the cadastral value, whichever is higher. This withholding is intended to serve as an advance payment on the 10% tax.
Two strategic options are available to the seller to optimize their sale
First approach available to the seller, tailored to their objectives.
Second option available to the seller, meeting other needs.
– Either they accept this 3% as a final tax, without any adjustment (a frequent choice for simplicity).
– Or they declare the actual capital gain, pay 10% on that gain, and deduct the 3% already paid. If the 3% exceeds the 10% tax on the gain, they can request a refund or a tax credit.
For a French investor realizing a small gain or selling at near break-even, it may be advantageous to choose the actual 10% calculation to avoid paying more tax than the actual economic gain warrants.
The 2% Transfer Tax (ITBI)
In parallel, the transfer of real property triggers the payment of a 2% transfer tax (often called ITBI or Impuesto de Transferencia de Bienes Inmuebles). It is based on the higher of the sale price and the cadastral value (possibly adjusted, as the authorities may increase the reference value by 5% each year for tax purposes).
This tax is the responsibility of the seller, unless otherwise agreed commercially, and may be exempted in certain strictly regulated cases, notably for the first sale of new personal housing subject to date and value conditions.
Summary table of taxes on the sale of a property in Panama:
| Type of Levy | Basis | Rate | In Principle Borne By |
|---|---|---|---|
| Transfer tax (ITBI) | Price or cadastral value (higher) | 2% | Seller |
| Capital gains tax advance | Price or cadastral value (higher) | 3% | Seller |
| Final capital gains tax | Net capital gain | 10% | Seller |
For a French resident of Panama, these levies represent the only Panamanian tax burden on the sale of their property, as France has no right to tax a real estate asset located in Panama City.
Taxation of Rental Income in Panama: Local Income, Local Scale
Rental income from a property located in Panama constitutes Panamanian-source income, regardless of the owner’s domicile. It is therefore taxable in Panama under the personal income tax scale.
The usual brackets as stated in the law are:
– 0% up to $11,000 USD in annual income,
– 15% between $11,000 and $50,000 USD,
– 25% above $50,000 USD.
For landlords in Panama, the effective tax rate often falls between 5% and 15% after withholding and simplified regimes. This local income tax is not covered by the 0% territoriality regime, which only applies to foreign-source income.
An important point for the French: this rental income is not taxable in France provided the owner is no longer a tax resident there and the property is located in Panama. The France–Panama tax treaty recognizes Panama’s primary right to tax rental income from a property located on its territory.
What France Continues to Tax: Capital Gains and Rental Income from French Properties
Leaving France for Panama does not erase French tax obligations on assets remaining in France. For a French national who becomes a Panamanian resident, two areas remain particularly sensitive: French-source real estate income and capital gains, and the IFI on French real estate.
Rental Income from a French Property
The France–Panama treaty grants France the right to tax rental income from a property located on its soil. Specifically, a tax resident of Panama who rents out an apartment in Paris remains taxable in France on this rental income, with:
– Application of the progressive income tax scale (with a minimum rate of 20% for non-residents up to approximately €29,500, then 30% above that, unless the taxpayer proves a lower average rate would apply to their worldwide income),
– Social contributions on rental income, at the standard rate of 17.2% for non‑residents outside the EEA/Switzerland, possibly supplemented by the CEHR (exceptional contribution on high incomes) of 3–4% for very high earners.
The choice of regime (micro-foncier or actual) works as for a resident, but the non-resident status involves specific formalities (declaration 2042-NR, possible appointment of a tax representative).
French Real Estate Capital Gains for a Resident of Panama
On the sale of a property located in France, the situation becomes more complicated due to Panama’s status as a Non-Cooperative State or Territory (NCST) within the meaning of Article 238-0 A of the French General Tax Code. Under normal rules, a non-resident selling a French property faces:
Tax rate on real estate capital gains, to which are added 17.2% in social contributions and a progressive surtax of 2% to 6% for net gains exceeding €50,000
Holding period allowances reduce the taxable basis for income tax starting from the 6th year, with full exemption at 22 years, and at 30 years for social contributions.
However, for a resident of a state on the French blacklist, Article 244 bis A substitutes a confiscatory rate of 75% for the standard 19% rate on the “income tax” layer, and this without any holding period allowance on that layer. The 17.2% social contributions layer retains its own allowance system (exemption at 30 years), and the 2–6% surtax is added on top.
