Regulation of Law 526 of 2026: 10 Key Aspects of Economic Substance Rules in Panama

Law 526 of 2026 introduces a new regulatory framework on economic substance for certain entities with international structures. Below, we share 10 key aspects to help understand the new regulatory requirements and their implications beginning in 2027. 

1. What does the new Executive Decree regulate?

Executive Decree No. 32 of September 2, 2026 introduces Law 526 of May 28, 2026, concerning economic substance rules applicable to certain foreign-source passive income and establishes the parameters necessary for its practical application. 

2. Who is subject to these rules?

The rules apply to entities falling within the scope of Law 526 of May 28, 2026, namely entities incorporated or domiciled in Panama that are part of a multinational group and derive certain categories of foreign-source passive income. The regulations further clarify the conditions that must be met to demonstrate compliance with the economic substance requirements in Panama. 

3. What is considered an “entity” for purposes of the economic substance rules?

Executive Decree No. 32 of September 2, 2026 clarifies that the term “entity” includes any legal person or legal arrangement, including, without limitation, corporations, limited liability companies, partnerships, trusts, and foundations. 

4. When do the rules become effective?

The regulations clarify that the provisions of Law 526 of May 28, 2026 and Executive Decree No. 32 of September 2, 2026 will apply to fiscal periods beginning on or after January 1, 2027. 

5. What should be considered to demonstrate economic substance in Panama?

Among other factors, entities must consider adequate human resources and physical facilities, strategic decision-making functions, risk management activities, and an appropriate level of operating costs and expenses consistent with the activities generating the relevant foreign-source passive income. 

6. Are there specific requirements for certain asset holding entities?

Yes. The regulations establish specific conditions for certain entities whose principal activity consists of holding equity interests or real estate assets, depending on the nature of their activities. 

7. What happens with taxes paid abroad?

The regulations provide the conditions and requirements for claiming tax credits in respect of taxes paid overseas on the corresponding income. 

8. Are there special rules for intangible assets?

Yes. The regulations establish provisions for determining income attributable to intangible assets, as well as documentation requirements necessary to support their tax treatment. 

9. Can certain activities be outsourced?

Yes. The regulations establish the conditions under which certain activities may be outsourced, including requirements related to the service provider’s personnel, facilities, and the appropriate supervision of outsourced activities. 

10. What should potentially affected entities do before the end of 2026?

Entities with international structures or those deriving foreign-source passive income should assess the impact of these new provisions and evaluate any measures required to ensure compliance beginning with the applicable fiscal period.