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<Does Law 526 Apply to Your Structure? The Analysis to Complete Before August | EDTIJ
Law 526 of 2026 · Economic Substance · Scope Analysis
Does Law 526 apply to your structure? The analysis to complete before August
Law 526 has a specific applicability threshold. Before analyzing any pillar of economic substance, there is a prior question that determines whether everything else applies.
The executive regulation of Law 526 is expected in August 2026. Many clients arrive at the firm with a certainty that may be premature: “I know the law applies to me — help me comply.”
Before analyzing whether a structure has qualified personnel, physical facilities, or documented strategic decisions made from Panama, there is a prior question that conditions everything else: does this structure constitute a multinational group under Law 526?
If the answer is no, the substance analysis may be unnecessary. If the answer is yes, the substance analysis is the next step. If the answer is not immediate, documenting why is exactly the work for this week.
What defines a multinational group under Law 526
Law 526 does not apply to every structure with assets abroad or a presence in more than one country. It applies to entities that form part of a multinational group.
The law defines a multinational group as a group of two or more entities, linked by ownership or control, that are tax residents in different jurisdictions, including the parent company, its subsidiaries, and its permanent establishments.
Three elements must be present:
- 1Two or more entities — not natural persons, but legal entities. A natural person with assets abroad does not by itself constitute a multinational group under this criterion.
- 2Linked by ownership or control — the entities must be related to each other. A Panamanian company and a US LLC owned by the same person are candidates; two unrelated companies are not.
- 3Tax residents in different jurisdictions — each entity in the group must have tax residency in a jurisdiction, and those jurisdictions must be different from one another.
If any of the three elements is not clearly met, the analysis requires additional detail before concluding that the law applies.
Cases where the analysis is more straightforward
More clearly within scope
- A Panamanian company that controls subsidiaries in Colombia, Mexico, Costa Rica, or other countries in the region, with related-party transactions
- A holding company in Panama with operating entities in different jurisdictions
- A structure with a permanent establishment in Panama and affiliated entities abroad
- A family business group with entities in multiple countries under common control
Requires additional analysis
- A structure with a single Panamanian entity and foreign assets but no formally established affiliated entities in other jurisdictions
- Investment funds, private foundations, and trusts with holdings in foreign entities
- Structures with entities in jurisdictions where the concept of tax residency has particular characteristics
- Wealth vehicles where the ownership or control link is not evident in the documentation
A note on definitions still being developed
Practice Point · Regulation Pending
The concept of tax residency for entities, as drafted in Law 526, raises technical questions that the executive regulation will need to clarify. There are types of structures and vehicles for which the determination of tax residency in any given jurisdiction is not immediate.
The prudent approach, until the regulation resolves those points, is not to assume that the law does not apply without having documented the analysis that leads to that conclusion. The cost of having conducted a preventive analysis is lower than the cost of having assumed it was unnecessary when it turns out that it was not.
The scope analysis as a first engagement
For structures where the applicability of Law 526 is not immediate, the first engagement should be the scope analysis: a document that maps the structure, identifies the entities that could constitute the group, evaluates the ownership and control links, and concludes whether the law applies — with the documentation to support that conclusion.
That analysis is the starting point for any subsequent work. And it is what protects both the client and the attorney if the application of the law is questioned in the future.
With the executive regulation expected in August 2026, the time available to complete this analysis before the full regulatory framework is in place is shrinking each week.
EDTIJ · Law 526 Scope Analysis
Before beginning an economic substance analysis, confirm whether Law 526 applies to your structure. Our team conducts the scope analysis as a standalone service, with a document that maps your structure, evaluates the three multinational group criteria, and documents the conclusion.
Contact us before August: info@edtij.com · EDTIJ Panama
This article is informational in nature and does not constitute legal advice. Law 526 of 2026 is subject to executive regulation expected in August 2026. Specific compliance analyses must be conducted based on the circumstances of each structure and the regulations in force at the time of consultation. For advice on your specific situation, contact a licensed attorney in Panama directly.