Panama's National Assembly approved a law that requires 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.
-Reuters
- The law is intended to help satisfy European Union tax transparency requirements and support the country’s removal from EU monitoring lists.
- "At the fiscal level, it requires multinationals to demonstrate that they have physical operations and real activity in a country, beyond just seeking tax advantage," the National Assembly said in a separate statement on Wednesday.
- 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 by the law includes dividends, interest, royalties, capital gains and real estate income earned abroad by members of multinational groups.
- 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.
- The law grants special treatment 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 the banking, securities and insurance regulators are expressly excluded from the regime.
-Reuters
