The Republic of Panama enacted Law No. 526 of May 28, 2026, which establishes economic substance rules applicable to certain foreign-source passive income earned by multinational enterprises.
Below is a simple summary of the main points of the Law:
Who does it apply to?
In general terms, Law 526 applies to a group of 2 or more entities related through ownership or control (a “Multinational Group”), provided that:
- Its entities are tax resident in more than one jurisdiction; and
- They are included in the group’s consolidated financial statements.
Accordingly, if your company or foundation is not part of a Multinational Group, Law 526 will not apply to it.
What happens if your corporate structure falls within the definition of a Multinational Group?
If your corporate structure falls within the definition of a Multinational Group and one or more Panamanian entities within the group earn foreign-source passive income, those Panamanian entities must comply with certain economic substance requirements, including:
- Having human resources (e.g., employees) dedicated to the administration of the entity in Panama;
- Filing sworn statements regarding foreign-source passive income; and
- Incurring adequate operating costs in Panama.
Does this mean that an entity considered part of a Multinational Group will have to pay taxes in Panama on its foreign-source passive income?
Not necessarily. If an entity is part of a Multinational Group and complies with the economic substance requirements, the territorial tax principle in force under Panamanian law remains applicable.
What happens if an entity is considered part of a Multinational Group and does not comply with the Economic Substance requirements?
If an entity is part of a Multinational Group and does not comply with the above economic substance requirements, it must pay a 15% single and exclusive tax on its net foreign-source passive income for the relevant tax period.
When does the Law become effective?
The Law will become effective starting with the tax period beginning in January 2027.
The Law is still being regulated in order to clarify certain requirements and application details. Our team remains at your disposal to arrange a courtesy meeting and review, in a practical and straightforward manner, whether this regulation could have any effect on your structure.
