Law 526 of May 28, 2026 introduces a new Economic Substance framework in Panama, effective as of January 1, 2027. For multinational groups with a presence or structures in Panama, this change creates an opportunity to review, organize, and strengthen their compliance position.
Beyond a formal obligation, the new legislation reinforces the importance of corporate structures that are aligned with real economic activity, adequate documentation, and a proactive tax strategy.
The framework applies to entities incorporated or domiciled in Panama that are part of multinational groups and earn certain categories of passive foreign-source income.
Why This Change Matters
Economic substance allows an entity to demonstrate that it maintains a real presence and operational activity in the jurisdiction where it operates. In practice, this means that structures should be supported by resources, functions, decisions, and documentation consistent with the income they generate.
This new framework also confirms the international trend toward more transparent, better documented structures aligned with the operational reality of each business.
Scope of the New Legislation
The framework applies, on a cumulative basis, to entities incorporated or domiciled in Panama that are part of a multinational group and generate one or more of the categories of passive foreign-source income covered by the law.
A multinational group is understood as a group of two or more entities linked by ownership or control, tax resident in different jurisdictions, including parent companies, subsidiaries, and permanent establishments. A Panamanian entity may fall within scope when it is included, or should be included, in the group’s consolidated financial statements.
The passive income categories covered include dividends or profit participations, interest, royalties, capital gains, income from immovable property, and other income from movable capital, among the categories established by Law 526.
Key Provisions of the Framework
Entities within the scope of the legislation should pay particular attention to the following aspects:
Annual Reporting
Annual submission of information related to nature and source of passive foreign-source income, as well as the elements evidencing compliance with economic substance requirements, where applicable.
Economic Presence in Panama
Entities must demonstrate an adequate economic presence, considering:
- Qualified personnel
- Physical premises
- Local decision-making functions
- Operating expenses commensurate with the activity
These elements will be relevant to demonstrate genuine economic activity in Panama. If the required economic substance is not met or adequately evidenced, the corresponding passive foreign-source income may be subject to a single and definitive 15% rate on net taxable income under the applicable legislation.
Areas That Require Special Attention
Law 526 provides differentiated treatment for entities whose activities are primarily limited to holding equity interests or the occasional acquisition, holding, and disposal of real estate assets.
In such cases, the requirements are more limited and include:
- Annual economic substance report
- Qualified personnel responsible for asset management
- Suitable facilities in Panama
The law also provides exclusions and specific rules for certain sectors, including maritime activities and regulated financial entities, so the analysis should be carried out on a case-by-case basis.
An Evolving Framework
The implementation of Law 526 will be complemented by additional regulations defining operational aspects, supporting documentation, interpretative criteria, outsourcing mechanisms, and other practical details for its application.
In this context, potentially covered entities should review their structures, functions, documentation, and operational presence in Panama before the start of fiscal year 2027 to identify necessary adjustments and avoid future contingencies.
At OMC Group, we will continue to monitor the development of this new regulatory framework and keep our clients informed of the next steps once the corresponding regulations are published.
