Patrimonial Planning · June 2026

Private Interest Foundations and Law 526: What the Family Office Client Needs to Know

Law 526 changed Panama’s tax landscape, but it did not eliminate patrimonial planning tools. The Private Interest Foundation remains valid — when you understand its position in the new framework.

The enactment of Law No. 526 on May 28, 2026 generated an understandable reaction among many patrimonial planning clients: concern about their Panamanian structures, uncertainty about whether to restructure, and questions about Panama’s future as a jurisdiction for family wealth protection.

The concern is reasonable. But the conclusion that “we need to leave Panama” or “the Private Interest Foundation no longer works” is, in most cases, premature and incorrect.

What Law 526 does require is an honest conversation between the client and their lawyer about what the structure actually does, what income it generates, and what patrimonial objectives it serves. That conversation — not panic — is the correct response.

The Panamanian Private Interest Foundation: what it is and why it’s used

The Private Interest Foundation (Fundación de Interés Privado, or FIP) is an instrument created by Law 25 of 1995, unique to Panamanian law. It is neither a corporation nor a trust, though it shares elements with both. It is an independent legal person, without shareholders, whose assets are dedicated to the purposes the founder establishes in its constitutive charter.

The reasons family office clients use the FIP go well beyond tax treatment:

Why the FIP is used

— Asset protection: the foundation’s assets are separated from the founder’s personal assets and, in principle, from their creditors
— Succession planning: allows the founder to define beneficiaries, conditions, and timing of asset distribution
— Control: the founder can retain management powers without formal ownership of the assets
— Privacy: does not require public disclosure of beneficiaries in most circumstances
— Continuity: survives the founder’s death without the need for formal probate proceedings

These objectives — protection, succession, control, privacy, continuity — do not disappear with Law 526. What changes is the analysis of whether the FIP falls within the scope of the law, and whether that scope has tax consequences the client needs to understand.

The FIP and Law 526: three possible scenarios

How a FIP is treated under Law 526 depends on two factors: what is above it (who controls it?) and what is below it (what assets does it hold? does it own foreign entities?).

Scenario 1 · Likely Out of Scope

Natural person → Panamanian FIP → investment portfolios or foreign deposits (no foreign subsidiaries)

The FIP is a Panamanian entity. The founder is a natural person. There is no second entity in another jurisdiction controlling the FIP. If the foundation’s assets consist of direct financial investments — listed shares, bonds, bank accounts abroad — without the FIP owning foreign corporate entities, a multinational group probably does not exist.

In this scenario, Law 526 likely does not apply and the FIP retains its current position without needing to demonstrate economic substance.

Scenario 2 · Within Scope

Natural person → Panamanian FIP → shares in foreign companies → dividends and foreign income

If the FIP holds shares or equity stakes in foreign companies and receives dividends or other passive income from them, the FIP and those foreign entities configure a multinational group: two legal entities in different jurisdictions connected by ownership. Law 526 applies.

In this scenario, the lawyer must assess whether the FIP can demonstrate economic substance, or whether the structure’s architecture should be reconsidered — but that does not necessarily mean eliminating the FIP. It may mean adjusting which assets sit inside it.

Scenario 3 · Within Scope

Foreign trust → Panamanian FIP → assets and investments

When a foreign trust sits above the Panamanian FIP — a structure some international advisors recommend for privacy or cross-border succession planning purposes — the trust is a legal entity in another jurisdiction that controls the FIP. That configures a multinational group. Law 526 applies.

In this scenario, the analysis should consider whether the cost of the additional trust layer remains justified in the new tax environment, or whether the structure can be simplified.

What does not change: the patrimonial value of the FIP

Even in scenarios where Law 526 applies, the FIP does not lose its value as a patrimonial tool. What changes is the tax cost of certain income — not the utility of the structure for the purposes for which it was created.

If a FIP was established to protect family assets from potential creditors, ensure patrimonial continuity on the founder’s death, or establish a distribution order among beneficiaries across generations — those objectives remain valid. And the FIP remains one of the most effective instruments for achieving them within Panamanian law.

The decision to restructure, adjust, or maintain the FIP must be based on a complete analysis of the client’s objectives — not on an automatic reaction to the enactment of Law 526.

The questions the family office client should ask

The productive conversation with a patrimonial lawyer right now is not “does Law 526 affect me?” but a set of more precise questions:

The four questions of the patrimonial diagnostic

1	What is inside the FIP? Direct financial assets or equity stakes in foreign companies? This determines the scenario.
2	What is above the FIP? Is the founder the only natural person, or is there a trust or other entity above it?
3	What foreign income does the FIP generate? Dividends from subsidiaries? Interest? Capital gains from a portfolio? The nature of the income determines the scope.
4	What objectives does the FIP serve that cannot be achieved otherwise? Protection, succession, privacy, control. Those objectives weigh heavily in the restructuring decision.

With those four answers on the table, the lawyer can formulate an informed recommendation — not a generic one, but one specific to that client’s structure and objectives.

The time to act is now

The implementing regulations for Law 526 — expected before the end of August 2026 — will define specific application criteria. But the patrimonial diagnostic described above does not depend on those regulations. What is inside the FIP, what is above it, and what income it generates — that the client knows today, and a lawyer can analyze today.

