Panama: A Private Wealth Law Overview

New Developments Regarding Panamanian Entities and High Net Worth Clients

For decades, Panama has served as a financial hub for Latin America. Flexible corporate vehicles, qualified fiduciary experience, a developed banking centre and a stable, dollarised economy, coupled with a territorial taxation system, have attracted high net worth individuals and families from throughout the region.

In recent years, a segment of the international community has increased pressure on international financial centres, such as Panama, to promote transparency and disincentivise tax competition. While Panama has achieved removal from all relevant international blacklists in matters of AML and CFT, it remains on the EU´s list of noncooperative jurisdictions for tax purposes.

The Panamanian government has endeavoured, through a series of co-ordinated measures, to clear the European standard and shed its classification as a tax haven. Such achievement would, in the eyes of the Ministry of Finance of Panama, spur foreign direct investment and reduce the country´s cost of borrowing in the international markets. The most visible of these actions was the enactment, in May 2026, of Law 526 (which imposes economic substance requirements on qualified Panamanian entities and branches registered in the Republic of Panama, provided they fall within the special regime created by said law).

While most of the qualities that made Panamanian entities a staple within the Latin American business community remain unaltered, Law 526 of 2026 may have far-reaching effects. Clients holding Panamanian entities are strongly advised to examine their structures to determine whether they fall within the scope of economic substance legislation, and if so, the appropriate way of complying or restructuring their corporate vehicles to eliminate and/or mitigate any potential exposure.

Overview: economic substance in Panama

Law 526 of 2026 establishes a special regime applicable to Panamanian entities and branches registered in Panama, provided they are part of a “multinational group” and receive passive income from a foreign source (requiring them to evidence appropriate economic substance in Panama or face a 15% tax liability over their net income).

“Multinational group” and “passive income from a foreign source” are both defined in the legislation – the former as “two or more entities, linked by ownership or [common] control [which are tax residents in different jurisdictions], including their headquarters, subsidiaries and permanent establishments”. The latter is constructed to include several types of passive income produced abroad, namely: “dividends or share in profits, interests, royalties, capital gains, and rents derived from both movable and immovable property”.

As explained previously, this new legal initiative is not meant to modify Panama´s territorial tax system, which is a cornerstone of the Panamanian economy, and most wealth planning structures should remain unaffected. Nevertheless, all clients should conduct a thorough review of their corporate structures, keeping in mind that some entities, while not incorporated or registered in the country, may be affected by permanent establishments within the Republic of Panama.

There is one caveat: further regulation is still pending. It should be enacted by the end of 2026 and will help clarify several important concepts, including reduced economic substance requirements for holding entities and what constitutes sufficienteconomic substance.

Lastly, Law 526 of 2026 will come into effect on 1 January 2027 for clients whose tax year coincides with the calendar year, and those seeking to modify their structures should approach local counsel and act accordingly.

Law Decree 177 (the “Accounting Records Regulation”) in retrospect

Another significant development has been Law Decree 177 of 2024, which created a standardised method for Panamanian entities to report accounting information to their resident agents. This information remains within the purview of the agent and is not subject to filing or submission before any governmental agency unless a formal request is produced by the competent authorities.

While the obligation for Panamanian companies to maintain accounting records has been in force since 2017, before Law 52 of 2016 came into effect, an efficient method for delivering such information to the resident agent had been lacking, and subsequent amendments, such as Law 254 of 2021, only compounded the uncertainty around what constitutes proper record-keeping and what resident agents should request to fulfil KYC obligations.

Law Decree 177 provides a simple solution that conforms to international standards without being burdensome, and is comparable in breadth and scope to the requirements in competing jurisdictions.

Residency programmes: A proven alternative

Panama´s residency-by-investment programmes continue to attract high net worth Individuals seeking a second home or a change in domicile. These governmental programmes owe much of their success to the stability and predictability of their legal framework.

The Qualified Investors Program remains one of the most sought-after options for migration, offering permanent residency through investments in real estate, securities listed on the Panamanian Stock Exchange or fixed-termed deposits in the local banking system. The Friendly Nation´s Visa, which allows nationals of designated countries to gain residency through a smaller investment in real estate or a fixed-term deposit in the local banking system, is also an attractive and much sought-after alternative.

Summary

Panama continues to be a viable alternative for high net worth Individuals seeking a business-friendly environment, having:

• exceptional airline connectivity (with direct links to over 80 destinations worldwide);
• political and social stability;
• no monetary controls on foreign exchange;
• a US dollar-based banking system;
• modern technology and communications; and
• a favourable territorial tax system.