If you have a Panamanian company that receives income from abroad, you have probably already heard the rumor: “Panama is going to charge everyone 15%.” That isn’t true. But it isn’t true that nothing changed, either. Before you restructure, close or move anything, understand what the law actually says, because the difference between paying 0% and paying 15% isn’t in the law: it’s in what your accounting can prove.
Territoriality Did Not Die
Law 526 of May 28, 2026 (which began as Bill 641) does not eliminate Panama’s territorial regime. What it does is add a new chapter to the Fiscal Code (articles 707-A through 707-Ñ) with one very specific exception: if your entity forms part of a multinational group and receives passive income from a foreign source, it now has to demonstrate real economic substance in Panama for that income to remain untaxed.
Whoever complies and reports it pays nothing. Whoever does not comply is declared a “non-qualified entity” and pays a single rate of 15% on net taxable income. Net, not gross — and that detail, which was corrected during the legislative debate, is the most important one in the whole law from an accounting point of view.
The law applies from fiscal year 2027, and its declared objective is to remove Panama from the European Union’s list of non-cooperative jurisdictions, whose next review is scheduled for October 2026.
The Three Questions
One: does your entity receive dividends, interest, royalties, capital gains, rents or other capital income from abroad?
Two: does it belong to a group of two or more related entities in different jurisdictions?
Three: can you demonstrate substance in Panama?
If the answer to the first or the second is no, the law does not apply to you and your income remains exempt. Only if you reach the third is there anything to work on.
The Detail Almost Nobody Reads
If you do have to pay the 15%, it is calculated on net income: you can deduct the costs and expenses necessary to generate that income — provided they are duly documented. And if that income already paid tax in another country, article 707-H gives you a tax credit against the Panamanian tax. As an auditor I’ll tell you straight: that credit and those deductions only exist if the accounting support exists.
Which Structures Are Covered?
The S.A. that only operates in Panama
If your company has no related entities in other jurisdictions, there is no multinational group and the law does not apply to you. Full stop. The territorial regime works exactly as it always has.
The mistake I see in practice is the opposite one: local business owners frightened by a law that doesn’t touch them, making rushed decisions nobody asked them for.
Pure holdings and real-estate holding entities
The entity that only holds participations in other companies, or the foundation that only owns a property abroad, gets access to a reduced test: it is excused from demonstrating strategic decisions and local operating expenses.
But careful — a reduced test is not an exemption. It is still required to have adequate human resources and facilities in Panama and to report every year in its income tax return. There is no size threshold here: a family FIP with a single LLC in the United States can already be a multinational group.
Structures with active management
If your holding actively manages the investments, if it is an SPV with financing and dividends, or a regional treasury center, it faces the full test: qualified and remunerated personnel in Panama, facilities, strategic decisions taken here, and local operating expenses proportional to the activity.
Sufficiency is measured by proportionality, according to the scale, the amount of the income and the risk assumed.
What This Means In Your Accounting (Not In Theory)
Reporting is done in the Annual Sworn Income Tax Return, and the corporate income tax form is expected to change in the coming months to include the substance information.
That means your accounting has to be able to separate passive foreign-source income by type (dividends, interest, royalties, rents) because substance is assessed for each type of income, not as a block.
It also means that the payroll, the office lease, the minutes recording the decisions, and the invoices for local operating expenses stop being administrative paperwork and become fiscal evidence.
Outsourcing is permitted — you can contract the administration with a local provider, but only if the provider operates in Panama and its hours do not overlap across multiple clients. Outsourcing outside the country doesn’t count for anything.
And entities in special regimes (SEM, Colón Free Zone, Panamá Pacífico) that generate passive income from abroad must also report, even though their regime did not require substance from them before.
Law 526 is not complied with in April 2028 when the return is filed. It is complied with throughout 2027, with accounting that proves it. Substance is not improvised at filing time; and the anti-abuse clause in article 707-K allows the MEF to disregard structures assembled at the last minute without a valid commercial reason.
The Steps Before Fiscal Year 2027
- Diagnosis: map the complete ownership structure and classify each entity: is there a multinational group? what foreign passive income does it receive? full test, reduced test, exclusion, or outside the regime?
- Choosing a route: simplify the structure to exit the regime, give it real substance, or establish the sectoral exclusion. Each route has its own tax costs, which must be quantified before moving.
- Implementation during 2026: the MEF regulations are due within 90 days of enactment. The substance has to exist during 2027, so the operational and accounting work happens this year.
- Reporting and file: operate 2027 with the evidence organized, and report the passive income and the substance information in the corresponding sworn return.
How Not To Become a “Non-Qualified Entity”
The mistakes you can already see coming are few and repeated: assuming territoriality protects you automatically the way it used to; trusting that you’re “too small” when the law has no size threshold; confusing the reduced test with an exemption; assembling artificial substance at the last minute; and outsourcing the administration outside Panama believing it counts.
There is one guarantee worth knowing: nobody is declared “non-qualified” on a whim. The categorization follows the formal procedure of the Tax Procedure Code, with the right to a defense. But defending yourself without accounting records is defending yourself empty-handed.
My professional reading is that this law, properly understood, is good news: Panama keeps its territorial regime, protects its key sectors, and in exchange asks for something any serious business should already have — real operations and accounting that backs them up.
There is a conviction that has guided my entire practice: financial statements are not dressed up, they are built. A structure can look impeccable at the Public Registry and not survive the first serious question from the UAF or the DGI without minutes documenting decisions, without expenses reflecting real operations, without coherence between what it declares and what it records. Law 526 does not worry me; strictly speaking, it validates the standard I have always worked to.
Economic substance is not a new requirement for anyone who keeps their accounting with discipline: it is the natural consequence of operating well. My recommendation is the same one I give in every committee and every fiscal close: anticipating is a strategic decision; correcting under pressure, an unnecessary cost.
If your structure has a holding, a foundation, an SPV or any vehicle with assets abroad, don’t wait for the regulations to find out where you stand. We’d be happy to review your case in a consultation and tell you, with numbers and without alarmism, whether the law applies to you, which test corresponds to you, and what your accounting needs to prepare before 2027 begins.
About the author: Mónica Gálvez