https://www.asuntoslegales.com.co/analisis/sebastian-rodriguez-bravo-510921/panama-perdio-su-atractivo-tributario-para-invertir-desde-alla-4503730
Until now, foreign-source income earned by Panamanian entities has been exempt from income tax in Panama. However, this is about to change.
For more than 100 years, Panama has been one of the most attractive jurisdictions for establishing holding companies and managing assets worldwide. Yet, beginning in January 2027, this tax exemption—undoubtedly one of Panama’s main attractions for international investors—will become subject to several requirements, making it essential to review existing corporate structures in Panama, a jurisdiction widely used by Colombian individuals and businesses.
Under a Panamanian law enacted in May 2026 and further regulated in September 2026, the tax advantages traditionally enjoyed by Panamanian entities are about to undergo significant changes.
Following Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, Panama, as a jurisdiction identified as having a preferential tax regime, has faced pressure to adopt stricter regulations. These rules require Panamanian entities to demonstrate genuine economic substance in the country and comply with additional reporting obligations to preserve their foreign-source income tax exemption. The objective is to eliminate so-called “shell companies” that exist merely on paper, without meaningful business activity.
Accordingly, starting January 1, 2027, Panamanian entities and permanent establishments that lack sufficient economic substance or genuine business activity in Panama will be subject to a 15% income tax when all three of the following conditions are met:
A) They receive foreign-source income.
B) The Panamanian entity receiving the income belongs to a multinational group, as defined by the applicable regulations.
C) They earn passive income, such as dividends or profit distributions, interest, royalties, capital gains, or income derived from real estate or other assets.
However, a Panamanian entity or permanent establishment may qualify to retain the foreign-source income tax exemption if it satisfies all the following requirements, which are established and further detailed in the applicable regulations and summarized here:
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Tax reporting: Properly submit all required information to the Panamanian tax authorities, including the annual reporting of foreign-source passive income through its income tax return.
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Qualified personnel: Maintain qualified and adequately compensated personnel in Panama to manage or administer the assets generating passive income.
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Physical facilities: Have appropriate premises and facilities in Panama.
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Strategic decision-making: Make the strategic decisions necessary for its operations within Panama.
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Operating expenses: Incur adequate costs and expenses in Panama related to managing the assets that generate passive income.
For certain entities operating exclusively as holding companies, only the first three requirements must be satisfied.
These provisions are reinforced by an anti-abuse rule allowing the Panamanian tax authorities to disregard contracts, corporate structures, or legal arrangements whose principal purpose is to obtain a tax advantage. This would include, for example, arrangements designed to create the appearance of economic substance when the entity does not genuinely possess it.
Although these requirements may be satisfied through outsourcing arrangements, such as hiring local service providers in Panama, doing so will undoubtedly increase the costs of operating a Panamanian company significantly.
For these reasons, we strongly recommend that anyone with existing corporate structures in Panama review them as a matter of urgency.
If a particular Panamanian structure is no longer suitable under the new rules, other attractive international tax planning alternatives remain available. However, evaluating and implementing those alternatives should now be treated as a priority.