The client who begins this conversation now has time to make decisions calmly. The one who waits until December 2026 will make the same decisions under pressure.

At EDTIJ

“We know our clients’ structures. That is why we can go straight to the right question: is this FIP within the scope of Law 526? And what do we do if it is?”

If you have a Private Interest Foundation or other patrimonial structure in Panama and want to understand its position under Law 526, we are available for the analysis.

mdellat@edtij.com · +507-340-6324 · edtij.com

Author

Marisel Della Togna

Partner — EDTIJ · Escobar, Della Togna, Icaza & Jurado

mdellat@edtij.com

This article is for general informational purposes only and does not constitute legal advice. The specific analysis of each Private Interest Foundation requires an individualized review of its structure, assets, and patrimonial objectives. Conclusions are subject to the pending Executive regulations of Law 526, expected before the end of August 2026.

Tax Transparency & Economic Substance

Law 526 on Economic Substance: What Multinational Groups Must Do Before Fiscal Year 2027

EDTIJ — Escobar, Della Togna, Icaza & Jurado Panama · June 2026 Estimated reading: 6 min

The enactment of Law 526 on 28 May 2026 marked a turning point for corporate planning in Panama, yet the real challenge lies not in the wording of the statute but in the time remaining before it first applies. The law introduces economic substance requirements for entities that form part of multinational groups and earn foreign-source passive income, and it takes effect from fiscal year 2027.

Between now and then there is a preparation window that, used wisely, separates the groups that will arrive in compliance from those that will arrive improvising. Treating this reform as a mere tax update would be a misreading: at its core, it is a warning about how corporate structures are designed.

1. The actual scope of the rule

The first step is to understand the actual scope. Law 526 does not apply automatically to every Panamanian company or foundation. It reaches only entities that meet two conditions at once: belonging to a multinational group, understood as two or more entities linked by ownership or control and tax-resident in different jurisdictions, and earning foreign-source passive income such as dividends, interest, royalties, capital gains or real estate income. The first task for each group, therefore, is to determine precisely which entities fall within the perimeter of the rule and which do not.

The territorial system remains in force

Panama’s territorial tax system does not change. Law 526 reaches only a narrow category of cross-border cases; companies and foundations without an international link or without foreign-source passive income remain outside its scope.

2. The comparative experience: what other jurisdictions teach

In comparative terms, Panama is not breaking new ground: it follows the path that jurisdictions such as the British Virgin Islands and the Cayman Islands traveled years ago when they adopted their own substance regimes in response to OECD and European Union requirements. The experience of those financial centers offers a clear lesson. Groups that treated substance as an exercise in architecture, with real staff, locally made decisions and actual expenditure, navigated the transition smoothly. Those that treated it as a documentary formality faced reclassifications, information requests and unexpected costs.

Panama now offers the chance to learn from that precedent rather than repeat its mistakes. Substance is not proven with a document; it is proven with a structure.

3. Advantages and disadvantages by type of structure

The assessment of advantages and disadvantages must be made case by case. For groups with genuine operations in Panama, the law is more an opportunity than a burden: demonstrating substance confirms the legitimacy of the structure and, by meeting the requirements, the entity continues without paying tax on that passive income. The disadvantage falls on purely instrumental structures, those without staff, facilities or real activity in the country, which, if not adjusted, would be exposed to a fifteen percent tax on the net taxable income derived from that passive income, with a limited credit for taxes paid abroad.

Type of entity	Applicable test	What must be demonstrated
Operating entity	Full test	Adequate staff and facilities, strategic decisions and risks assumed in Panama, local operating expenditure, plus reporting and supporting documentation.
Holding entity (equity interests or real estate)	Reduced test	Adequate resources and facilities plus the corresponding reporting. Relieved from demonstrating local strategic decisions and operating costs.
Entity without substance	Not applicable	15% tax on the net taxable income from passive income, with a limited credit for taxes paid abroad.

On outsourcing

Outsourcing is permitted, but only where the work is actually performed in Panama. Functions carried out outside the country do not evidence substance, even when contracted through a provider within the same group.

4. The pending regulation is no reason to wait

Several operational aspects, including the forms, the precise deadlines and the evidentiary standards, will be defined in the regulation that the Executive must issue within ninety days of the law’s enactment. That pending regulation is no reason to wait. Building real substance takes time: hiring or relocating staff, formalizing where decisions are made, organizing expenditure and preparing supporting documentation are processes that cannot be improvised in the weeks before a filing.

5. How to make the right decision

The right decision depends on each group’s specific needs. There is no single answer. What does exist is a method: identify the entities within scope, classify the nature of their income, assess the current level of staff and facilities in Panama, anticipate the outcome of the applicable test, and document everything in advance.

Groups that begin this analysis now, rather than waiting for the regulation or the close of the period, will reach 2027 with certainty instead of exposure. In matters of economic substance, early preparation is not a formality: it is the difference between a solid structure and a contingency waiting to happen.

At EDTIJ we advise multinational groups, family holdings and investment vehicles on assessing their exposure to Law 526 and designing structures with real substance.

Consult with EDTIJ

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Month: June 2026