New developments regarding Panamanian entities and high net worth clients

Featured in the Chambers & Partners High Net Worth Guide 2026, this article examines key legal and regulatory developments impacting private wealth structures and high net worth individuals with interests in Panama.

For decades Panama has served as a financial hub for Latin America. Flexible corporate vehicles, qualified fiduciary experience, a developed banking center and a stable, dollarized economy, coupled with a territorial taxation system, have attracted High-Net-Worth Individuals and families from throughout the region.

In recent years, a segment of the international community has increased pressure on international financial centers, such as Panama, to promote transparency and disincentivize tax competition. While Panama has achieved removal from all relevant international blacklists in matters of Anti-Money Laundering and Terror Financing, it remains on the European Union´s list of non-cooperative jurisdictions for tax purposes.

The Panamanian government has endeavored, through a series of coordinated measures, to clear the European standard and shed its classification as a tax haven. Such achievement would, in the eyes of the Ministry of Finance of Panama, spur foreign direct investment and reduce the country´s cost of borrowing in the international markets. The most visible of these actions was the enactment, last month, of Law 526 of 2026 (which imposes economic substance requirements on qualified Panamanian entities and branches registered in the Republic of Panama, provided they fall within the special regime created by said law).

While most of the qualities that made Panamanian entities a staple within the Latin American business community remain unaltered, Law 526 of 2026 may have far-reaching effects. We strongly advise clients holding Panamanian entities to examine their respective structures to determine whether they fall within the scope of economic substance legislation, and if so, the appropriate way of complying or restructuring their corporate vehicles to eliminate and /or mitigate any potential exposure.

Overview: Economic Substance in Panama

Law 526 of 2026 establishes a special regime applicable to Panamanian entities and branches registered in Panama, provided meet the following criteria: (i) are part of “Multinational Group” and (ii) that they receive passive income from a foreign source, requiring them to produce appropriate economic substance in Panama or face a fifteen percent (15%) tax liability over their net income.

Multinational Group and passive income from a foreign source are both defined in the legislation, the former as “two or more entities, linked by ownership or [common] control, which are tax residents in different jurisdictions, including their headquarters, subsidiaries and permanent establishments”, and the latter is constructed to include several types of passive income produced abroad, namely: “dividends or share in profits, interests, royalties, capital gains, and rents derived from both movable and immovable property.”  (Bold letters are ours)

As previously explained, this new legal initiative is not meant to modify Panama´s territorial tax system, which is a cornerstone of the Panamanian economy, and most wealth planning structures should remain unaffected. Nevertheless, we recommend all clients to conduct a thorough review of their corporate structures, keeping in mind that some entities, while not incorporated or registered in the country, may be affected by permanent establishments within the Republic of Panama.

There is one caveat: further regulation is still pending (and should be enacted within the coming months), which will help clarify important concepts including reduced economic substance requirements, which are available for holding entities, and further input as to what constitutes sufficient economic substance.

Lastly, Law 526 of 2026 will come into effect on January 1, 2027, for clients whose tax year coincides with the calendar year, and those seeking to modify their structures should approach local counsel and act consequently.

Law Decree 177 (Accounting Records) in retrospective

Another significant development has been Law Decree 177 of 2024, which created a standardized method for reporting accounting elements by Panamanian entities to their respective resident agents. This information remains within the purview of the agent and is not subject to filing or submission before any governmental dependency unless a formal request is produced by the competent authorities.

While the obligation by Panamanian companies to maintain accounting records has been in force since 2017, when Law 52 of 2016 came into effect, an efficient method for delivering such information to the resident agent had been lacking, and subsequent amendments, such as Law 254 of 2021, only compounded the uncertainty around what constitutes proper record-keeping and what should resident agents request when fulfilling KYC obligations.

Law Decree 177 provides a simple solution that conforms to international standards without being burdensome and is comparable in breadth and scope to the requisites implemented by other competing jurisdictions.

Residency Programs: A time-proven alternative

Panama´s residency-by-investment programs continue to attract High Net Worth Individuals seeking a second home or a change in domicile. These governmental programs owe much of their success to the stability and predictability of their legal framework.

The Qualified Investors Program remains one of the most sought-after options for migratory status, offering permanent residency through investments in real estate, securities listed in the Panamanian Stock Exchange or fixed-termed deposits in the local banking system.  The Friendly Nation´s Visa, which allows nationals of designated countries to gain residency through a reduced investment in real estate or a fixed-term deposit in the local banking system, is also an attractive and much sought alternative.

Summary

Panama continues to be a viable alternative for High Net-Worth Individuals seeking a business-friendly environment, vast airline connectivity with direct links to over 80 destinations worldwide, political and social stability, the absence of monetary controls on foreign exchange, a US Dollar based banking system, modern technology and communications and a favorable territorial tax system.

Authors: Partners Laura Barrios, Fernando Boyd, and Mario Tejeira.