Since the end of May, one headline has been doing the rounds in forums and chat groups: Panama has abolished territorial taxation, and foreign income will now be taxed. If you live in Panama or are planning the move because you live on pensions, rents, dividends or fees from abroad, you are right to ask whether your numbers still add up. The short answer: for you as a private individual, nothing changes. The long answer is in the law itself, and it is worth reading, because it is more precise than any headline.
What happened
On 27 May 2026, the National Assembly passed Bill 641 in its third reading. On 28 May it was published as Ley 526 in Gaceta Oficial No. 30534-B. Its title already says what it is about: it adds rules to the tax code (Código Fiscal) on economic substance for certain passive income from foreign sources. On 2 September 2026 the implementing decree followed, Executive Decree No. 32 in Gaceta Oficial No. 30603-B. According to its title, it regulates exactly the new chapter that Ley 526 inserted into the Código Fiscal.
The decisive sentence first: Ley 526 and Executive Decree 32 only concern entities that belong to a multinational group, and they apply only from the 2027 tax year. Article 6 of the law says so verbatim: the law applies from the 2027 tax period.
Who the new rules affect
The new Article 707-A of the Código Fiscal sets the scope: the substance rules apply to entidades integrantes de grupos multinacionales, meaning companies that are part of a multinational group, are incorporated or resident in Panama, and receive passive income from abroad. Article 707-B defines what a multinational group is: two or more entities linked by ownership or control and tax resident in different states, including the parent company, subsidiaries and permanent establishments. An entity belongs to the group if it is consolidated in the group's financial statements or would have to be.
Article 707-C names six kinds of passive income: dividends, interest, royalties, capital gains, income from real estate and other income from movable capital.
A natural person living in Panama is not an "entity of a multinational group". Your pension from home, the rent from your apartment back home, the dividends from your portfolio do not fall under these rules. The Ministry of Economy and Finance (MEF) describes the law the same way in its announcement of its passage: it is about entities of multinational groups based in Panama that earn certain passive foreign income.
What Ley 526 changes for these companies
From 2027, a group company in Panama must declare its passive foreign income in its tax return and show that it has genuine substance in Panama. Article 707-E sets three conditions:
1. Adequate, qualified and paid staff and suitable premises in Panama for the core activities.
2. Strategic decisions are taken in Panama, and the risks are borne there.
3. Adequate operating expenses in Panama, beyond staff and premises.
Pure holding companies that only hold shareholdings, and companies that only occasionally hold or transfer real estate, need only meet the first condition and the reporting obligations. Activities may be outsourced to service providers, but only if they perform them in Panama (Article 707-G).
A company that cannot prove substance counts as an entidad no calificada and, under Article 707-D, pays a single, final rate of 15% on the net result of its passive foreign income. Taxes paid abroad on the same income can be credited up to the amount of the Panamanian tax (Article 707-H). In addition there is a special rule for income from intellectual property developed in Panama, an anti-abuse clause, and exemptions for merchant shipping and for supervised financial institutions.
Why territorial taxation stays
The law does not abolish territorial taxation; it relies on it. Article 707-A states expressly that group companies must prove substance so that their passive foreign income is not taxed by way of exception but stays untaxed in line with the territorial principle of Panamanian law. Article 707-D likewise describes the 15% levied on companies without substance as taxation de manera excepcional, by way of exception.
In other words: the principle that Panama only taxes Panamanian-source income still stands. Ley 526 adds a narrowly drawn exception, for a narrowly drawn group of taxpayers, against a specific problem: groups that route dividends, interest or royalties through a Panamanian letterbox company. The government justifies the law with international standards for tax transparency and economic substance.
The law amends one further article: Article 762-M redefines when a person resident abroad has a permanent establishment in Panama. That concerns the question of when foreigners are taxable in Panama on their Panamanian income, for example through an office or a dependent agent on the ground. It does not touch the foreign income of people living in Panama. It too applies only from 2027.
If you want a broader overview of the Panamanian tax system, from income tax on Panamanian income to corporate taxes, the PwC Worldwide Tax Summaries for Panama are a good starting point.
The timeline to 2027
The sequence is clear and manageable for those affected:
So for 2026, nothing changes for anyone. If you run a group company in Panama, you have the rest of the year to set up staff, premises and decision-making so that the substance holds from 1 January 2027.
What Ley 526 does not regulate
What is missing from the law matters as much as what is in it. Ley 526 does not change the income tax of natural persons, introduces no worldwide taxation for people living in Panama, and creates no new reporting obligation for private individuals on their foreign income. The reporting and proof obligations of the new paragraph 7 of Article 710 are expressly addressed to entities of multinational groups. If you live privately in Panama and draw your money from abroad, Ley 526 requires you neither to report anything nor to restructure anything.
In practice: three typical cases
You live in Panama on a pension, investment income or rents from abroad. Ley 526 does not touch you. The law's new substance rules are aimed exclusively at group companies, and according to its title the decree regulates exactly this chapter. If you come as a retiree on the Pensionado visa, your calculation stays as it was.
You work self-employed for clients abroad. Fees for services are not passive income within the meaning of Article 707-C. By their very subject matter, the substance rules do not apply here. Where your service counts as performed, and whether that makes it Panamanian income, is a different, older question that has nothing to do with Ley 526.
You hold shareholdings, portfolios or real estate abroad through a Panamanian company. Here it pays to look closely. The deciding question is whether your company belongs to a multinational group within the meaning of Article 707-B, that is, whether it is linked to other entities in other states by ownership or control and belongs, or would have to belong, in consolidated group accounts. If you hold several companies in different countries, have this checked by a tax adviser before the end of 2026, because from the 2027 tax year the substance has to be in place, not just at the first audit. Two details deserve attention. The credit for foreign taxes under Article 707-H is strictly personal: it is not refunded, not transferred and not carried forward to later years. And the anti-abuse clause in Article 707-K allows the MEF, by reasoned decision, to disregard arrangements without valid economic reasons if one of their main purposes is a tax advantage. Restructuring purely on paper to escape the group definition is exactly the case this clause was written for.
The real tax question is at home
However relaxed the Panamanian side remains for private individuals, it is only half the calculation. Your home country decides the other half. Moving to Panama does not, on its own, end your tax residence at home: if you keep a home there, your home country may go on taxing what Panama leaves alone, and then territorial taxation has gained you little. What your home country keeps taxing, and what leaving properly involves, depends on where you come from:
The order is therefore always the same: first a proper departure, then the benefit of territorial taxation. What makes a residency hold up when your home tax authority asks questions is set out in the substance checklist for an audit-proof residency.
Why the headline is still useful
There is a grain of truth in the fuss about Ley 526, just not the one the headline claims. The government itself places the law in the context of international standards for tax transparency and economic substance. The MEF expects a better international reputation, more stable financial relationships and better access to international markets. For private individuals who actually live in Panama, that is not bad news: a financial centre with a good reputation is also a financial centre where everyday banking gets easier.
For companies that have so far existed in Panama only on paper, things get more expensive or more demanding from 2027. For people who live in Panama and draw their money from abroad, Panama stays what it was. An overview of the country, from residency to costs, is on the Panama country page, and the pros and cons of daily life are in the article on moving to Panama. And if you want to work through your own situation, from pension to company shareholding, a consultation is the quickest way to a reliable answer.
Carpe Diem. Life is short and fleeting. One shot. Make it count.