Panama Economic Substance Law: Who Is Affected and From When

Last verified: 19 October 2026. Every fact links to its official source.

What the law is and who it reaches

Law 526 of 2026, published in Official Gazette 30534-B, adds to the Fiscal Code a chapter of economic substance rules for certain foreign-source passive income. It starts from territoriality: that income is not treated as taxable if the entity shows it meets the chapter’s conditions (article 707-A).

Two requirements set the scope. The entity must belong to a multinational group, meaning two or more entities linked by ownership or control and tax resident in different jurisdictions. And it must earn one of the six types of income in article 707-C: dividends, interest, royalties, capital gains, income from real estate capital and other income from movable capital. Executive Decree 32 of September 2, 2026 defines an entity as any legal vehicle, including corporations, limited liability companies, trusts and foundations. The text has no list of relevant activities: the test is the type of income.

Decision tree: is the company affected?

What must be shown and what happens if not

Article 707-E sets three conditions, measured by the scale and complexity of the activity:

• Staff and premises: paid, qualified staff in Panama and adequate premises. The decree sets a minimum of one person employed or contracted and accepts owned, rented or shared offices, documented.
• Decisions and risks: strategic decisions and risks in Panama. The decree asks for a board with at least two in-person meetings in the country per fiscal period, with minutes kept here.
• Operating expenses: costs in Panama other than salaries and premises, tied to the assets that generate the income.

Staff, premises and expenses can be outsourced if the provider operates in Panama (article 707-G); the board’s functions cannot be delegated. The entity becomes non-qualified (article 707-F) if it does not report in its income tax return, does not meet the conditions, reports only partly or files false data. It then pays a single, final rate of 15% on net taxable income, with documented costs and expenses deductible, plus the fines, surcharges and interest of the Fiscal Code (article 707-D).

Calendar of dates and obligations

The substance information goes in the annual income tax return, within the Fiscal Code deadlines; the exact date is worth confirming with the Dirección General de Ingresos.

What to document, beneficial owner and resident agent

The decree requires keeping all supporting documentation in Panama for five years and presenting it in Spanish (articles 10 and 19). The income tax return describes staff, premises, outsourcing, decisions and expenses (article 9).

Substance is a regime separate from the beneficial owner and from accounting. According to the guide of the Superintendency of Non-Financial Subjects, lawyers acting as resident agents enter legal entities and their beneficial owners in the single register, and the registration manual describes the unique code each agent obtains. Law 52 of 2016 requires legal entities with no operations in Panama to keep accounting records for at least five years. Meeting one does not replace the others; more in the guides on the beneficial owner, the resident agent and the annual single fee.

What changed with the exit from EU Annex I

On October 9, 2026, EU finance ministers removed Panama from Annex I, the list of non-cooperative jurisdictions, according to the EU Delegation to Panama. The notice ties the change to reforms that include economic substance requirements and adds that member states’ defensive measures are lifted.

The Council conclusions show an Annex I of eight jurisdictions, without Panama, and place Panama in Annex II, awaiting an in-depth Global Forum review of information exchange. The Code of Conduct Group report explains that the reform of the foreign-source income exemption regime and its decree were found consistent with the criterion on harmful regimes, and that the review is planned for the first quarter of 2027. Leaving the list does not remove the local obligation, which applies from 2027.

Myths and facts

• Myth: every offshore company must show substance from 2027. Fact: the law reaches multinational group entities with foreign-source passive income.
• Myth: without an office of its own, compliance is impossible. Fact: the decree accepts rented or shared premises.
• Myth: a resident agent is enough as substance. Fact: the law asks for staff, a board, decisions and spending; the agent meets obligations under another regime.
• Myth: with the exit from the EU list, nothing is pending. Fact: Panama is in Annex II and the law applies from the 2027 fiscal period.

Related articles

• Panama as an Offshore Jurisdiction: What Still Holds and What Does Not
• How to set up an offshore company in Panama: requirements, steps and obligations
• Beneficial Owner in Panama: What Is Declared and Who Files It
• Resident Agent in Panama: What It Does, the Law and How to Choose
• Annual Single Fee for Panama Companies: Who Pays and When It Is Due

Sources

• Law 526 of May 28, 2026, Official Gazette 30534-B.
• Executive Decree 32 of September 2, 2026, Official Gazette 30603-B.
• EU Delegation to Panama, removal of Panama from Annex I.
• Council of the EU, conclusions of October 9, 2026, document 13854/26.
• Council of the EU, Code of Conduct Group report, document 13306/26.
• Law 52 of October 27, 2016, Official Gazette 28149-B.
• SSNF, frequently asked questions on the beneficial owner register.
• SSNF, resident agent registration manual.