Regulatory Analysis of Prediction Markets under the Panamanian Legislation
I) Taxes
Tax generalities
Panama operates under the principle of territoriality for tax purposes, meaning that only income earned from activities conducted within Panama is subject to Panamanian income tax. On the contrary, any income derived from outside of Panama is not subject to tax in Panama.
VAT also operates in a similar way. VAT (ITBMS) applies for the sales of goods/services that occur within Panama.
If the Panamanian company is a holding entity OR does not generate income from activities in Panama, it is unlikely to incur Panamanian income taxes.
Dividends Taxation - Dividends distributed by Panamanian corporations are subject to withholding tax, with the applicable rate determined by the origin of the corporation’s income:
Panamanian-Source Income: Dividends are subject to a withholding tax rate of 10%, applicable to both resident and non-resident shareholders.
Foreign-Source Income (Offshore Income): Dividends derived from offshore income are subject to a reduced withholding tax rate of 5%.
Additionally, when assessing dividend taxation, consideration must be given to the tax laws of the foreign jurisdiction where shareholders reside and the potential applicability of a double taxation treaty (DTT). Panama has entered into 17 double taxation treaties
Provided that a Panamanian company is a “foreign legal entity” (offshore entity) for tax purposes, the following will apply:
1. Annual Tax on Legal Entities, in specific Panamanian corporations categorized as foreign legal entities for tax purposes
For a foreign legal entity incorporated in Panama that operates exclusively outside Panama, the only mandatory tax is the Annual Franchise Tax (Tasa Única).
2. Corporate Income Tax Applicability
Under Panama's territorial tax system (established by Article 694 of the Fiscal Code), a foreign legal entity operating exclusively outside Panama is NOT subject to corporate income tax in Panama, provided that:
All income is derived from foreign sources;
All commercial operations occur outside Panama;
No customers are located within Panamanian territory;
No Panamanian-source income is generated.
3. Capital Gains Tax Applicability Regarding capital gains, particularly from crypto assets:
No capital gains tax applies to appreciation or gains from crypto assets when: a) The transactions occur entirely outside Panama, b) The assets are not located within Panama, c) The trading activity is conducted exclusively outside Panama d) No Panamanian parties are involved in the transactions
This tax treatment is consistent with Panama's territorial principle of taxation, where only income derived from Panamanian sources or activities carried out within Panama is subject to taxation.
Note: This opinion assumes the entity maintains its status as a foreign legal entity under Executive Decree No. 168 of 2024 and conducts no operations within Panama. Any change in these circumstances may affect the tax treatment described above.
II) Gambling Legislation in Panama
1. Overview of Applicable Law
Decree Law No. 2 of 1998 establishes the legal framework for gambling and betting activities in the Republic of Panama. According to Article 5 of the Decree Law:
“Games of chance and betting activities conducted in the Republic of Panama must be authorized, regulated, and supervised according to the provisions of this Decree Law. Games of chance and betting activities conducted abroad through electronic means or other remote communication must also be supervised and regulated.”
This legal opinion aims to clarify how Panamanian legislation defines "Games of Chance" and identify the entities subject to regulation under this framework.
2. Definition of “Games of Chance”
Under Panamanian law, Games of Chance are defined as those games in which the outcome—either favorable or adverse—does not primarily depend on the player's skill or talent. This includes games conducted using cards, dice, mechanical, electromechanical, or electronic devices, where the purpose is to win money or items of value.
The legal definition encompasses, but is not limited to, the following games and activities:
Type “A” Slot Machines
Roulette, Keno, Fan-Tan, Twenty-One, Blackjack, Craps, Chuck-a-Luck (Dai-Shu), Wheel of Fortune, Chemin de Fer, Baccarat, Pai Gow, Panguingue, Poker
Merchandise Clubs, Travel Clubs, Bingo Halls, Type “C” Machines
Promotional Raffles, Speculative Raffles, Tombolas, Promotional Tombolas
Gaming Rooms, Racetracks, Betting Agencies, Commercial promotions involving games of chance or betting activities
Pinta Games, Choclo, High and Low, Rings, Roulettes
Any other game of chance or betting activity determined by the Junta de Control de Juegos (Gaming Control Board).
