At a glance
What changed under Law 526
Law 526 added a chapter to Panama's Tax Code establishing economic-substance rules for foreign-source passive income. The text addresses entities that are part of multinational groups, are incorporated or domiciled in Panama, and earn income covered by the law.
The law itself states that it begins to apply from fiscal year 2027.
What economic substance is trying to establish
At a high level, economic-substance rules seek a real connection between the entity, the activity generating or managing the relevant income, and the resources used in Panama.
The specific analysis depends on the entity and income type, so companies should not assume that every Panamanian entity or every type of foreign income receives identical treatment.
What companies can review during 2026
Without replacing legal or tax analysis, an accounting review can help determine whether internal processes and documentation clearly explain where decisions are made, what resources are used, what expenses support the activity, and how relevant income is recorded.
Preparing early gives the organization time to identify documentation gaps before fiscal year 2027 begins.
- •Map entities and income sources
- •Document functions and responsible personnel
- •Maintain traceability for expenses, contracts, and support
- •Align actual operations, accounting records, and reporting
- •Coordinate with tax and legal advisers to determine applicability
Frequently asked questions
Is Law 526 already effective in 2026?
The law was enacted in May 2026, but its effective-date provision states that it begins to apply from fiscal year 2027.
Does it apply to every company receiving money from abroad?
That should not be assumed. The law addresses entities that are part of multinational groups and certain categories of foreign-source passive income. Applicability requires a facts-and-circumstances analysis.
Official and reference sources
JJL uses official sources to keep these guides aligned with publicly available information. Application to a specific case should be professionally validated.
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