Technical article

Panama and Costa Rica: Why Foreign Trust Income Is Outside Tax Today, and What Bill 25.796 Would Change

Today, the sources say the answer for both countries is that it falls outside local income tax.

By Neil Solomon · 3 min read

Imagine a retired couple from Colorado. Their two sons talk about moving to Central America, one to Panama City and one to San José. The couple hold a family trust in the US that pays out income each year. They ask: is that money untaxed where the sons would live?

Today, the sources say the answer for both countries is that it falls outside local income tax. For Costa Rica there is a bill that could change that.

The rule: tax what is earned here

Both countries use a territorial system. Residents are taxed on income earned inside the country, and income earned elsewhere is generally left alone.

For Panama, PwC (tier B, 2026) says the system is based on a territorial concept, so foreign-source income is not taxed. A trust paying foreign-source income to a resident is therefore outside Panamanian income tax. That follows from the territorial rule. Panama also lists no inheritance, estate, gift or net wealth tax. Property owners pay an annual property tax of 0% to 2.10%.

For Costa Rica, the Costa Rica office of an accounting firm (tier B, September 2026) says the system is territorial and foreign income is generally not taxed. A tax-lawyer column (tier U) says the same. PwC lists no inheritance or gift tax there, and its inheritance chart shows neither tax for Costa Rica.

Who counts as a resident

Panama counts a person as resident after more than 183 days in the year, with income generated in Panama. Costa Rica counts residents after more than 183 days in the fiscal period, continuous or not. Short absences count as time inside.

What the Costa Rican bill would do

A bill filed on 22 September 2026, number 25.796, would tax residents' passive foreign income at 15%. It would cover dividends, interest, royalties, rents and capital gains, with foreign tax deducted. Trusts are named among the structures it covers. It is a bill and not law. The tax-lawyer column (tier U) describes it as early-stage.

Panama has a newer law too. Law 526 of 28 May 2026 adds 15% on the passive foreign income of entities in multinational groups that do not meet certain tests. Chambers (tier B, 2026) says most private foundations and family vehicles with no cross-border links fall outside it, and that it applies to entities and not to individual heirs. Panama had not yet published the rules for it in August 2026.

At a glance

What this touches

An heir in either country faces no local income tax on the trust's foreign income today, and an heir in Costa Rica would want to watch the bill. The trustee and the family also need to think about the home country: a US trust still has US rules, which another article covers.

You might say: "A bill is not a law, so why mention it?" Because a family planning for ten or twenty years may meet it. A move that works under today's rule could meet a 15% rate later. Bills often change before they pass, and some do not pass.

You could keep the bill's number, 25.796, in the family file and look at its status each year.

Has a rule changed under you after you moved somewhere? Share it here. Someone else may be weighing the same two cities.

Figures are estimates for planning, based on public data. Date read: October 2026.