3. Definition of “Betting”
According to the legislation: “Apuesta” is defined as the obligation assumed by one or more persons to wager a sum of money or another item of value, which will be lost in favor of another person or persons if the uncertain outcome of an event is favorable to them.
4. Oversight and Authorization Requirements
The following chapters from Decree Law No. 2 provide further clarification on regulated activities and oversight:
Article 27: The operation of Merchandise Clubs and Travel Clubs is subject to control, supervision, and authorization by the Junta de Control de Juegos. Any individual or legal entity wishing to operate such clubs must request authorization in accordance with the law and its regulations.
Article 28: All games of chance and betting activities—whether permanent or temporary—fall under the jurisdiction of the Junta de Control de Juegos, including but not limited to roulette, pinta, choclo, high and low, and rings. Operators must obtain the appropriate authorization.
Article 29: Authorization is also required for any individual or entity seeking to operate raffles (of any kind), tombolas (including promotional and minor tombolas), commercial promotions, and televised bingo
Article 30: The manufacture, assembly, and operation of any manual, mechanical, electromechanical, or electronic device used to conduct games of chance—where tokens, coins, paper money, magnetic cards, or credit systems are used—are likewise subject to the control and supervision of the Junta de Control de Juegos.
5. Games of Chance via the Internet
Resolution No. 65 of October 25, 2002, issued by the Plenary of the Junta de Control de Juegos, regulates the operation of gambling and betting activities through electronic systems. It defines:
“Games of chance via the Internet” are considered to be conducted in or from the Republic of Panama when they are carried out by players located inside or outside of Panama.
This definition is of critical importance to this opinion, as it explicitly includes activities conducted from Panama, regardless of where the players are located.
6. Interaction with E-Commerce Law
Executive Decree No. 25 of 2019, which regulates Law No. 51 of July 22, 2008 (on electronic commerce and technological document storage), provides in Article 3:
“The provision of commercial services through the internet by a provider established in the national territory shall be carried out under a regime of free provision of services, without any type of restrictions, except those legal formalities established for the exercise of commerce in the national territory and those derived from international agreements in which Panama is a signatory party.”
While this establishes a general freedom for digital commerce, it does not override the specific licensing requirements for gambling activities.
7. Risk Mitigation Recommendation
Given the scope of what is considered to be “conducted in or from Panama,” it is advisable to avoid having users located within Panamanian territory. To further mitigate the risk of the project being considered as operating from Panama, it is recommended to establish the company’s legal domicile in another jurisdiction. For example, the company’s Articles of Incorporation may include a clause such as:
“The domicile of the company shall be in Panama City, Republic of Panama; however, the company may conduct business, engage in activities, manage its affairs, carry out operations, and establish offices, branches, or headquarters anywhere in the world. The company may change its domicile to any location worldwide by resolution of the Board of Directors.”
8. Securities Market Analysis – SMV Opinion No. 01-2026
The Superintendency of the Securities Market of Panama (SMV) has issued Opinion No. 01-2026, dated 29 April 2026, addressing whether technology platforms that allow users to trade contracts linked to future event outcomes, commonly known as prediction markets, fall within Panama’s securities-market regime. The opinion analyzes whether this activity is comprised within Article 4 of the Texto Único of Decree Law No. 1 of 1999 and, consequently, whether an SMV license, registration, authorization or other compliance requirement is required.
The SMV’s conclusion is clear and commercially significant: under the facts described in the consultation, prediction-market platforms do not constitute activities, products or services subject to the application, regulation or supervision of Panama’s securities-market regime. Therefore, they do not require a license, registration, authorization or compliance filing before the SMV.
The conclusion is fact-sensitive. The consultation assumed that the relevant platform: (i) facilitates trading in contracts linked to verifiable future event outcomes; (ii) settles each contract exclusively by reference to the result of the underlying event; (iii) does not market or execute transactions in Panama; (iv) does not target Panamanian residents; and (v) has no physical presence or personnel in Panama.
The SMV’s reasoning rests on a distinction between capital-market instruments and event contracts. The concept of a “security” under Panamanian law is traditionally tied to instruments used by private or public issuers to raise capital from the public, such as bonds, negotiable commercial paper, shares, participation interests, certificates, custody rights, deposit certificates, mortgage certificates, options and other instruments commonly recognized as securities or determined by the SMV to be securities. Prediction-market contracts do not naturally fit that model, because they do not ordinarily evidence a credit right against an issuer, an equity interest, a participation right, a custody right, a debt instrument or a claim to returns generated by managerial or entrepreneurial efforts of an issuer.
