A Stronger Framework for International Business Beginning in 2027

Panama has taken a further step in modernizing its international services platform with the enactment of Law 526 of May 28, 2026, which introduces economic substance rules applicable to certain foreign-source passive income.

The new legislation will take effect beginning with the 2027 fiscal year and seeks to strengthen Panama’s competitiveness and international reputation by aligning its tax framework with current international standards.

Panama Maintains Its Territoriality Principle

One of the most important aspects of the new legislation is that it does not establish a general economic substance requirement applicable to all Panamanian companies.

Its scope is specifically directed at entities incorporated or domiciled in Panama that:

• are part of a multinational group; and

• derive certain foreign-source passive income, including dividends, interest, royalties, capital gains and certain income from movable and immovable property.

For entities falling within the new regime, the tax treatment applicable to certain foreign passive income will be conditional upon compliance with the economic substance criteria established by the legislation.

What Does This Mean for Those Using or Considering Panama?

Panama continues to offer significant advantages as a platform for business, investment and international structures, including:

• a tax system based on the territoriality principle;

• flexible and widely recognized corporate legislation;

• use of the U.S. dollar within its monetary system;

• an international banking and financial platform;

• excellent regional and international connectivity;

• special regimes for certain activities and investments; and

• a well-established professional infrastructure for the establishment and administration of international operations.

The introduction of economic substance rules also provides a more defined framework for structures conducting international activities from Panama, aligning them with the current expectations of banks, investors, tax authorities and international counterparties.

Preparing for 2027

The final months of 2026 represent an opportunity for companies that may fall within the scope of Law 526 to review their structures, activities and sources of income in advance and determine whether additional measures will be necessary for the 2027 fiscal year.

At the same time, for entrepreneurs and international groups evaluating new structures, Panama continues to be a jurisdiction worth considering, depending on the nature of the activity, ownership structure, markets involved and business objectives.

CLD LEGAL can assist both clients with existing structures and entrepreneurs, investors and international groups interested in establishing new companies, investments or operations from Panama.

We will continue to monitor the regulations and implementation of Law 526 and will communicate any additional relevant developments.