Economic substance in Panama: the new Law No. 526

With Law No. 526 of 28 May 2026, Panama has introduced new rules on economic substance.

They apply to the 2027 fiscal year and onwards.

Anyone using a Panamanian structure to hold passive income from abroad should now take a close look.

Because these are precisely the structures in focus.

What it is about

Panama’s territorial tax system remains in place. Income earned abroad is, as a rule, still not taxed in Panama.

The new law targets one specific point: multinational corporate groups resident in Panama that collect purely passive foreign income there.

This includes:

From 2027, the tax exemption on this income is no longer automatic. It is tied to a condition.

A widespread pattern is affected: a Panamanian company that pools passive foreign income without actually being present in Panama.

Anyone running such a structure without real substance on the ground is directly affected from the 2027 fiscal year.

Not in focus are:

The dividing line is not residence, but substance.

Affected companies must demonstrate that they maintain an adequate physical and business presence in Panama.

This includes, among others:

The company must genuinely operate in Panama, not just be registered there.

This is where everything is decided.

With proof of substance: the passive foreign income remains tax-free in Panama.

Without proof of substance: a flat tax of 15% applies to this income.

Substance is thus the dividing line between tax exemption and taxation.

The maritime sector is exempt from the new rules.

This concerns, for example, holdings in merchant ships under the Panamanian flag.

This area is already subject to strict international controls.

For structures without sufficient substance, the new law means concrete action is needed.

Two things matter here:

Substance can be built. And whether an existing structure stands up to the requirements can be checked in advance.

Anyone who acts early has until the 2027 fiscal year to set up the necessary presence on the ground properly.

For companies affected by the new rules, we provide support at two points:

Review – does your existing structure stand up to the substance requirement?
Set-up – establishing the necessary infrastructure on the ground: office space, staff, administration and management.

Our role is to assess the requirements realistically and to support implementation in Panama.