Economic Substance in Panama: The Two Tiers Under Executive Decree 32
Executive Decree No. 32 implementing Law 526 does not hold every entity to the same standard. We explain the two tiers of economic substance in Panama — reduced and complete — the 15% penalty for non-qualifying entities, and what to review before fiscal year 2027.
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Panama Regulates Law 526: How Companies Must Demonstrate Economic Substance
Executive Decree No. 32 of 2026 regulates Law 526 on economic substance for passive income. We explain the five criteria covering personnel, facilities, decision-making, expenses and documentation that multinational group entities must meet from fiscal year 2027, and the 15% rate applied when they fall short.
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Panama’s Law 526: The Three Economic Substance Requirements
The law is clear in its structure. What remains to be defined is its practical interpretation — and that is precisely where companies need to prepare with information, not assumptions.
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Passive foreign-source income under Law 526: which categories apply to your structure?
The law does not apply to all income generated by a Panamanian entity. The second threshold is the type of income — and that analysis must come before the substance analysis.
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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.
Continue ReadingPrivate 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.
Continue ReadingPanama’s Economic Substance Law: What Your Business Needs to Know
A fundamental reform that changes the rules for multinational groups in Panama — and that is already in force.
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