TAG Tax

New economic substance regime for passive income of foreign source derived by Panamanian entities that are constituent members of multinational enterprise groups.

Enacted: May 28, 2026  |  Effective: Fiscal years commencing on or after January 1, 2027

Panama has enacted legislation imposing genuine economic substance requirements on constituent entities of multinational enterprise (MNE) groups deriving passive income of foreign sources. Failure to satisfy the statutory substance tests triggers at 15% flat tax on net passive income, without prejudice to civil penalties, surcharges, and statutory interest. 

KEY TAKEAWAY

• Six categories of foreign-source passive income are covered
• Three-prong substance test applies (simplified regime available for pure holding structures)
• Four regulated sectors are exempt (banking, insurance, securities, merchant marine)
• Broad anti-avoidance rule empowers MEF to disregard non-bona-fide arrangements

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