Law 526 of 2026 requires certain Panama entities to prove a genuine local presence before their foreign passive income stays untaxed. Here's exactly who the law reaches — and who it doesn't.
For as long as most HNWI clients have used Panama entities to hold real estate or manage family wealth, the territorial tax principle has worked the same simple way: income earned outside Panama isn't taxed in Panama, full stop. Law 526, enacted May 28, 2026, doesn't repeal that principle — but for a specific category of entity, it now requires proof of a genuine local presence before the exemption applies. Understanding exactly who that category includes is more useful than reacting to the headline.
The regime applies only when two conditions are met at the same time. First, the entity must be incorporated or domiciled in Panama and form part of a "multinational group" — legally defined as two or more entities linked by ownership or control, tax-resident in different jurisdictions, which can include a parent company, subsidiaries and permanent establishments. Second, that entity must receive passive income from foreign sources: dividends, interest, royalties, capital gains, foreign real estate income or other capital income.
| Structure | Typically in scope? |
|---|---|
| Single Panama foundation or S.A. holding one property, no linked entity abroad | Generally no |
| Panama holding company sitting above or below an operating entity in another country | Generally yes |
| Multi-entity family office structure with linked vehicles across jurisdictions | Generally yes |
| Panama entity receiving dividends or royalties from a related foreign entity | Generally yes |
For an in-scope entity, the law requires demonstrable — not just formal — presence in Panama: qualified human resources appropriately compensated and dedicated to the entity's core activities, adequate physical facilities, and real management, administration and control of the assets generating the income. A registered address and a resident agent are no longer, on their own, enough. An entity that can't demonstrate this becomes subject to a 15% tax on its net foreign-source passive income, starting with the fiscal year that begins in January 2027.
A standalone foundation or S.A. holding one Panama property for personal or family use, with no linked entity operating abroad, generally sits outside the multinational-group definition entirely.
Family office structures with multiple linked entities across jurisdictions, or a Panama company receiving passive income from a related foreign entity, meet both conditions and need a substance review.
Fiscal year 2027 is the first year the rule applies. Reviewing entity structure before year-end gives time to build substance or restructure, rather than reacting after the fact.
Implementing regulations for Law 526 had not yet been published as of the most recent professional updates available at time of writing. The Executive Branch has 90 days from the law's May 28, 2026 enactment to issue them, which will likely clarify exact documentation and compliance mechanics. Confirm current regulatory status and get a specific in-scope determination from a Panama tax attorney before assuming your structure is, or isn't, affected.
The territorial system didn't change. What changed is that a specific category of multi-entity structure now has to prove what used to be assumed.
Most Brax clients hold Panama real estate through a single foundation or S.A. built for that purpose, which is the structure we walk through in S.A. vs. Private Interest Foundation — and that structure typically isn't the target of this law. Clients running broader multi-entity family office arrangements, the kind we describe in why family offices are choosing Panama, are exactly the group that should have a lawyer confirm where their structure sits under the new rule before the 2027 fiscal year begins.