Panama Passes Law Stricter Requirements for Multinational Firms

Panama Approves Law Imposing Stricter Requirements on Multinational Firms

Panama's National Assembly approved a law requiring multinational entities domiciled in the country to demonstrate real local operations or face a 15% tax on passive foreign income, the Ministry of Economy and Finance said on Wednesday. The law aims to help satisfy European Union tax transparency requirements and support the country's removal from EU monitoring lists.

Key Provisions of the Law

The law requires multinationals to demonstrate physical operations and real activity in a country beyond just seeking tax advantage. Entities that fail to prove economic substance—qualified personnel, adequate facilities, strategic decision-making and real operating expenses in Panama—face a flat 15% rate on net taxable passive foreign income. Passive income covered includes dividends, interest, royalties, capital gains and real estate income earned abroad by members of multinational groups.

Effective Date and Exemptions

The legislation, which President Jose Raul Mulino must sign into law, takes effect from fiscal year 2027 and gives the executive branch 90 days to issue implementing regulations. Special treatment is granted for income from intangible assets developed in Panama, such as patents, trademarks and copyrights, to encourage innovation. The merchant marine sector and financial entities supervised by banking, securities and insurance regulators are expressly excluded from the regime.