Is Panama Really a Tax Haven for Businesses and Corporations?

Panama has long been associated with corporate secrecy and tax advantages, leading many to label it a tax haven. Its business-friendly policies attract international companies seeking financial efficiency, but its system is more complex than just low taxes and privacy. While Panama provides certain benefits, global regulatory changes have reshaped how it operates.

Determining whether Panama truly functions as a tax haven requires examining its tax structure, confidentiality laws, banking regulations, and international agreements.

Territorial Tax Approach

Panama’s tax system follows a territorial model, taxing only income generated within the country. Businesses earning revenue solely from foreign sources are exempt from corporate income tax. For example, a Panamanian-registered company providing consulting services to clients in Europe and the U.S. but not operating locally would owe no corporate taxes.

The corporate tax rate for businesses with taxable income in Panama is 25%, but companies benefiting from the territorial exemption effectively pay nothing on foreign earnings. Panama also exempts dividends from foreign-sourced income and does not impose capital gains tax on overseas transactions. Payments to non-residents are not subject to withholding taxes.

Unlike jurisdictions like the U.S., where corporations must report and pay taxes on global earnings, Panama’s system allows multinational corporations and holding companies to minimize tax exposure, making it attractive for international business.

Corporate Confidentiality Setup

Panama’s corporate framework has historically provided anonymity for business owners. Bearer shares, which allowed ownership transfers through physical certificates, faced international pressure, leading to reforms requiring them to be held in custody by an authorized agent. While this reduced secrecy, a degree of privacy remains.

Nominee directors and officers appear on public records instead of actual owners, allowing individuals to control corporations without their names being directly linked in government registries. Unlike jurisdictions such as the U.K., which maintain publicly accessible beneficial ownership registries, Panama does not require disclosure of beneficial owners.

Corporate records, including shareholder registries and financial statements, do not have to be publicly filed unless the company engages in regulated activities like banking or insurance. This lack of public disclosure allows corporate structures to operate with minimal exposure compared to jurisdictions with stricter transparency requirements.

Banking Privacy Regulations

Panama’s banking sector has historically maintained strict confidentiality policies. Banks are legally prohibited from disclosing client information without authorization and face penalties for unlawful data release.

Banking secrecy laws, outlined in the Banking Law (Decree Law No. 9 of 1998), prevent banks from sharing account holder information unless required by a Panamanian court order or an international request meeting legal standards. This differs from jurisdictions participating in automatic financial disclosure agreements like the OECD’s Common Reporting Standard (CRS), which mandates banking information exchange among member countries.

However, in response to global scrutiny, Panama has strengthened anti-money laundering (AML) and know-your-customer (KYC) regulations. Banks must verify account holder identities, monitor transactions for suspicious activity, and report concerns to the Financial Analysis Unit (UAF). These measures align with international financial transparency efforts enforced by the Financial Action Task Force (FATF).

Non-Resident Company Structures

Panama offers corporate entities designed for foreign investors, with non-resident companies being a popular choice due to their flexibility and minimal regulatory burdens. The most common structure, the Sociedad Anónima (S.A.), allows businesses to operate internationally without requiring a local commercial license. Unlike domestic firms, non-resident corporations are not obligated to maintain physical offices in Panama, making them useful for holding assets, managing intellectual property, or conducting international trade.

Previously, non-resident companies were not required to maintain financial records, but recent regulations now mandate that all companies keep accounting records, even if they do not file them with authorities. This ensures internal financial accountability while maintaining Panama’s appeal as a low-compliance jurisdiction.

International Compliance Agreements

Panama’s reputation as a tax haven has led to increased scrutiny from international regulatory bodies, prompting the country to adopt compliance measures. While it continues to offer tax advantages and corporate privacy, global transparency initiatives have reshaped its regulatory landscape.

Foreign Account Tax Compliance Act (FATCA)

The United States enacted FATCA to combat tax evasion by requiring foreign financial institutions to report accounts held by U.S. taxpayers. Panama signed an intergovernmental agreement (IGA) with the U.S., obligating its banks to disclose account details of American clients to the Internal Revenue Service (IRS). Non-compliance with FATCA can result in a 30% withholding tax on U.S.-sourced payments to financial institutions, incentivizing Panamanian banks to comply with reporting requirements.

Common Reporting Standard (CRS)

Developed by the OECD, CRS establishes an automatic exchange of financial information among participating countries. Initially resistant, Panama later committed to its implementation to avoid blacklisting. Under CRS, Panamanian banks must collect and share account information with tax authorities in over 100 jurisdictions. This has reduced the anonymity that previously attracted foreign investors, as financial data is now accessible to tax authorities in the account holder’s home country.

CRS has also led to increased due diligence requirements, making it more difficult for individuals to conceal assets through Panamanian financial institutions.