Key Takeaways
- Panama's territorial tax system can leave foreign-sourced capital gains, dividends, and interest outside the local tax net, suiting a passive portfolio holder.
- Opening a brokerage and custody account in the company's name depends on which brokers and custodians accept a Panama entity, a key practical hurdle.
- Without a treaty network, withholding tax at source on investment income is a structural limitation that cannot be offset through Panama.
- Reporting and information-exchange exposure for the owner, along with economic substance expectations, should be weighed before adopting this structure.
Using a Panama Company as a Private Investment and Portfolio Holding Vehicle
A Panama investment and portfolio holding company can hold shares in foreign subsidiaries, overseas real estate, and other financial assets without attracting Panamanian tax on the dividends, capital gains, or interest those assets generate. That outcome rests on the territoriality principle written into the Fiscal Code (Law 8 of 1956), under which only income sourced inside the country is taxed. The rule applies to any entity, resident or not, which is why a foreign owner can use the structure for purely cross-border holdings. This article examines how the vehicle works in practice for a passive holder, where it performs well, and where it falls short, drawing on the territorial system that defines its tax treatment.
The standard vehicle is the Sociedad Anónima, or S.A. No dedicated investment-holding statute governs a plain S.A. used for passive portfolio holding; the general corporate framework applies. This material is most relevant to a non-resident individual, family, or adviser weighing a Panama S.A. against a holding entity in another jurisdiction for a specific portfolio.
Why Panama's Territorial Tax System Suits a Passive Portfolio Holder
The appeal here is structural rather than the product of a special incentive. Because tax reaches only Panamanian-source income, dividends from a foreign subsidiary, interest from an overseas account, and gains on foreign securities sit outside the taxable base entirely.
The Dirección General de Ingresos, Panama's tax authority, has held consistently that income from activity conducted wholly outside national territory is not taxable. There is no withholding tax, no capital gains tax, and no dividend tax at the entity level on foreign-source income.
Where an S.A. does earn Panamanian-source income, a flat 25% corporate rate applies, and dividends from that income carry a definitive withholding tax of around 10%. For a vehicle holding only foreign assets, those domestic charges do not arise.
Law 526 of 2026 preserves the territorial rule as a general matter but creates a specific exception for Panamanian entities inside multinational groups that receive foreign-source passive income. Such income keeps its non-taxable character only if the entity meets the law's reporting and substance requirements.
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Opening a Brokerage and Custody Account in the Company's Name
A non-resident Panama corporation is legally entitled to open bank and brokerage accounts, and doing so does not constitute trading within the territory, so the income remains exempt. The legal permission is the easy part. The practical difficulty is finding an institution willing to onboard the entity.
Platforms treat offshore corporate structures as higher-risk applicants. Expect detailed review of corporate documents, shareholder disclosures, and beneficial ownership declarations, well beyond what an individual account demands.
Standard documentation runs to notarized identification and proof of address for every director and beneficial owner, the certificate of incorporation, and the shareholder register. Opening a dedicated corporate bank account in the company's name before approaching a brokerage is strongly advisable, since it smooths the custodian's review.
The most significant practical signal is negative. Interactive Brokers told clients it would no longer accept accounts from Panamanian corporations, a policy already communicated to existing holders.
Which Brokers and Custodians Accept a Panama Entity
This is the single largest obstacle for the use-case, and it deserves a plain look at the field rather than reassurance.
| Platform | Reported position |
|---|---|
| Interactive Brokers | Will not open new corporate accounts for a Latin American IBC; rule in place roughly two years; existing LATAM accounts may sell but not buy |
| DEGIRO | Does not accept corporate accounts |
| eToro | Does not accept companies from Panama |
| Saxo Bank | Declined |
| Swissquote | Prolonged back-and-forth reported over months |
| InvestorsEurope | Reported to accept offshore companies; niche specialist custodian |
A 2026 business-account review naming Interactive Brokers, TradeStation Global, and Swissquote as strong performers covers Panama-resident individuals and businesses, not offshore S.A. vehicles; applicability to a non-resident corporation must be confirmed with each broker directly. Offshore banks such as CBiBank, Kingdom Bank, and Caye International Bank are noted as institutions that work with offshore structures for the custody layer.
The candid summary: mainstream global platforms have largely closed to Panama corporate entities since the Panama Papers, and securing a willing regulated custodian is the hardest step in the entire setup.
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Tax Treatment of Foreign-Sourced Capital Gains, Dividends, and Interest
Foreign dividends, capital gains, interest, and rental income fall outside the taxable base. There is no wealth tax, and offshore capital gains are generally untaxed under the territorial system.
That treatment is what makes the structure efficient for passive holding and cross-border investment, at least at the Panama level. The qualifier matters, because Law 526 reshapes the picture for one category of owner.
