Panama's National Assembly has approved a law requiring multinational companies 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 satisfy EU tax transparency requirements and help remove Panama from 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 ministry said.
Entities failing to prove economic substance — qualified personnel, adequate facilities, strategic decision-making and real operating expenses in Panama — will 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 multinational group members.
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.
