Tax Insight

Panama proposal would tax offshore entities lacking economic substance

Insight
5 minute read
May 27, 2026

What happened?

The Ministry of Economy and Finance on April 30, 2026, introduced a bill to amend the Panamanian Tax Code. The bill would impose tax on certain foreign-source passive income earned by entities established or domiciled in Panama, and that belong to multinational groups that do not demonstrate sufficient economic substance in Panama.

The bill has not yet been approved by the Legislative Assembly and therefore has not completed the steps required to become law.

Why is it relevant?

This bill represents a significant change in Panama’s tax framework, directly affecting multinational entities that use Panama as a regional platform. Under the bill, the regime would apply starting in the fiscal period after enactment. Panama’s territorial tax system would remain in place; however, the bill would require entities that earn foreign passive income through Panama to show real activity and meet minimum economic substance requirements in Panama.

Actions to consider

Companies should undertake a comprehensive review of their Panama holding structures to assess exposure to the new regime, identify economic substance gaps, and define appropriate steps before the law potentially enters into force.