Controlling Persons in Panama: What “Control” Means Under Decree 25, Law 526 and Decree 32

Tax Law & Compliance

In 2026 Panama issued three rules that use the word “control,” and it does not mean the same thing in any of them. Executive Decree 25 asks who stands behind the entity. Law 526 and Executive Decree 32 ask where control over passive income is exercised. And the beneficial ownership register answers a third question. Mixing them up is now one of the easiest compliance mistakes to make.

1. One word, three questions

When a bank, a resident agent or the tax authority talks about a “controlling person,” it is worth asking which rule they mean. The table summarizes how each one treats the concept:

2. Executive Decree 25: the threshold drops to 10%

Executive Decree 25 of June 29, 2026 (Official Gazette 30556-C) amends numeral 21 of article 2 of Executive Decree 124 of 2017, which regulates Panama’s FATCA law (Law 47 of 2016) and Common Reporting Standard, or CRS, law (Law 51 of 2016). It took effect upon promulgation. The central change: the threshold for identifying who exercises control falls from 25% to 10%.

A three-step cascade

• First, ownership: the natural person who ultimately owns or controls, directly or indirectly, 10% or more of the shares, interests or voting rights of the legal entity.
• If none, other means: the natural person who exercises control through means other than ownership.
• If none is identified, the senior managing official: the natural persons who hold the position of senior managing official.

Trusts and foundations

For a trust, the decree designates the settlor, the trustee, the protectors (if any), the beneficiaries or classes of beneficiaries, and any other natural person exercising effective control. Functionally similar arrangements, such as foundations, follow the same approach using the equivalent roles, and the founder is always treated as a person exercising control.

A note on scope: the decree amends the FATCA and CRS regulation, and its text is addressed to “Reporting Financial Institutions.” On its face, it does not amend Law 129 or the beneficial ownership register regime.

3. Law 526 and Decree 32: control as a function

Law 526 of May 28, 2026 (Official Gazette 30534-B) added articles 707-A through 707-Ñ to the Tax Code, and Executive Decree 32 of September 2, 2026 (Official Gazette 30603-B) regulated it. In both texts, “control” appears in three ways, and none of them is the Decree 25 meaning:

• As a link between entities. A multinational group is two or more entities “linked by ownership or control,” tax resident in different jurisdictions, including the parent company, its subsidiaries and its permanent establishments (art. 707-B). Here control describes how entities relate to each other, not who the natural persons behind them are.
• As a function that must be exercised in Panama. The “principal activity” is the one whose “execution, direction or effective control must take place in the Republic of Panama,” by the entity itself or through outsourcing (art. 707-B). Economic substance is the existence and effective use in Panama of human resources, assets, premises, direction, management, control, risks and operating expenses.
• As a power that cannot be delegated. Decree 32 requires the board to hold at least two in-person meetings in Panama per fiscal period, and provides that the direction, administration and control functions inherent in strategic decisions “must be exercised directly by that body and may not be outsourced, delegated or subcontracted” (art. 6).

Control over investees

Decree 32 also uses an idea of operational control. A holding entity qualifies for the reduced standard only if it does not actively take part in the day-to-day operational decisions of the companies it invests in (art. 8). If it runs them operationally, it moves to the complete tier. Put differently: controlling the investment from Panama and being a passive holder are not the same thing.

What these rules do not ask for

In the texts of Law 526 and Decree 32 we did not find a definition of “controlling person,” nor an obligation to identify the entity’s ultimate owners. The people Decree 32 requires to be named in the sworn income tax return are those who carry out the principal activities: a list of personnel with name, identification document, position or function, and remuneration (art. 9).

4. Where they overlap

The three questions are different, but the same structure has to answer all of them. These are the intersections that, in our view, deserve the most attention:

Formal control versus real control

Picture a Panamanian company whose board meets twice a year in Panama, with impeccable minutes, but whose strategic decisions are in practice made from abroad by the 10%-or-more shareholder. The records would say one thing and reality another. Law 526 anticipates that risk: the Ministry of Economy and Finance may disregard arrangements whose main purpose is to obtain a tax advantage without valid commercial reasons reflecting the economic reality (art. 707-K). It is also a ground for “non-qualified entity” status to file information that is false or evidently inconsistent with the reality of the declared activities, assets, risks, personnel, premises or operating expenses (art. 707-F).

The same people, three stories

A single entity can end up with three versions of who controls it: the one the resident agent files with the beneficial ownership register (using information supplied by the client), the one the bank reports under CRS at the 10% threshold, and the one that emerges from the sworn income tax return, which names the people who carry out the activities. No rule requires the three to match word for word, because they answer different questions. But inconsistencies between them are the first thing a bank, a counterparty or an audit will notice.

Foundations and trusts

Decree 25 expressly sweeps in the founder, the settlor, the protectors and the beneficiaries. And Decree 32 defines “entity” to include trusts and foundations (art. 3). A Panamanian foundation or trust that is a member of a multinational group and receives foreign-source passive income may fall under both regimes at once.

Information filed under the economic substance chapter is confidential and for the restricted use of the Ministry of Economy and Finance; it may be shared with third parties only to comply with international tax information exchange agreements or in cases the law expressly provides (art. 707-L).

5. What to review now

• Have you mapped the ownership of each entity down to the natural persons holding 10% or more, directly or indirectly, including chains of companies?
• For foundations and trusts: are the founder or settlor, the protectors, the beneficiaries and whoever exercises effective control documented?
• Does your resident agent hold complete and up-to-date beneficial ownership information, so it can file with the register?
• Is the entity a member of a multinational group with foreign-source passive income? If so, which tier of economic substance applies?
• Where are strategic decisions actually made, and by whom? Are the two in-person meetings in Panama scheduled, with minutes kept in Panama and in Spanish?
• Are the CRS self-certification given to the bank, the filing with the beneficial ownership register and the sworn income tax return consistent with each other?