Law No. 526 introduces new tax reporting and economic substance requirements for certain multinational groups with structures in Panama, effective from 2027.
Introduction
On May 28, 2026, the National Assembly of the Republic of Panama approved Law No. 526 introducing important changes affecting companies and foundations starting on January 1, 2027.
The spirit of the new law lies in promoting employment and national investments and achieving a change in the status of the Republic of Panama of a non-cooperative country for tax purposes before the European Union.
It is important to remark that Law 526 does not incorporate some other economic substance requirements that were adopted by several Caribbean countries in recent years, including requirements applicable to trading activities and service centers.
What aspects does the new law regulate and who does it affect?
In general terms, the law establishes rules and requirements of economic substance applicable to entities that are part of multinational groups incorporated or domiciled in the Republic of Panama that obtain passive income from foreign sources.
New obligations are imposed on Multinational Groups, which are defined as two or more entities, linked by ownership or control, that are tax residents including their parent company, subsidiaries, and permanent establishments.
This means that foreign entities that are tax exempt or resident in tax heaven jurisdiction will be generally excluded from this definition.
As of January 1, 2027, the Panamanian entities that fall under this scope must:
1. File an annual tax return
File an annual tax return in respect of passive income earned from foreign sources.
2. Demonstrate adequate economic substance
Comply with the established conditions to demonstrate adequate economic substance within the territory of the Republic of Panama.
This is understood as the existence and effective use in the country of human resources, assets, facilities, management, control, risks, and operating expenses appropriate to nature, proportionality, complexity, and type of foreign-source passive income obtained by the entity.
Which passive income is covered?
The passive income from foreign sources that is included are:
- Dividends or profit shares;
- Interest;
- Royalties;
- Capital Gains;
- Income from real estate capital;
- Other income from movable capital.
What happens in case of non-compliance?
In the event of non-compliance with the obligations mentioned above, in a given period, income from passive income from foreign sources will be subject to taxation at a rate of 15% on the net taxable income in the respective fiscal period.
What is the treatment under Law 526 of the most frequent structures?
Some of the most frequent structures with a Panamanian holding company are the followings:
[Insert Table]
| Structure | Multinational Group? | Law 526 Applicable? |
|---|---|---|
| Panama company or Foundation owns foreign company with underlying investment portfolio | No | No |
| Panama company or Foundation owns a foreign company real estate abroad rented | No | No |
| Panamanian company or foundation owns two foreign companies holding rental real estate located abroad, provided that the foreign companies are tax resident in that foreign jurisdiction. | Yes | Yes |
| Panamanian company owns (i) a foreign company incorporated in a tax haven holding financial investments and (ii) a foreign operational company that is tax resident in another jurisdiction | No | No |
What are the next steps and what measures can be taken?
The law will come into effect starting with the 2027 fiscal year and will be additionally regulated for clarity.
We suggest that companies or foundations established in the Republic of Panama review their corporate structures and adapt their estate and tax planning accordingly.
An early analysis will allow for the identification of potential areas of impact, as well as the evaluation of adaptation alternatives and preparation for timely compliance.
Our team of specialists is available to assist you in evaluating your current structure.
Please contact your usual contact at Dartmouth to schedule a free consultation.
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