On 28 May 2026, the President of the Republic of Panama sanctioned Law No. 526 of 2026, published in Official Gazette No. 30534-B. The new legislation amends the Panamanian Tax Code by introducing economic substance requirements applicable to certain entities that derive foreign-source passive income. The law will become effective starting with the 2027 fiscal period.
The reform represents one of the most significant tax developments in recent years and forms part of Panama's ongoing efforts to strengthen transparency, align with international tax standards, and reinforce its position as a competitive and compliant international business jurisdiction.
Law No. 526 establishes that certain entities forming part of multinational enterprise groups and receiving specific categories of foreign-source passive income must demonstrate adequate economic substance in Panama.
Depending on the circumstances, entities may be required to evidence that they have sufficient personnel, operational expenditures, physical premises, management and decision-making functions, and other resources proportionate to the activities generating the relevant income.
The legislation generally applies to passive income such as:
- Dividends;
- Interest;
- Royalties;
- Capital gains; and
- Income derived from immovable property located abroad.
Companies that are part of multinational groups with Panamanian entities should carefully assess whether the new provisions apply to their corporate structure and determine whether any operational or compliance measures will be required before the law becomes effective in 2027.
Early planning will be essential to evaluate reporting obligations, review existing holding structures, and ensure compliance with the new economic substance framework.
At MLS & Associates, we assist clients in evaluating the impact of new legislation on their corporate structures. Our team provides legal advice on Panamanian corporations, corporate governance, regulatory compliance, and international business structures, helping clients understand their obligations and implement practical solutions under the evolving legal framework in Panama.