The SMV also distinguished prediction-market contracts from financial instruments and derivatives. A financial derivative normally derives its value from the price or performance of an underlying financial asset or economic variable, such as shares, currencies, interest rates, indices, commodities or precious metals. By contrast, an event contract depends on a specific future fact, often with a binary “yes/no” outcome, and the relevant event may have no continuous market value of its own.
The functional purpose also differs. Financial markets are designed to allocate capital and transfer or manage risk, while prediction markets are primarily associated with information aggregation and forecasting. Their success is measured less by issuer performance or investment return and more by the accuracy of the prediction.
The SMV opinion should not be read beyond its scope. It is a securities-law opinion, not a comprehensive regulatory clearance. Gaming, betting, consumer protection, AML/CFT, sanctions, tax, data, privacy, payments, advertising, platform-governance and foreign-law issues remain separate points of analysis. The opinion also does not prevent the SMV from reassessing a product if the facts change or if a product described as a prediction market is structured, wrapped into, marketed as, or functionally used as a security, derivative, investment contract, fund interest, portfolio product, managed account, advisory service, brokerage service or exchange service involving securities or financial instruments.
Practical implication: securities-market regulatory risk before the SMV is low under the fact pattern described in Opinion No. 01-2026, provided that the platform avoids a Panama operating nexus, avoids targeting Panamanian residents, and is not marketed using securities, investment, brokerage, advisory, portfolio-management or derivative terminology. The principal unresolved Panama-law issue remains the separate gaming/betting analysis before the Junta de Control de Juegos.
III) General Crypto Assets Regulation
The Republic of Panama currently maintains no specific regulatory framework for VASPs or cryptocurrency-related activities. This position has been formally acknowledged through various opinions and notices issued by both the SMV and the SBP, which have explicitly stated that cryptocurrencies, crypto assets, and tokens do not fall within their regulatory purview and are not classified as legal tender, securities, or regulated financial instruments under Panamanian law.
Under Panama's current legal framework, cryptocurrency activities remain unregulated yet legal, including developing and operating a platform that provides access to on-chain non-custodial investment vehicles and/or a company offering cryptocurrency asset management services. Given that no specific restrictions exist, and no licenses or regulatory approvals are required from financial, banking, or securities regulators, these protocols may provide innovative financial services through decentralized mechanisms.
This status means that entities engaging in such activities are not required to obtain any specific financial or investment licenses, approvals, or regulatory consents from Panamanian financial, banking or securities regulators. The SMV and SBP have consistently maintained that they lack jurisdictional competence to supervise or oversee these activities, as they fall outside the scope of traditional regulated financial and securities activities.
The Panamanian Constitution, in Article 18 states that “Private persons are solely responsible to the authorities for violation of the Constitution or the Law. Public officers are responsible, for the same reasons, and for exceeding their authority, or for dereliction in the performance of their duties.”
It establishes the legal principle that allows individuals to do everything that the law does not prohibit, while for the authorities the principle of legality is prioritized, as the authorities can only do what the law expressly authorizes them to do. The Panamanian Constitution, based on this legal principle, empowers individuals to undertake actions not expressly prohibited by law. Conversely, for authorities, the principle of legality takes precedence, dictating that they may only exercise powers explicitly conferred upon them by law. This dichotomy delineates the boundaries of permissible conduct for both individuals and governing bodies within the legal framework of Panama.
The principle that states that public sector employees are only allowed to do what is prescribed by law is known as the principle of legal authority or the principle of legality in public administration. This principle ensures that public authorities and officials can only act within the limits set by law, meaning they must have a legal basis for their actions. It is a key aspect of the rule of law, ensuring that government actions are lawful and that public officials do not exceed their prescribed powers.
The principle of territoriality is a fundamental concept in Panamanian law, establishing that the laws of Panama apply within the national territory, except for exceptions provided by legislation or international treaties.
