Perspectives

Panama’s Energy Sector: Incentives, Structures and Licences

Mgter. Liz A. Prestán O.August 22, 2026Energy

An energy project in Panama must align its technology, sector authorization, available incentives, land use, environmental requirements and tax structure from the outset. No incentive replaces the regulatory assessment of the specific project.

First: define the technology, capacity and intended use of the energy.
Next: identify whether a license, concession or other authorization is required.
Finally: verify the incentives and document their conditions.

The investment decision: platform, project and market

Panama’s location, the Panama Canal, its ports, airports, special economic zones and intermodal connections support regional trade, investment and distribution. The territoriality principle is also relevant: as a general rule, income tax applies to income generated within Panama, while foreign-source income falls outside its scope.

The sector is also connected with infrastructure and energy projects under construction or in planning, including natural gas generation, transmission expansion and new logistics initiatives. Each project nevertheless requires verification of its status, regulatory framework and contracting process before an investment decision is made.

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 plants and installations. The regime provides exemptions for the importation or local purchase of equipment, materials, spare parts and supplies related to the activity, including ITBMS and, from 2024, Selective Consumption Tax in the circumstances covered by the amendment.

Hydroelectric generation and other clean sources

Law 45 of 2004 promotes small and medium-sized hydroelectric plants, geothermal projects and other renewable sources. Its mechanisms include exemptions from certain charges and tax credits linked to direct investment, certified emission reductions and infrastructure for public use.

Executive Decree 45 of 2009 sets out the methodology and procedure for recognizing those credits. Practical application requires coordination of the sector license or concession, technical validation by the National Authority of Public Services (ASEP) and the corresponding tax procedure.

Wind energy

Law 44 of 2011 provides exemptions for equipment, materials and spare parts needed to build, operate and maintain wind farms, together with accelerated depreciation mechanisms and specific benefits for equipment manufacturers establishing operations in Panama.

Natural gas and generation fuels

Law 41 of 2012 created incentives for natural gas power plants and their associated infrastructure. Article 58 of Law 6 of 1997 also recognizes preferential tax treatment for fuel used exclusively to generate electricity. Applying that treatment requires evidence of the company’s status as a generator, customs authorizations and records verifying how the fuel is used.

Four structures to assess

Free trade zone or special economic zone

Free trade zones and other special regimes may suit industrial, logistics, technology or service operations that meet the authorized activities. Their benefits must be assessed according to location, type of operation, destination of goods and the economic substance the company will maintain.

Panamanian company with international operations

A Panamanian company may manage or invoice certain transactions completed and taking effect abroad. Where goods remain outside Panamanian tax territory or circulate under transit regimes, contractual and logistics arrangements become particularly important in supporting foreign-source treatment.

Combined domestic and foreign operations

When an organization combines local and extraterritorial activities, separating functions, contracts, accounting records and revenue streams supports compliance and helps identify which sector incentives can be used without affecting other business lines.

SEM regime

The Multinational Company Headquarters regime permits certain intragroup services to be provided from Panama. It may be relevant to regional management, support, accounting, technical assistance or administration, provided the model satisfies the authorized activities, licensing requirements and economic substance requirements.

Sector authorization: licenses, concessions and permits

The public electricity service framework requires ASEP authorization. The project’s technology and characteristics determine whether a license, concession or other sector procedure applies. A license authorizes the installation, operation and maintenance of the plant and its connection components, and may permit sales within the National Electric System and, where applicable, international markets.

Structuring must consider the license term and possible extension, easements and land use, rules on transferring or encumbering the authorization and restrictions on related activities. These regulatory elements must be assessed alongside the tax regime, financing and project contracts.

A decision framework, beyond an isolated incentive

A sound structure aligns the income source, operating location, sector authorization, logistics, economic substance, contracts and tax treatment. The assessment must identify which benefit is in force, which authority administers it and what evidence the project must retain.

Corporate and regulatory project structuring forms part of our business and regulatory advisory services.

The review of permits and obligations can be coordinated through our corporate and regulatory compliance services.

Official sources consulted

This article provides general information and legal analysis; it does not constitute legal advice for a particular case. The availability of incentives, licenses and tax treatments must be verified against the facts and legislation in force at the time of each transaction.