Table outlining French taxation of capital gains for a Panamanian resident:
| Item | Standard Non-Resident Regime | Resident of an NCST (e.g., Panama) |
|---|---|---|
| Income tax on capital gain | 19% | 75% (on gross capital gain) |
| Social contributions | 17.2% (with holding period allowance) | 17.2% (same allowance) |
| Surtax on large gains | 2–6% > €50,000 | 2–6%, in addition to the 75% layer |
| Holding period allowance on income tax layer | Yes (exemption at 22 years) | No, on the 75% layer |
In theory, the France–Panama tax treaty can neutralize this 75% rate if two conditions are met in the treaty: a non-discrimination clause and an effective exchange of information clause. The French Council of State has already ruled, in other cases involving listed NCST countries that have a treaty, that the treaty overrides the confiscatory domestic law. For Panama, several favorable rulings have been issued in real estate cases, provided that the transparency of the beneficial owners is ensured. In practice, it is essential to go through a private letter ruling (rescrit) procedure to secure the non-application of the 75% rate.
Fiscal Representation Obligations and Timeline
For a sale exceeding €150,000 per seller, an accredited tax representative remains mandatory, except in cases of exemption due to holding period (22 years for income tax, 30 years for social contributions) or residence in the EEA with a mutual assistance agreement. A Panamanian resident does not benefit from these automatic exemptions. The representative assumes joint liability for the tax due, which explains why fees can be high and the amounts placed in escrow can be very large, up to 100% of the exposure in certain NCST cases.
All of this makes the retention and resale of French properties after moving to Panama fiscally delicate. Planning for sales before departure, or structuring through a properly documented transparent entity, is often considered in preliminary advice.
The Shadow of the French Exit Tax for a Move to Panama
Beyond direct real estate ties, a French national moving to Panama must confront a very specific mechanism: the exit tax (Article 167 bis of the French General Tax Code). It does not target real estate itself, but shares in companies, especially real estate-heavy companies, and can have a major impact on overall wealth at the time of departure.
The exit tax applies to unrealized capital gains on securities when two conditions are met:
The exit tax applies if you have been a French tax resident for at least 6 of the last 10 years before leaving and you hold a securities portfolio worth at least €800,000 or a stake of at least 50% of the profits of a company at the time of departure.
The unrealized gains are then deemed realized on the day before departure. They are taxed at the flat rate of 30% (12.8% tax, 17.2% social contributions), increased where applicable by the CEHR of 3% to 4%, resulting in an effective charge of around 32% to 34% for high-income taxpayers.
For a move to an NCST state like Panama, the mechanism is more stringent:
In principle, no automatic deferral of payment is possible for a move outside the EU/EEA, unlike a move within the EU/EEA. A conditional deferral may be granted, but it requires heavy collateral (pledge on securities or bank guarantee) and proof of reasons other than purely tax motives. The debt may be extinguished after 15 years if the securities are not actually sold, subject to annual monitoring via Form 2074‑ETSL.
For an owner of a real estate company or a holding company, the exit tax is a mandatory step to model. A scheme that involves first moving to an EEA state, benefiting from an automatic deferral, and then migrating to Panama, is sometimes considered to manage initial cash flow. However, this type of arrangement remains sensitive and must be secured against abuse of law.
Inheritance and Real Estate Assets: Heavy in France, Neutral in Panama
For a French national who acquires property in Panama, the question of future transmission is central. Here, the contrast between the two states is maximal.
In Panama: No Tax on Inheritance or Gifts
Panama imposes no tax on inheritances, gifts, or wealth. The law abolishing inheritance and estate taxes dates back to the 1980s, and this absence of wealth transfer taxation remains confirmed by major international guides.
In practice:
The beneficiary of a real estate inheritance (house, land, or company shares) in Panama pays no tax on the value received. The only recurring cost is the annual property tax, with no municipal or provincial surtax.
In France: Potential Worldwide Taxation of Inheritances
The situation changes radically if the deceased or the heir remains fiscally linked to France. Under Article 750 ter of the French General Tax Code:
– If the deceased is a tax resident of France, their entire worldwide estate is taxable in France, including an apartment in Panama City or a villa on the Pacific coast.
