admin23On September 2, 2026, Panama’s Executive Branch published Executive Decree No. 32 in Official Gazette 30603-B, regulating Law 526 of 2026 on economic substance for passive income from foreign sources. The law, enacted on May 28, gave the Executive 90 calendar days to issue these regulations, a deadline that expired on August 26 and was finally met, with delay, in the first week of September.
The decree specifies how Panamanian entities that belong to multinational groups and receive passive income from abroad (dividends, interest, royalties, among others) must demonstrate real economic substance. Being legally registered in Panama is not enough to benefit from the country’s tax system: entities must show that, behind the structure, there are qualified personnel, facilities, operating expenses, and real business decisions.
The decree’s five criteria
Personnel
At least one duly qualified and remunerated employed or contracted person participating in activities linked to income generation, with dedication proportional to the nature and scale of operations.
Facilities
Owned, leased, or shared facilities are acceptable, provided their use is documented and they have the resources necessary for the activity.
Decision-making
The board or equivalent body must hold at least two in-person meetings per fiscal period, keep minutes, and demonstrate that its members have sufficient knowledge to direct the activity.
Operating expenses
The entity must incur costs and operating expenses directly related to its principal activity, in amounts proportional to the scale and complexity of its operations.
Documentation
Contracts, invoices, accounting records, and supporting documents must be kept for five years, presented in Spanish when required, and stored physically or digitally in Panama.
The thread connecting all five criteria is a proportionality standard: the decree does not set a single formula every entity can replicate identically. The evaluation does not depend solely on meeting minimum quantities, but on whether the declared resources are reasonable relative to income and administered assets.
Who it applies to
The regime does not reach every Panamanian company equally. It applies specifically to entities that are part of multinational groups and receive passive income from foreign sources. Before assuming a structure is or isn’t covered, the specific case should be reviewed.
Deadlines and penalty
The regime takes effect with fiscal year 2027, with the first filing due in 2028. Entities that fail to demonstrate sufficient economic substance will be subject to a 15% rate on the corresponding net taxable foreign-source income.
What to do now
At EDTIJ we are already analyzing the decree in detail to advise our clients on the concrete steps to take before the regime enters into force: mapping exposure, scheduling board meetings, reviewing operating expenses, and organizing supporting documentation. If your structure receives passive income from abroad, now is the time to review your case.