Panama combines logistical connectivity, a territorial tax system, and sectoral regimes that can make the country a relevant platform for groups linked to energy generation, marketing, infrastructure, and services.
Panama as a Regional Platform
The country’s geographic location, the Panama Canal, its ports, airports, special economic zones, and intermodal connectivity favor regional trade, investment, and distribution operations. Added to this is the principle of territoriality: generally, income tax applies to income generated within Panamanian territory, while foreign-sourced income is excluded.
The sector is also linked to infrastructure and energy projects under construction or in the planning stages, including natural gas-fired power generation, expansions of electricity transmission, and new logistics initiatives. However, each project requires verification of its status, regulatory framework, and contracting process before making an investment decision.
Incentives for Renewable Energy and Generation
Solar Energy
Law 37 of 2013, amended by Law 417 of 2023, establishes incentives for the construction, operation, and maintenance of solar power plants and facilities. The regime includes exemptions on the import or local acquisition of equipment, materials, spare parts, and supplies related to the activity, including the ITBMS (Transfer Tax on Movable Goods and Services) and, from 2024, the Selective Consumption Tax in the cases covered by the reform.
Hydroelectric Generation and Other Clean Sources
Law 45 of 2004 promotes small and medium-sized hydroelectric plants, geothermal projects, and other renewable energy sources.Its mechanisms include exemptions from certain charges and tax credits linked to direct investment, certified emission reductions, and public-use infrastructure.
Executive Decree 45 of 2009 outlines the methodology and procedure for recognizing these credits. Practical application requires coordinating the sectoral license or concession, obtaining technical validation from the National Authority of Public Services, and completing the corresponding tax procedures.
Wind Energy
Law 44 of 2011 provides exemptions on equipment, materials, and spare parts necessary to construct, operate, and maintain wind farms, along with accelerated depreciation mechanisms and specific benefits for equipment manufacturers that establish operations in Panama.
Natural Gas and Fuels for Generation
Law 41 of 2012 created incentives for natural gas-fired power plants and their associated infrastructure. For its part, Article 58 of Law 6 of 1997 recognizes preferential tax treatment applicable to fuel used exclusively for electricity generation. Its use requires demonstrating the status of a generating company, obtaining customs authorizations, and maintaining records that allow verification of the fuel’s destination.
Four Structuring Alternatives
Free Trade Zone or Special Economic Zone
Law 45 of 2004 promotes small and medium-sized hydroelectric plants, geothermal projects, and other renewable energy sources.Its mechanisms include exemptions from certain charges and tax credits linked to direct investment, certified emission reductions, and public-use infrastructure.
Panamanian company with international operations
A Panamanian company may manage or invoice certain transactions that are completed and take effect abroad. When goods are held outside Panamanian tax territory or circulate under transit regimes, the contractual and logistical structuring becomes especially important to support the foreign-source treatment.
Mixed Domestic Operations
When a single organization combines local and extraterritorial activities, it is advisable to separate functions, contracts, accounting records, and revenue streams. This distinction facilitates compliance and allows for a more precise identification of which sectoral incentives can be leveraged without affecting other lines of business.
SEM Regime
The Multinational Headquarters Regime allows companies to provide certain intragroup services from Panama. This may be relevant for regional management, support, accounting, technical assistance, or administrative functions, provided the business model meets the authorized activities, licensing requirements, and economic substance requirements.
Electricity Generation License
Electricity generation for public service requires authorization from ASEP (Public Services Authority). The license authorizes the installation, operation, and maintenance of the plant and its connection components, and may allow for the sale of electricity within the National Electric System and, where applicable, in international markets.
The structuring must consider the duration and potential extension of the license, the easement and use of real estate, the rules for transferring or encumbering the authorization, and the restrictions applicable to related activities. These regulatory elements must be reviewed in conjunction with the tax regime, financing, and project contracts.
An Integrated Assessment
Opportunity does not depend on a single incentive. A sound structure aligns the revenue stream, the location of the operation, sector-specific licenses, logistics, economic substance, and tax treatment. This comprehensive review allows for the selection of a platform that works in practice and can be sustained before authorities, funders, and counterparties.
Free trade zones and other special regimes may be suitable for industrial, logistics, technology, or service operations that comply with authorized activities.Their benefits should be analyzed according to location, type of operation, destination of goods, and the economic substance that the company will maintain.
