PANAMA CITY, May 27 (Reuters) – Panama’s National Assembly approved a law that requires multinational entities domiciled in ‌the country to demonstrate real local operations or ‌face a 15% tax on passive foreign income, the Ministry of Economy ​and Finance said on Wednesday.

• The law is intended to help satisfy European Union tax transparency requirements and support the country’s removal from EU monitoring lists.

• “At the fiscal level, it ‌requires multinationals to demonstrate ⁠that they have physical operations and real activity in a country, beyond just seeking tax ⁠advantage,” the ministry said.

• Entities that fail to prove economic substance — qualified personnel, adequate facilities, strategic decision-making and real operating ​expenses in ​Panama — face a flat 15% ​rate on net taxable ‌passive foreign income.

• Passive income covered by the law includes dividends, interest, royalties, capital gains and real estate income earned abroad by members of multinational groups.

• The legislation, which President Jose Raul Mulino must sign into law, takes effect ‌from fiscal year 2027 and gives ​the executive branch 90 days ​to issue implementing regulations.

• ​The law grants special treatment for income ‌from intangible assets developed in Panama, ​such as ​patents, trademarks and copyrights, to encourage innovation.

• The merchant marine sector and financial entities supervised by the banking, ​securities and insurance ‌regulators are expressly excluded from the regime.

(Reporting by Elida ​Moreno; Writing by Brendan O’Boyle; Editing by Daina ​Beth Solomon and Edwina Gibbs)