How FATCA Works in Panama for Foreign Account Holders

FATCA and Panama: What the US Law Means for Foreign OwnersCopy link to section

FATCA in Panama operates through a Model 1 Intergovernmental Agreement signed with the United States, under which Panamanian banks report data on US account holders to the local tax authority, which forwards it to the Internal Revenue Service. This is a US reporting law, not a Panama tax, and its weight falls on financial institutions rather than on ordinary companies. For a foreign business owner, the practical contact point is the bank account your entity opens, where the bank screens for US connections among the beneficial owners.

This article explains how the agreement works, who counts as a US person, what banks must collect, how information moves to the US Treasury, and what all of it means for a non-resident owner. It matters most to US citizens or green card holders who own or control a Panamanian company, and to their advisers assessing reporting exposure.

Panama's Model 1 Intergovernmental Agreement and Its Current StatusCopy link to section

Panama and the United States signed a Model 1 IGA in Panama City on 27 April 2016, formally an agreement to improve international tax compliance and implement FATCA. Under the Model 1 structure, the partner jurisdiction itself reports US account information to the IRS; institutions report to the local authority, which then transmits to Washington.

The agreement was brought into domestic force through Law 47 of 24 October 2016 and Law 51 of 27 October 2016. Executive Decree 124 of 12 May 2017 set the due-diligence procedures and reporting deadlines for financial institutions, and a later decree refined those provisions.

A Model 1 exchange may run on a reciprocal or non-reciprocal basis. The US Treasury resource center lists the country as a signed Model 1 jurisdiction and hosts the original agreement.

Separately, in 2016 the country committed to the OECD's Common Reporting Standard, with automatic exchange beginning in 2018. CRS and FATCA run in parallel through the same institutional pipeline.

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How FATCA Defines a US Person and a US AccountCopy link to section

A US person under FATCA includes US citizens wherever they live, lawful permanent residents holding a green card, and certain non-resident aliens. The reach is global; physical residence outside the United States does not remove the status.

The law requires institutions to report on accounts held by US taxpayers, and on accounts held by foreign entities in which US taxpayers hold a substantial ownership interest. That second limb is what can pull a Panamanian company into scope through its US-connected owners.

Banks must perform continuous due diligence to spot "US indicia": a US place of birth, a US mailing address, or a US telephone number tied to an account. When such a flag appears, the account holder is asked to document their status with a Form W-9 or a Form W-8BEN.

The baseline reporting threshold for specified foreign assets is an aggregate annual value of USD 50,000, with higher figures for individuals living abroad. A taxpayer resident outside the United States need not file Form 8938 where specified assets stay at or below USD 200,000 at year-end, or USD 300,000 at any point during the year.

Obligations on Panamanian Foreign Financial Institutions Under FATCACopy link to section

Foreign financial institutions must report on foreign assets held by their US account holders or face withholding on certain US-source payments. The duty sits with the bank, not its customers.

Core obligations follow a clear sequence:

1. Register with the IRS and obtain a GIIN.
2. Search account records for US indicia, including a US birthplace, address, phone number, standing payment instructions to a US account, or a US passport.
3. Report each US account annually, covering the holder's name, address, US Taxpayer Identification Number, account number, balance, and gross receipts and withdrawals.

Institutions identify reportable US accounts using the due-diligence rules in Annex I of the IGA. Where an institution has already documented a holder as neither a US citizen nor a US resident, it need not repeat those procedures for lower-value or high-value accounts.

The Panama tax authority, the Dirección General de Ingresos (DGI), issued updated guidance on 23 October 2025 covering interpretation of the framework, due-diligence procedures, reporting, and administrative duties. From that point, the DGI portal runs automated validations on submission and issues an electronic acknowledgment that stands as conclusive proof of compliance for the period.

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GIIN Registration with the IRS and Who Must Obtain OneCopy link to section

The Global Intermediary Identification Number is a 19-character identifier, formatted as XXXXXX.XXXXX.XX.XXX, issued by the IRS once an institution's registration is approved. A reporting institution in a Model 1 jurisdiction should register to obtain one.

Registration runs through the IRS FATCA portal, a secure web application available worldwide at any hour. Paper registration exists but is discouraged. No registration fee for GIIN issuance appears in IRS sources.

The system approves several categories: foreign financial institutions, their branches, direct reporting non-financial foreign entities, sponsoring entities, sponsored entities, and sponsored subsidiary branches. Certified deemed-compliant and excepted institutions fall outside the registration requirement and need no GIIN.

A compliant institution that holds a GIIN appears on a monthly IRS FFI list. Withholding agents may check that list to confirm a counterpart's status and release payment without withholding.

Reporting Flows: From Panama Banks to the Direccion General de Ingresos to the IRSCopy link to section

The route is fixed under Model 1. Institutions identify US accounts under Annex I, report the specified data to the DGI, and the DGI, as competent authority, transmits it to the IRS automatically.

The DGI's FATCA portal is the submission gateway, governed by Law 47 of 2016, Executive Decree 124 of 2017, and related rules. The same portal handles CRS and wider automatic exchange. An executive resolution delegated competent-authority functions to the DGI, replacing an earlier 2017 measure.