Article 8 of the Civil Code states that "Panamanian laws are binding on all inhabitants of the Republic, whether nationals or foreigners." This confirms the application of Panamanian laws within the country's territory and does not establish their extraterritorial application to Panamanian companies operating abroad.
Additionally, Article 18 of the Commercial Code provides: "Commercial acts carried out within the territory of the Republic shall be governed by the provisions of this Code and other applicable national laws."
This means that companies registered in Panama must comply with Panamanian commercial laws when operating within the country, but their application outside the territory depends on international treaties and foreign regulations.
This is of vital importance to this legal opinion, as within Panamanian legislation, the 'scope of application' of the regulations under analysis applies only when a legal entity or individual, whether Panamanian or foreign, carries out activities 'within or from the Panamanian territory.'
IV) Conclusions
1. Securities Market Regulation
Based on SMV Opinion No. 01-2026, prediction-market platforms structured in the manner described in the consultation do not fall within the SMV’s regulated securities-market activities, products or services and do not require an SMV license, registration, authorization or compliance filing. This materially improves the Panama securities-law position for a properly ring-fenced prediction-market platform.
This conclusion should be framed as limited to SMV jurisdiction and to the facts analyzed by the SMV. It does not resolve the JCJ/gaming, AML/CFT, sanctions, consumer protection, tax, data, payment or foreign-law analysis. Risk increases if the platform has Panama-based management, personnel, operations, custody, settlement, local marketing, Panamanian users, local payment rails, or investment-like branding.
2. Gambling Regulation Risk
Under Panamanian law, traditional games of chance and betting activities—including those conducted via electronic means or the internet—are subject to regulation and oversight by the Junta de Control de Juegos. Panamanian law applies to activities conducted in or from Panama.
As mentioned above is prudent to exclude users located within the territory of Panama in order to minimize the risk of the project being deemed as operating in or from Panama. Additionally, to further reduce exposure to Panamanian regulatory jurisdiction, it is advisable to establish the company's legal domicile in a foreign jurisdiction. This may be reflected in the company's Articles of Incorporation through a clause such as the following
“The domicile of the company shall be in Panama City, Republic of Panama; however, the company may conduct business, engage in activities, manage its affairs, carry out operations, and establish offices, branches, or headquarters anywhere in the world. The company may change its domicile to any location worldwide by resolution of the Board of Directors.”
There is a huge difference between a traditional betting platform and a Prediction Market platform, which has also been stated in the inquiry to the JCJ, namely, that there is no custody over the assets and that it is presented in a peer-to-peer manner. The second relevant point that makes this analysis differ from a traditional gambling platform is the fact that prediction markets solely involve crypto, and currently, as determined before by local authorities, as there are no general national crypto regulations, local authorities are not able to regulate on crypto-related matters, and we are currently pending formal clarification from the Junta de Control de Juegos, particularly on Prediction Markets.
3. Tax Implications
If an entity is structured as a Panamanian legal entity that i) conducts all its commercial operations abroad, ii) derives no Panamanian-source income, iii) has no users or clients in Panama, then, under Panama’s territorial taxation system, it would not be subject to corporate income tax or VAT. The only applicable tax would be the Annual Franchise Tax (Tasa Única). Additionally, dividends from offshore income would be subject to a reduced 5% withholding tax.
There is also no capital gains tax on crypto assets, provided the transactions and trading occur entirely outside Panama and do not involve Panamanian residents or assets.
4. Crypto Regulatory Environment
Panama currently does not maintain a comprehensive VASP or cryptocurrency-specific licensing framework applicable to cryptocurrency activities as such, including platforms involving crypto-based prediction markets. In addition, SMV Opinion No. 01-2026 confirms that prediction-market event contracts, under the facts described in that opinion, are not securities-market activities, products or services subject to SMV licensing, registration or authorization. This does not eliminate separate gaming, AML/CFT, sanctions, consumer, payments, data, tax or foreign-law review.
5. Territorial Scope and Legal Safeguards
Given the broad interpretation of activities conducted "in or from Panama", it is recommended that i) the entity avoids onboarding users located in Panama, and ii) the Articles of Incorporation clearly state that the company may operate globally and that operations may be managed or domiciled in other jurisdictions as needed.
This approach helps minimize the risk of the activity being interpreted as originating from Panamanian territory, which could subject it to local regulatory scrutiny under gambling laws.