The ratification of the Intergovernmental Agreement will make it easier for Panama and the United States to exchange information on customers of foreign financial institutions in accordance with FATCA.

Panama enacted Law No. 47¹ (October 24, 2016), which ratifies the Intergovernmental Agreement (IGA) that enforces compliance of the Foreign Account Tax Compliance Act (FATCA).

Background

FATCA requires foreign financial institutions (FFIs) to register with the US Internal Revenue Service (IRS), conduct due diligence to identify US accounts (including accounts of certain foreign entities with substantial US owners) and report client data to the IRS, either directly under an agreement with the IRS or indirectly through their local government under an IGA.

FFIs that do not comply with their FATCA obligations are subject to a 30% withholding tax on certain US-source payments made to them by US financial institutions or other types of US withholding agents.

On May 2, 2014, Panama was added to the list of jurisdictions that had reached an "agreement in substance" for the pending IGA with the United Sates under FATCA.

On April 27, 2016, Panama and the United States signed the IGA, which has now been ratified by the National Assembly of Panama.

IGA

The IGA is a bilateral agreement and is the legal instrument for the automatic exchange of financial information between Panama and the United States.

With the enactment of the IGA, exchanges of information on customers will be conducted between the tax administrations of both countries, not directly between FFIs and the IRS.

Panama will complete its first FATCA report on or before September 30, 2017.²

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ENDNOTES

¹ Official Gazette No. 28145-A

² Announced by the Panamanian Tax Authority on official web link.