Law 526 of 2026 and its implementing regulations under Executive Decree No. 32 of 2026.
Panama’s economic substance regime for certain foreign-source passive income, established by Law 526 of 2026, has now been regulated. Executive Decree No. 32 of 2 September 2026, published in Official Gazette No. 30603-B on the same day, sets out the scope of the substance conditions, the criteria of sufficiency and proportionality, and the reporting and record-keeping obligations. Its principal provisions include the following:
Human resources. The entity must have no fewer than one qualified and remunerated individual in the Republic of Panama, whether directly or through a service provider.
Corporate governance. The board of directors or equivalent body must hold a minimum of two meetings with physical presence in Panamanian territory during each fiscal period, with documentary record of the decisions adopted.
Limits on outsourcing. The direction, administration and control functions inherent to strategic decision-making must be exercised directly by that body and may not be delegated or subcontracted.
Operating costs and expenses. Staff remuneration and premises-related expenses are considered separately and may not be counted towards this requirement.
Scope of application. The definition of entity expressly comprises trusts and foundations.
Supporting documentation. It must be submitted in Spanish and retained for five years at the entity’s Panamanian domicile.
The regime applies from fiscal period 2027. The substance conditions must nonetheless be satisfied during that period, so that decisions concerning structure, staffing and corporate governance should be adopted in advance.
We have prepared a full executive report addressing the Law and its regulations on an integrated basis. Please download it below.
