Panama passes law imposing stricter requirements on multinational firms

PANAMA CITY (Reuters) – 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.

• 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.