AOW, pension and tax in Panama: why 'tax-free' is the wrong half of the story
Panama doesn't tax foreign income — that's correct. But the treaty of 2010 gives the Netherlands the right to tax your AOW (the Dutch state pension) and your pension, so the wage-tax withholding simply carries on. The accrued AOW itself does come along in full: the export treaty of 2004 keeps the single person's rate too. The real sum, article by article.
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Written and checked by Auke on , against the sources at the bottom. Is something no longer right? Report it below and I'll fix it.
If you live in Panama, the Netherlands may keep taxing your AOW, your occupational pension, your annuity and an ABP pension as well. Panama itself levies nothing on them.
Three things to know up front:
- "Panama doesn't tax foreign income": that's true, but it's precisely the half-truth with which English-language sites, written for Americans, put Dutch people on the wrong foot.
- For the Dutch emigrant the sum consists of three parts: what the treaty says, what Panama does, and what the export treaty does with the AOW (the Dutch state pension). This article makes it complete.
- Thanks to that export treaty your accrued AOW comes along in full, also if you are single.
Who may tax what?
| Income | Who taxes | Where it says so |
|---|---|---|
| AOW | the Netherlands | article 17, social security benefits |
| Company pension and annuity | the Netherlands | article 17, including a lump sum |
| ABP pension | the Netherlands | article 17; article 18 has no pension paragraph |
| Dividend from the Netherlands | the Netherlands, at most 15 percent | article 10 |
| Rented-out house in the Netherlands | the Netherlands | the treaty leaves property with the country where it lies |
| Everything allocated to the Netherlands | Panama exempts | article 21 |
The treaty: the Netherlands may tax — everything called a pension
Since 2011 the Netherlands and Panama have had a full tax treaty, and article 17 is unusually clear in it. Pensions, annuities and similar remuneration that come from a treaty country may be taxed in that country. The same sentence applies explicitly to payments under social-security legislation.
Translated: over your occupational pension, your annuity and your AOW, the Netherlands may tax as source state, so as the country the money comes from. That applies without threshold and without exception. A lump-sum commutation falls under it too.
And an ABP pension likewise stays with the Netherlands. Do mind the route, though, because this treaty departs from the model you see elsewhere. Article 18, the government-service article, has only two paragraphs here and deals exclusively with salary for government service. A pension provision such as article 19(2) of the OECD Model Convention is missing; that model is the template most tax treaties are based on. Your government pension therefore falls under that same article 17 as your occupational pension. The outcome is identical, the reasoning isn't. That is why with Panama a mixed pension doesn't need to be split by part, unlike with most other destinations.
In practice that means: an exemption from wage-tax withholding is not possible. The withholding by the SVB and the pension fund simply carries on, and you file a return in the Netherlands as a non-resident taxpayer. On Dutch dividends the Netherlands keeps its 15% dividend tax (the treaty ceiling). Dutch property remains fully taxed in the Netherlands.
What you do gain
Three things, and they aren't small:
- The national-insurance contributions and the Zvw contribution lapse. After emigration you're no longer insured, so only the tax portion remains. Net that makes a serious difference, though the private health-insurance premium comes back in its place.
- Panama levies nothing. Article 21 of the treaty obliges Panama to exempt everything allocated to the Netherlands. The DGI, the Panamanian tax authority, only calls you a tax resident after more than 183 days in a tax year. What a return in Panama means for a pensionado, you ask your tax adviser.
- You have legal certainty: unlike in countries without a treaty, it's laid down in black and white who may tax what, now and later.
The honest summary: you don't become tax-free in Panama. You keep the Dutch tax burden, without the Dutch contributions, with full predictability. For most households that's a favourable sum, but a different one from what the brochure promises.
The accrued AOW comes along in full
Panama is a treaty country for the AOW, and that affects not the tax but the benefit itself. The Netherlands and Panama concluded on 15 April 2004 a treaty on the export and verification of social security benefits, and it has been in force since 1 March 2005. Article 4 sets aside every provision that restricts payment because you live in the other country.
Article 9a of the AOW Act grants, outside treaty countries, at most the old-age pension for married persons. That article therefore doesn't apply here: a single person keeps the 70% rate in Panama, a couple the 50% rate per person. In 2024 the minister confirmed it in answer to parliamentary questions: Panama is among the 36 countries to which the Netherlands has to export the full AOW.
The price of the treaty is the enforcement it regulates: identification, verification on request, medical examination in the country of residence, and suspension if you don't cooperate within three months. In practice the SVB checks whether you really live alone; whoever runs a joint household falls back to the rate for married persons. So work out your monthly budget with the rate that fits your household, not with the brochure.
The child benefit the treaty expressly excludes: it doesn't travel to Panama.
Whoever leaves before AOW age: the accrual stops on the day of departure (2% per missed year), and voluntary continuation with the SVB has a registration deadline of one year.
What else the Netherlands doesn't let go of
The year of departure goes with an M return, the return for the year of departure. Don't wait for a letter: it only reaches you if your address abroad is correct in the RNI, the register for people who live outside the Netherlands. An annuity, pension entitlement or substantial shareholding travels with a protective assessment. Outside the EU the deferral isn't automatic: you apply for it, and the Belastingdienst can demand security. Whoever keeps their BV also reckons with the 15% dividend withholding.
The sum you make before departure: net monthly income with continuing Dutch taxation, minus the lapsed contributions, minus any AOW fallback, plus the private health-insurance premium and the euro-dollar risk. With this list you know exactly what to ask the tax adviser. That conversation belongs before the irreversible steps.
In Vertrekklaar this is phase 1 of 5 of the journey, step 1.2: the same steps, but for your situation — in your order, tickable, and with the deadlines watched. See the whole journey to Panama or go straight to step 1.2 in the open plan.
What this means for your numbers →
What this rests on
The facts in this article come from these official pages. Rules change. When in doubt, go by the source, not this article.
- NederlandWereldwijd — the letter about the M return goes to your address abroad, if it is correct in the RNI — nederlandwereldwijd.nl
- Wetten.overheid.nl — the treaty with Panama (2010): article 10 (dividend), 17 (pensions), 18 (government service) and 21 (exemption by Panama) — wetten.overheid.nl
- Algemene Ouderdomswet — article 9a (married-person rate outside the Netherlands) and article 8a (no supplement) — wetten.overheid.nl
- Treaty Netherlands-Panama on the export and verification of social security benefits (2004), article 4 — wetten.overheid.nl
- Answers to parliamentary questions 2024Z02891 — the 36 treaty countries for the AOW export — open.overheid.nl
- SVB — what is deducted from your AOW outside the Netherlands — svb.nl
- DGI — the Número Tributario (NT) and the 183-day threshold for tax residents — dgi.mef.gob.pa
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