What Panama’s New 15% Tax Rules Actually Mean

Hinzugefügt: 2026-06-01

[00:00:00]Panama may start taxing foreign passive income. Is this the end of Panama? Is Panama ceasing to be a tax-friendly jurisdiction? Is this truly the end?

[00:00:09]Stick around and find out. Hello, my name is Javier Correa. I'm the tax director here at the Rothbart Group.

[00:00:13]Let's dive right in. So, there is a draft legislation in Panama. Panama is proposing to introduce economic substance requirements and Panamanian companies that are part of multinational groups that do not meet these proposed economic substance requirements may potentially face a 15% tax on foreign passive income. Now, what does that mean for you watching back home? Point number one, if you're an individual, nothing has changed. If you're in the UK, you're in the US, you're in Canada, and you're thinking about relocating to Panama, looking for greener pastures, looking for lower taxes, looking for all the benefits that the Republic of Panama can offer, you are more than welcome to come. Panama's territorial tax system remains fully intact for individuals.

[00:00:56]Number two, if you're thinking about establishing a standalone Panamanian company to be the holding company for your investments, for example, you want to open a Swiss account under that Panamanian company, or maybe an Interactive Brokers account just to hold your investments in general, whether you're a family or an individual, you should not be concerned.

[00:01:13]Why? Because these rules would only apply or would only be required for Panamanian companies that number one have passive income that is foreign, and number two, they're a part of multinational enterprise groups, which means that if you have a standalone Panamanian company as your personal holdco, no problem. The territorial tax system remains fully intact, nothing to worry about.

[00:01:34]Number three, if your Panamanian company is part of a multinational enterprise group because, you know, you're an entrepreneur and maybe you're, you know, a client of the Rothbart Group and we're setting up a US LLC and maybe a BVI company and a Hong Kong company and a Nevis company and your Panamanian company is part of that ecosystem, but we arrange everything in such a way that your Panamanian company is only generating active business income. For example, management fees, administrative fees, service fees, etc. Nothing to worry about. For active business income, the territorial tax system remains fully intact. If you're thinking about creating a multi-layer asset protection structure, scenario four, but you do it entirely within Panama, no international exposure in terms of the entities themselves, no foreign permanent establishments, no foreign companies part of the same group, then you're also safe. The territorial tax system remains fully intact, absolutely nothing to worry about. Now, let's look at the more edge case scenario. Let's say your company is part of a multinational group and you genuinely wanted to have some foreign passive income. Let's say that you wanted to earn royalties or capital gains or dividends from foreign subsidiaries, and obviously all this is part of a multinational group as described earlier. Then, provided that you actually do have that economic substance in the Republic of Panama, then the tax rate for foreign passive income isn't 15%, it's still going to be 0%. For companies that have foreign passive income and that are part of a multinational group, then the Panamanian territorial tax system essentially remains fully intact provided that the economic substance is there.

[00:03:17]So, ultimately for many of the clients here at the Rothbard Group that are already looking at Panama as a global headquarters for their empire, they're probably going to very easily meet substance requirements. Now, this law has not yet been approved, so I can't as of now describe what the exact requirements for economic substance will be, but we know the usual suspects that are always in these laws. And when I looked at the draft legislation, it seemed pretty familiar. Mind and management taking place in Panama, having an office in Panama, incurring certain expenses, admin related in Panama. So, that is the beauty of a jurisdiction like Panama compared to let's say BVI or Cayman. Because Panama is a, you know, a a big country geopolitically speaking. You got 4 million people, 2 million people in Panama City, a global economic hub, a global trade hub, a global finance hub.

[00:04:05]It is very easily to build up substance in Panama. You can have an office in Panama. You can yourself as the owner of your company get the friendly nations visa or the digital nomad visa or the qualified investor visa and move your family to Panama to enjoy the territorial tax system at an individual level. So, my point being that if you're running your global empire from Panama and you want your Panamanian entity part of that multinational group to have foreign passive income, the likelihood of you meeting the economic substance requirements is quite big and that means that your foreign passive income, even if your company is part of a multinational group, will still be taxed at zero. So, even though the headlines sound scary and everyone is talking about a new 15% tax on foreign income, on foreign passive income for Panamanian entities, the ultimate reality is that the way the draft legislation has been written, most people will be able to operate their Panamanian entities regardless of their scenario at a tax-free basis even if they are obtaining economic benefit from foreign passive income. So, the bottom line is don't get scared. Panama is still a great alternative and in fact, I would even say it is still a stronger alternative now more than ever compared to other island jurisdictions in the Caribbean. Let me tell you why. Number one, in Panama, the one handicap we have had over the last couple of years has been that the European Union in particular still has Panama on some gray list and that makes banking in Panama somewhat difficult. That makes Panamanian entities that want to do business in Europe or with the European counterparts have to surpass and overcome certain challenges. With this measure, in theory at least, the European Union should finally remove Panama from the gray list and should pave the way for Panamanian entities to do business more easily all across the European Union and the world. And the reality of it is when you take a look at the details, and that's where the devil really lives, in Cayman Islands and in BVI, economic substance requirements apply to any entity, regardless of whether they're part of a multinational, you know, group of enterprises or whether or not they earn passive or active income. They There are certain instances where the economic substance requirements are soft and then there are instances where if you're truly, you know, operating a BVI or a Cayman Islands company under certain parameters, you can avoid them.

[00:06:31]But ultimately, most BVI companies and most Cayman Islands companies and most Bahamas companies, for example, are captured and fall within the net of economic substance requirements.

[00:06:41]Whereas, as I have outlined earlier, in the case of Panamanian corporations, and if they're stand-alone entities, there simply are no economic substance requirements, point blank. So, Panama has drafted these laws, I would say, in a clever manner. It has drafted these laws to achieve a very delicate balance of satisfying the needs of the European Union while also preserving Panamanian economic sovereignty and very importantly, while preserving the territorial principle of taxation, I want to say, 99% intact in the Republic of Panama. So, if you're thinking about setting up a Panamanian structure in the near future, then do take into consideration that economic substance requirements may be a reality in the coming months. Maybe by the time the next fiscal year comes around, you know, there will be some additional forms to file, there may be some additional things to take into consideration when planning, you know, a structure that involves a Panamanian entity. But ultimately, with the right planning, with the right strategy, Panama is still an ideal place to structure your businesses and to benefit from a wonderful territorial tax system. If you want Panamanian planning done right, if you want Panamanian corporations that are structured to align with Panamanian economic substance requirements, Panamanian territorial tax system, the US tax system, the global tax architecture that is needed to run an international business, then look no further. rothbarthgroup.com. We'd be delighted to work with you. See you next time.