The 2026 reform reaches entities belonging to multinational groups that derive foreign-source passive income, covering dividends, interest, royalties, capital gains, income from immovable property, and other capital income. An in-scope entity that fails the substance test or the annual reporting obligation is treated as a non-qualified entity, and its foreign passive income becomes subject to a 15% tax on net taxable income.
- Domestic companies and operations earning only Panama-source income are unaffected.
- A Panama entity whose shareholder is a natural person sits outside the rule.
- A Panama entity with no tax residency that holds shares in a foreign company likely remains outside scope.
In short, single-family, single-layer holding structures generally stay within the original exemption.
The Missing Treaty Network and Withholding Tax at Source
The exemption at the Panama level says nothing about tax withheld in the country where the assets sit. This is where a passive portfolio frequently loses ground.
As of April 2023, Panama had 18 double taxation treaties in force, with partners including France, Spain, the Netherlands, Luxembourg, Ireland, Portugal, the United Kingdom, Singapore, the UAE, Mexico, and South Korea. The gaps are the problem. There is no treaty with the United States, Canada, Germany, Australia, Japan, or China.
For a portfolio holding US equities, the consequence is direct: US payers apply a 30% gross withholding on US-source dividends, with no treaty reduction available. Filing a W-8BEN-E confirms the entity's non-US status but does not lower the rate absent a treaty, and the IRS does not treaty-exempt Panama entities from that withholding.
The treaty network that does exist follows the OECD Model but is adapted to territorial taxation and oriented toward Panama's services and logistics role rather than capital-market access. Panama is a signatory to the OECD Multilateral Instrument, ratified on 15 October 2020, though mandatory binding arbitration is not generally available across its treaties.
For a holder of US or German securities, that missing network erodes a meaningful share of the income advantage the structure was meant to deliver.
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Reporting and Information-Exchange Exposure for the Owner
A Panama S.A. is not opaque to the owner's home tax authority. Panama signed the CRS Multilateral Competent Authority Agreement on 15 January 2018, with first exchanges from September 2018, and complies with the Common Reporting Standard.
The practical effect is that an S.A. holding an account at a CRS-reporting bank or broker will have its balance and income data reported automatically to the tax authority where the beneficial owner resides. The structure is not a reporting shield for the home jurisdiction.
Beneficial ownership data is registered through the Single Registry of Beneficial Owners under Law 129 of 2020, held by the Superintendency of Non-Financial Entities rather than the public registry. Accounting records must be kept for at least five years under Law 52 of 2016, and entities inside the Law 526 substance regime must file an annual income tax return with the DGI disclosing the nature and source of their income.
US owners face a separate layer. A Panama S.A. owned by a US person typically triggers FBAR, Form 8938, and likely Form 5471 filings, and the territorial benefit at the Panama level does nothing to relieve US worldwide taxation.
Economic Substance Expectations for a Passive Holding Entity
Law 526, enacted 28 May 2026, with provisions applying from fiscal year 2027, sets substance requirements for certain foreign-source passive income. The threshold question is whether the entity forms part of an in-scope multinational group and receives covered income.
A multinational group means two or more entities linked by ownership or control that are tax-resident in different jurisdictions; any entity that is, or should be, in consolidated financial statements counts, even where excluded for size. An entity outside any multinational group is not subject to the regime at all, regardless of what it does in the country.
For pure equity-holding entities that are in scope, the burden is lighter than for active businesses. Such entities need not meet the operating-expenditure or strategic-decision conditions, provided they conduct no substantial commercial or investment activity in connection with the participations.
- Maintain adequate, appropriately remunerated human resources dedicated to managing the income-generating assets
- Maintain adequate physical facilities in Panama
- Virtual offices and nominee arrangements do not satisfy the requirement
Core income-generating functions may be outsourced to a qualified Panama-based provider, as long as the entity keeps effective supervisory control. An in-scope entity that fails these tests sees its otherwise-exempt passive income taxed at a final 15% on net taxable income.
Structuring the Vehicle for One Owner or a Family
For a single individual or family, the structuring question often answers itself. A Panama entity whose shareholder is a natural person does not form a multinational group, so the substance obligations of Law 526 do not apply and the pre-2027 exemption continues without a formal substance demonstration.
Two vehicles fit this profile. The S.A. is the standard choice; an alternative is the Panama Private Interest Foundation under Law 25 of 1995, which can hold assets and receive passive income but cannot engage in commercial trade.
The Foundation is often used for succession. Shares or foundation rights can pass on death without the complications of probate, and for a non-US, non-resident owner the arrangement can be documented to avoid US estate tax on US situs assets, provided the beneficial owner is not a US person.