Where holders of pre-existing accounts do not consent to reporting, institutions send the IRS aggregate figures instead. The IRS may then make a "group request" to obtain more specific detail.

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The 30 Percent Withholding Exposure for Non-ComplianceCopy link to section

An institution that fails to register and agree to report faces a 30% withholding tax on certain US-source payments, unless an exemption applies. The charge is the enforcement lever behind the whole regime.

Withholding bites on US-source fixed or determinable, annual, or periodical income, such as interest and dividends, where payee documentation falls short. It also reaches "recalcitrant" account holders who refuse to supply identifying documents; the institution must withhold 30% on their US withholdable payments.

A non-compliant institution that is itself the beneficial owner of a withheld payment cannot claim a credit or refund, absent a treaty override. If an institution's agreement is terminated by either side, it is treated as a nonparticipating institution and subjected to withholding on payments made after termination.

Penalties and Consequences for Account Holders and InstitutionsCopy link to section

For institutions, the consequences track the withholding mechanism and the certification calendar. An institution that misses its registration requirements faces 30% withholding on the payments it receives. A missed FATCA certification renders it non-compliant, which can lead to revocation of FATCA status and removal of its GIIN from the FFI list. A good-faith misunderstanding of the law is not a defence.

For individual US account holders, the figures are specific:

• A first failure to file Form 8938 carries a penalty of USD 10,000.
• Where the failure runs more than 90 days past an IRS notice, an extra USD 10,000 applies for each 30-day period, up to a further USD 50,000.
• The total for a single return can therefore reach USD 60,000.
• Intentional non-disclosure of foreign assets is penalised at the greater of 50% of asset value or USD 100,000.

Penalties accrue per year of non-reporting, so the cumulative figure can exceed the value of the account itself. An underpayment linked to an undisclosed asset can draw a 40% accuracy-related penalty, and conduct judged fraudulent may bring criminal investigation or charges.

What FATCA Means in Practice for a Non-Resident Panama Company OwnerCopy link to section

FATCA targets financial institutions, not ordinary companies. A Panama company that is not itself a financial institution is not a direct reporting entity, so the law does not impose filing duties on the business as such.

The practical trigger is the bank account. When your company opens an account at a Panamanian bank, that bank, as a reporting institution, runs FATCA due diligence on the ultimate beneficial owners and screens for US indicia such as a US birthplace, address, or phone number.

Where a US person holds a substantial interest in a foreign entity, that entity's financial accounts may be captured and reported to the IRS through the bank. A US owner holding foreign financial assets above USD 200,000 at year-end, or USD 300,000 at any point (USD 400,000 / USD 600,000 for married filing jointly), may also owe a personal Form 8938.

Holding shares through a custodian for confidentiality does not change the analysis; the jurisdiction remains FATCA and CRS compliant, and privacy arrangements do not shield US persons from reporting. A non-US owner is not a US person under FATCA and carries no individual FATCA filing duty, though the bank may still collect data under CRS for exchange with that owner's country of tax residence.

The territorial tax system, which taxes only Panamanian-source income, is a separate matter; FATCA is a US reporting obligation, not a local tax.

Outlook for FATCA Compliance in PanamaCopy link to section

The DGI's guidance of 23 October 2025, with automated portal validations and electronic acknowledgments, points to active and verifiable enforcement rather than a dormant regime. Compliance infrastructure has been tightened through secondary legislation, including the accounting-records rules of Law 52 of 2016 as amended by Law 254 of 2021 and regulated by Executive Decree 177 of 30 December 2024.

Wider standing has improved alongside it: the EU acknowledged anti-money laundering progress as recently as June 2025, which has eased banking access for legitimate businesses. No retrieved source suggests the IGA is at risk of suspension or that the country faces a US non-cooperative listing; the Model 1 agreement remains in force.

FATCA and CRS now run in tandem, so banks report US-account data to the DGI and IRS while sending non-US-resident data to other OECD partners. The IRS compares IGA data from more than 100 countries against US returns, making cross-border matching a live enforcement tool.

ConclusionCopy link to section

FATCA in Panama is a settled, operating regime carried by the banks rather than by your company directly. For a non-US owner, the obligation reduces to documenting your status when an account is opened; for a US owner, it means your entity's account data reaches the IRS and your own Form 8938 thresholds deserve attention. The compliance machinery has been tightened, not relaxed, so accurate documentation at account opening is the surest way to avoid friction with a Panamanian bank.

How Expanship Can Help Your Business in PanamaCopy link to section

Expanship supports foreign-owned companies through FATCA and CRS touchpoints in Panama, from preparing the W-8BEN or W-9 documentation a bank requests to confirming how a US-connected ownership structure will be treated, and we extend that support across the full life of the entity.

• Company formation, including the Panama SA and other structures
• Registered agent and registered office services
• Tax registration and filing with the DGI
• Ongoing compliance and reporting management
• Accounting and bookkeeping, including statutory records
• Introductions to banks experienced with non-resident clients

To discuss your situation, contact Expanship Panama.

Frequently Asked QuestionsCopy link to section