15% Tax on Foreign Passive Income in Panama
Law 641 changes the rules for multinational groups with entities in Panama. If you don't demonstrate economic substance, your foreign passive income is now taxed.
Which Income Is Taxed?
Law 641 applies to foreign-source passive income received by entities of multinational groups incorporated or domiciled in Panama:
If your Panama entity receives any of these and fails to demonstrate economic substance, it faces a flat 15% rate on net taxable income.
Before vs. After Law 641
Before (through 2026)
Panama had a pure territorial tax system. Foreign-source income was 100% exempt, regardless of whether the entity had real presence in the country.
After (from 2027)
Multinational group entities receiving foreign passive income must demonstrate economic substance. No substance = 15% rate.
Who Is Excluded?
The law exempts regulated entities whose passive income is directly linked to their supervised activities:
- ◆Banks regulated by the Superintendency of Banks
- ◆Insurance and reinsurance companies
- ◆Securities market entities
- ◆Supervised investment fund managers
- ◆Maritime sector entities
How to Avoid the 15% Rate
The solution is simple in concept: demonstrate real economic substance in Panama. That means personnel, offices, decision-making, and real operating expenses.
Limestone helps you build that real presence. We're not tax advisors \u2014 we're the operational and technology partner that implements what your legal and tax team recommends.
Need economic substance in Panama?
Tell us about your multinational group. A managing partner will respond within 24 hours.
Or email us directly at info@limestonegroup.biz