On May 28, 2026, Law 526 was published in Panama's Official Gazette, introducing economic substance requirements for certain corporations and foundations that form part of multinational groups incorporated or domiciled in Panama and which earn passive foreign-source income — including dividends, interest, royalties, capital gains, real estate income, and other returns on movable capital.
Importantly, the regulation related to Law 526 has not yet been issued. A 90-day period has been allotted for its issuance. The provisions of Law 526 will take effect starting with the 2027 fiscal year.
Who does it apply to?
Law 526 targets multinational groups, defined as groups of two or more entities that are tax residents in different jurisdictions. Therefore, not every Panamanian entity with foreign assets or accounts will be included, and each structure must be assessed on a case-by-case basis.
What changes?
Panama maintains its territorial tax system, and, in general, passive income from foreign sources remains non-taxable. However, for entities covered by Law 526, this treatment will depend on meeting economic substance requirements in Panama.
Panamanian entities subject to Law 526 that demonstrate economic substance will maintain the non-taxation of their foreign-source income. Those that do not demonstrate economic substance will face a 15% rate on their net taxable income.
What constitutes economic substance?
Law 526 requires:
(a) Qualified personnel and adequate facilities in Panama;
(b) Making the strategic decisions needed for operations within Panama and accepting the associated risks;
(c) Operating costs and expenses related to those activities in Panama.
Law 526 permits the outsourcing of certain functions to providers located in Panama with adequate resources.
Special rules
Law 526 establishes specific rules for certain holding companies managing patrimonial assets, passive real estate entities, and particular regulated activities. It also includes explicit exclusions for the Panamanian merchant marine, regulated banking and financial institutions, insurers and reinsurers, securities market intermediaries, and authorized investment and pension fund managers.
Next steps
For now, the key step is to monitor the upcoming regulations.
We would be happy to help you in (i) identifying whether any entity in your group falls within the law's scope; (ii) assessing compliance with economic substance requirements; and (iii) examining any tax or compliance implications that may arise.