Special treatment for holding companies: the Decree establishes a separate regime for entities whose main activity consists of holding equity interests in other entities, or the non-routine acquisition, holding or disposal of immovable property. These entities must meet a simplified standard: at least one director, officer or remunerated administrator resident in Panama with appropriate experience (or an equivalent member of staff), and their own, leased or shared premises, duly documented.
Illustrative examples:
Pure holding company: holds shares in foreign subsidiaries and receives dividends without being involved in their day-to-day management; eligible for the simplified regime.
Financing holding company: if it also provides financing or actively manages investments, it must be assessed to determine whether it continues to qualify for simplified treatment.
Inactive company: if it does not generate covered passive income during the period, the regime may not apply to that income, although it is advisable to monitor any changes in its profile.
Advantage of the simplified regime: this is not an additional exemption, but a compliance standard proportionate to an essentially passive activity — requiring fewer staff, allowing for shared premises and entailing a lower operational burden than the general regime.
Outsourcing: the Decree permits certain activities of substance to be carried out by service providers in Panama, provided there is a contractual relationship, the work is actually performed in Panama, and the entity has mechanisms for monitoring and control in place. Strategic decisions of the board of directors may not be outsourced, delegated or subcontracted.
The tax return as an annual proof of substance: Entities subject to the requirement must include in their tax return sufficient information on their principal activity, human resources, premises, outsourcing, strategic decisions and the costs associated with each source of passive income. Supporting documentation must be retained in Panama, in Spanish, for five years.
Key timeline:
28 May 2026: enactment and publication of Law 526.
2 September 2026: publication of Executive Decree No. 32.
Rest of 2026: period to assess the scope of the regime and identify gaps.
1 January 2027: the regime comes into force for tax years beginning on or after this date.
What we recommend reviewing: scope (incorporation in Panama and membership of a multinational group), income earned, profile (mere holding or operational), current substance gaps, and whether the documentary evidence (accounts, minutes, contracts) supports the entity’s position.
Our team can assist with assessing applicability, classifying entities and income, analysing gaps, designing corporate governance and substance documentation, and coordinating the corporate, accounting and tax aspects of compliance prior to the start of the 2027 tax period.