Beneficial owners of an S.A. do not appear on the public registry; their details sit in the private RUBF register held by the registered agent and accessible to regulators. That information must be kept current, and lapses create compliance exposure for the agent.
Practical Limitations and Workarounds for This Use-Case
The honest assessment is that this use-case carries real friction. After the Panama Papers leak, Panama corporate entities became difficult for many international financial institutions and brokerages to onboard, and that reluctance persists.
The custody problem is the dominant constraint. Interactive Brokers will not open new corporate accounts for a Latin American S.A., and US firms, DEGIRO, eToro, Saxo Bank, and Swissquote have each rejected or heavily gated applications. Layered on top is Panama's place on the EU high-risk list: the European Parliament rejected removal in March 2024, a June 2025 Commission proposal again recommended removal, and the outcome remains pending, with enhanced due diligence applying at EU institutions meanwhile.
The absent treaty network compounds the issue for income-producing portfolios, since US, German, Canadian, and Japanese assets suffer full source-country withholding.
Several mitigants are worth weighing:
- If the owner is a natural person rather than a corporate group, no Law 526 substance obligation arises, preserving the territorial exemption without a formal demonstration.
- For custody, a specialist offshore provider such as InvestorsEurope or Caye International Bank is more realistic than a mainstream retail broker.
- For US equity exposure, non-US domiciled UCITS ETFs can reduce effective US withholding leakage compared with holding US-listed securities directly.
- Where Law 526 does apply, the substance function may be outsourced to a qualified Panama administrator under the entity's supervision.
- Compare a BVI, Cayman, or Ireland holding entity for the specific asset mix; many practitioners have migrated Panama S.A. structures to BVI precisely because of the brokerage and banking friction.
Conclusion
For a single individual or family holding foreign assets through one clean layer, a Panama S.A. still delivers a genuine territorial exemption and stays clear of the 2027 substance regime, which is a real and defensible benefit. The catch is that the tax outcome only helps if you can actually custody the portfolio, and the closure of mainstream brokers plus the absence of treaties with the largest capital markets undercuts much of the advantage.
Before committing, test the one variable that decides everything: confirm in writing that a regulated custodian will hold the assets your portfolio actually contains, because if no willing broker exists, the tax structure has nothing to sit on.
How Expanship Can Help Your Business in Panama
Expanship assists foreign owners in forming and operating a Panama S.A. or Private Interest Foundation for investment and portfolio holding, from selecting the right vehicle to keeping the beneficial ownership register and accounting records in order. The same team supports the wider needs of a foreign-owned entity, so the structure stays compliant year after year rather than only at formation.
- Incorporation of a Panama S.A. or Private Interest Foundation
- Registered agent and registered office services
- Economic-substance assessment under Law 526 and tax registration support
- Ongoing compliance management, including RUBF and record-keeping obligations
- Accounting and bookkeeping to meet the five-year retention rule
- Introductions to banks and specialist custodians that work with offshore structures
To discuss whether this vehicle fits your portfolio and which custody route is workable, contact Expanship Panama.
Frequently Asked Questions
No. Under the territorial principle, dividends, interest, and capital gains from assets held outside the country fall outside the taxable base, with no withholding, capital gains, or dividend tax at the entity level. Domestic-source income is taxed separately at a flat 25%.
Generally not. Law 526 reaches entities that form part of a multinational group, and an S.A. whose shareholder is a natural person does not constitute such a group, so the pre-2027 exemption continues without a substance obligation. A Private Interest Foundation outside any group is treated the same way.
This is the hardest part of the use-case. Interactive Brokers will not open new corporate accounts for a Latin American S.A., and DEGIRO, eToro, Saxo Bank, and several US firms have declined or heavily gated such applications, leaving specialist offshore custodians as the more realistic route.
Likely yes. Panama complies with the Common Reporting Standard and has exchanged financial account data since September 2018, so an account at a CRS-reporting institution will have its balance and income reported to the tax authority where the beneficial owner resides.
US payers apply a 30% gross withholding on US-source dividends, because Panama has no double taxation treaty with the United States. Filing a W-8BEN-E confirms the entity's non-US status but does not reduce that rate, so direct US equity holdings lose a substantial portion of their income to withholding.
Both can hold investment accounts, but the Private Interest Foundation under Law 25 of 1995 is often chosen for succession because rights can pass on death without probate. The Foundation cannot trade commercially, while an S.A. is the more flexible general holding vehicle.
Legal Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change, and the application of laws can vary widely based on specific facts and circumstances.
Readers should not act upon this information without seeking professional counsel tailored to their individual situation. Expanship and its authors disclaim any liability for actions taken or not taken based on the content of this article.
For specific advice regarding your business setup, compliance requirements, or any legal matters, please consult with qualified legal and tax professionals in the relevant jurisdiction.
