Countries › Panama › Guide › 6. Taxes › Economic substance and foreign passive income in Panama: Ley 526 de 2026, the 15 percent rate and who must report from fiscal year 2027

Economic substance and foreign passive income in Panama: Ley 526 de 2026, the 15 percent rate and who must report from fiscal year 2027

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Last verified: 2026-10-29 · Status: Changing

From fiscal year 2027, a Panamanian entity that belongs to a multinational group and earns foreign source dividends, interest, royalties, capital gains or rental and other capital income must report that income and prove substance in Panama in its annual return. If it cannot, the income loses its territorial exemption and is taxed at a single 15 percent rate on net income. Pure holding companies and passive real estate holders meet a lighter test, and regulated financial, insurance, securities and fund entities and shipping companies have tailored exclusions.

Panama's currency, the balboa (B/.), is at par with the US dollar, which circulates freely as legal tender; the Superintendencia de Bancos states that the balboa's value is on a par with the US dollar (checked 29 October 2026). USD figures therefore equal the balboa figures.

Key facts

Rate on foreign passive income of non qualified entities	15 %Código Fiscal art. 707-D (Ley 526 de 2026), as of 2026-10-29 · pending
First fiscal year of the substance regime	2027 yearLey 526 de 2026 art. 6, as of 2026-10-29 · pending
Uplift on qualifying intangible spending in the nexus ratio	30 %Código Fiscal art. 707-I, as of 2026-10-29 · pending
Exchange rate used for USD conversions	1 PAB per USDBalboa at par with the US dollar (Superintendencia de Bancos), as of 2026-10-29 · in force

The rule

1. The chapter applies to entities of multinational groups incorporated or domiciled in Panama that earn foreign source passive income: dividends or profit shares, interest, royalties, capital gains, real estate income and other movable capital income (art. 707-A and 707-C). A multinational group is two or more entities linked by ownership or control and tax resident in different jurisdictions, including head office, subsidiaries and permanent establishments, identified through consolidated financial statements (art. 707-B numeral 4).Código Fiscal art. 707-A to 707-C added by Ley 526 de 2026 art. 1, art. 707-A, 707-B and 707-C, 2026-05-28 official text · verified 2026-10-29

2. Foreign passive income of a non qualified entity is taxed, exceptionally, at a single and final rate of 15 percent on net taxable income of the period, computed by deducting documented costs and expenses directly related to that income (art. 707-D).
Example: A non qualified group entity receives B/.1,000,000 of foreign dividends with B/.50,000 of related expenses: tax is 15 percent of B/.950,000, B/.142,500. / US$1,000,000 of foreign dividends, US$50,000 of expenses, US$142,500 of tax.Código Fiscal art. 707-D added by Ley 526 de 2026 art. 1, art. 707-D, 2026-05-28 official text · verified 2026-10-29

3. To be a qualified entity it must report the income in its annual return and show: (1) adequate, paid and qualified staff and adequate premises in Panama for its core activities; (2) strategic decisions taken and risks borne in Panama; and (3) adequate operating costs in Panama beyond salaries and premises. Entities whose main activity is holding equity participations, without substantial commercial or investment activity, and entities that only acquire, hold or occasionally transfer real estate need only meet condition (1) plus reporting (art. 707-E). Core activities may be outsourced to providers in Panama with adequate resources, under the entity's supervision; outsourcing outside Panama does not count (art. 707-G).
Cost to do it: No government fee is set by the law; the cost is maintaining staff, premises and operating expenses in Panama or paying a Panamanian outsourcing provider.Código Fiscal art. 707-E and 707-G added by Ley 526 de 2026 art. 1, art. 707-E and 707-G, 2026-05-28 official text · verified 2026-10-29

4. An entity is non qualified if it fails to report the passive income in its return, fails the substance conditions, gives partial information or gives false or inconsistent information; the 15 percent rate then applies for that period, plus fines, surcharges and interest, through the procedure of the Código de Procedimiento Tributario (art. 707-F). The MEF may disregard arrangements whose main purpose is a tax advantage without valid commercial reasons (art. 707-K).Código Fiscal art. 707-F and 707-K added by Ley 526 de 2026 art. 1, art. 707-F and 707-K, 2026-05-28 official text · verified 2026-10-29