– If the deceased is no longer a resident, but the heir has been a tax resident of France for at least 6 of the 10 years preceding the transfer, the assets received, wherever located, may be taxed in France.
– If neither the deceased nor the heir are residents of France, only assets located in France are taxable.
The maximum inheritance tax rate in France, applied to heirs with no familial relationship.
In the absence of a specific inheritance tax treaty between France and Panama, French domestic law applies, with the possibility of crediting taxes paid abroad (Article 784 A of the CGI). However, in the case of Panama, where no inheritance tax is levied, this credit mechanism does not come into play.
For a French family that has settled in Panama and severed all tax residence ties with France (both deceased and heirs), assets located in Panama therefore completely escape French and Panamanian inheritance taxation. Only remaining French assets (real estate, accounts, French companies) may be taxed in France.
Why the Treaty and NCST Status Make Structures Sensitive
In theory, the France–Panama treaty and Panamanian territoriality provide a very favorable framework for holding international real estate assets. In practice, two elements complicate the picture for the French: Panama’s continued presence on the French NCST list, and the growing requirement for real economic substance for certain Panamanian structures.
Panama on the NCST Blacklist: Concrete Consequences
Panama’s classification as a “Non-Cooperative State or Territory” triggers several punitive regimes in French law:
– Application of the 75% rate on certain French real estate capital gains for Panamanian residents (Article 244 bis A),
– Application of a 75% withholding tax on certain passive French-source flows (dividends, interest, royalties) paid to a Panamanian resident (Article 187 CGI),
– Tightening of conditions for deferring the exit tax.
The bilateral treaty can neutralize some of these effects, provided that the transparency of the structures is demonstrated (identified beneficial owner, proper accounts, real substance) and that the tax authorities are approached via a private letter ruling. Otherwise, the non-cooperative status prevails and the confiscatory rates apply.
New Panamanian Substance Rules for Foreign Income
Even though they do not directly target individuals who own an apartment for personal use or for local rental, the new Panamanian economic substance rules (Law 526 of 2026) reflect a global trend: Panamanian companies of multinational groups that receive passive foreign-source income (dividends, interest, rental income from properties outside Panama, securities capital gains, etc.) must now demonstrate real substance (personnel, premises, local decision-making, operating expenses) to retain the 0% exemption on this income. Failing this, such foreign income is taxed at 15% on the net result.
Pure holding and real estate holding companies benefit from a lighter regime, but must comply with minimum presence requirements (premises, personnel, annual reporting).
For a French person who was considering holding, for example, a European real estate portfolio through a Panamanian company without an office or team in Panama City, these new rules change the equation. On the other hand, direct ownership of an apartment in Panama City, rented out locally, remains fully within the scope of the classic territorial regime (local Panamanian rental taxation, neutrality vis-à-vis the rest of the world).
Summary: What Concrete Interest for a French Person in Facing Panamanian Real Estate Taxation?
For a French individual, the combination Panama + France + tax treaty produces a contrasting picture.
From the Panamanian perspective alone:
Property taxes are low, with an exemption up to $120,000 for the primary residence. Capital gains are taxed at 10% or a flat 3%. Rental income is subject to a progressive scale up to 25% without CSG. No wealth tax, no inheritance or gift tax: only the moderate annual property tax applies.
From the French side:
– France retains control over all real estate remaining on its territory: rents, capital gains, IFI, inheritance tax.
– Panama’s NCST status makes selling French properties from Panama very penalizing if the treaty’s protection has not been clearly secured.
– The exit tax, for significant shareholders, can represent a massive cost at the time of residence break, which must be anticipated years before departure.
The tax treaty, as a backdrop, avoids outright double taxation, but does not cancel France’s right to tax French properties nor Panama’s right to tax its own properties.
For a French person with a small real estate portfolio in France who wants to live and invest in Panama, the architecture is simple: transfer of tax residence, Panamanian taxation on local rents and capital gains, no IFI or inheritance tax on Panamanian assets. However, significant wealth remaining in France, especially through companies, requires a complex strategy dealing with the exit tax, NCST rules, and 75% real estate capital gains.
In all cases, Panamanian real estate offers, from a purely tax perspective, a consistently lighter environment than that of France, provided that the legal bridges between the two systems are well managed and that the pullback force of the French tax authorities on assets remaining on its soil is not underestimated.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
