Tax Insight

Panama enacts economic substance rules for foreign-source passive income

Insight
5 minute read
October 01, 2026

What happened?

Panama enacted Law No. 526 of May 28, 2026, published in Official Gazette No. 30,534-B. The Law amends and adds articles to the Tax Code and creates an economic substance regime for certain foreign-source passive income earned by entities established or domiciled in Panama that belong to multinational groups. The Law was regulated by Executive Decree No. 32 of September 2, 2026, published in Official Gazette No. 30,603-B.

The regime applies as of the 2027 fiscal period, that is, for fiscal years beginning on or after January 1, 2027.

Why is it relevant?

The new rules represent a significant change in Panama’s tax framework, directly affecting multinational entities that use Panama as a regional platform. Panama’s territorial tax system remains in place; however, entities that earn foreign passive income through Panama now must show real activity and meet minimum economic substance requirements in Panama. Income earned by an entity that does not meet those requirements is subject to a single and definitive 15% tax on net taxable income.

Actions to consider

Companies should review their Panama structures to assess exposure to the new regime, identify economic substance gaps, revisit service provider arrangements, and prepare the information that must be reported, before the rules take effect in 2027.