5. Foreign taxes actually paid on the passive income may be credited against the Panamanian tax on that income, capped at the Panamanian tax, with no refund, transfer or carryforward (art. 707-H). For income from intangibles registered under Panamanian law, a qualified entity treats as non taxable only the share given by a nexus ratio: qualifying development spending in Panama increased by 30 percent, capped at total spending, over total spending including acquisition costs (art. 707-I).Código Fiscal art. 707-H and 707-I added by Ley 526 de 2026 art. 1, art. 707-H and 707-I, 2026-05-28 official text · verified 2026-10-29

6. Shipping companies operating vessels in Panamanian registries prove substance through registration with the competent authority, supervision by the Autoridad Marítima de Panamá and a direct link between the passive income and the regulated maritime activity (art. 707-M). Banks, securities intermediaries, insurers and reinsurers (other than captives of multinational groups) and regulated fund managers are excluded for passive income directly linked to their regulated business, if licensed and supervised in Panama with effective management and adequate resources there (art. 707-N and 707-Ñ).Código Fiscal art. 707-M, 707-N and 707-Ñ added by Ley 526 de 2026 art. 1, art. 707-M to 707-Ñ, 2026-05-28 official text · verified 2026-10-29

7. Group entities with Panamanian source income and foreign passive income, and those with only foreign passive income, must report the passive income and the substance information in the annual return (art. 710 parágrafo 7). The law applies from fiscal year 2027 (Ley 526 art. 6), and the Executive regulated the chapter by Decreto Ejecutivo 32 de 2 de septiembre de 2026.Ley 526 de 2026 art. 2 and art. 6; Decreto Ejecutivo 32 de 2026, Código Fiscal art. 710 parágrafo 7, 2026-05-28 official text · verified 2026-10-29 · changed: New regime enacted 28 May 2026, regulated 2 September 2026, applying from fiscal year 2027; returns for 2027 are filed in 2028.

Entity	What it must show	Rule
General case	Staff and premises, strategic decisions and risks, operating costs in Panama, plus reporting	Art. 707-E numerals 1 to 3
Pure equity holding company	Staff and premises (numeral 1) plus reporting	Art. 707-E
Passive real estate holder	Staff and premises (numeral 1) plus reporting	Art. 707-E
Shipping company	Registration, AMP supervision, link of income to maritime activity	Art. 707-M
Bank, securities firm, insurer, fund manager	Licence, supervision, management and resources in Panama; income linked to regulated activity	Art. 707-N and 707-Ñ

Substance tests by type of group entity under Código Fiscal art. 707-E, 707-M and 707-N (Ley 526 de 2026, from fiscal year 2027).

Worked example

A Panamanian holding S.A. of a European group owns shares in Latin American subsidiaries and in 2027 receives B/.1,000,000 (US$1,000,000) of dividends, with B/.50,000 of related costs.
As a pure equity holding company it needs adequate staff and premises in Panama and must report the dividends in its 2027 return; if it does, the dividends stay untaxed under territoriality.
If it has no staff in Panama and files nothing, it is non qualified: 15 percent of B/.950,000 is B/.142,500 (US$142,500), less any foreign tax actually paid on the dividends, plus fines, surcharges and interest.

Step by step

Determine whether the Panamanian entity is part of a multinational group as defined by consolidated statements.
Inventory 2027 foreign passive income by type; each type is tested separately.
Classify the entity: general, pure holding, passive real estate, shipping or regulated financial.
Build substance evidence in Panama during 2027 (employment contracts, payroll, lease, board minutes held in Panama, local expenses) or contract a Panamanian outsourcing provider and keep its reports.
Report the income and substance data in the 2027 annual return and keep supporting documents for the MEF.

Common traps

The duty to report applies even when the entity meets substance; non reporting alone makes it non qualified.
Outsourcing to a provider outside Panama does not count, and a provider's staff hours cannot be counted twice across clients.
Captive insurers of multinational groups are not covered by the insurance exclusion.
Tax credits for foreign tax cannot exceed the Panamanian tax on the same income and cannot be carried forward.

Sources

Related: Panama country profile · live dashboard · central bank and release calendar · our posts on X · where Argentina is involved, see The Argentine Thread guide

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