Aug 13, 2026
By Gabriela Páez
In Costa Rica, it is quite common for business groups and families to have holding companies, corporations or private interest foundations in Panama. There is not necessarily anything wrong with that. The point is that, under Law 526, as of 2027 some of these entities will have to demonstrate that they have real activity in Panama, especially when they receive passive income from abroad.
The new law changes the conversation. Previously, many structures were reviewed from a formal standpoint: whether the company was properly incorporated, whether it had a resident agent and whether its minutes were up to date. Now the question goes further: does that entity actually perform functions in Panama related to the income it receives?
Economic substance means that the company does not exist only on paper. There must be verifiable activity in Panama: people participating, decisions being made, reasonable expenses and documents showing that the entity performs a real function beyond appearing as the formal holder of investments. The most common risk arises when the entity is incorporated in Panama but day-to-day management is handled from Costa Rica. Minutes may say one thing, while emails, banking instructions, contracts and other supporting documents may tell another story. To better defend the structure, those managing the entity must have real information, judgment and authority to decide, not merely sign what has been prepared from another country.
Some functions can be outsourced to providers located in Panama, such as administrators, accountants or corporate service firms. However, hiring someone does not automatically mean economic substance exists. The entity must be able to demonstrate that it supervises what it contracts and that the provider has real capacity to provide the service. If an entity falls within the regime and fails to demonstrate real activity in Panama, the taxable net income related to those foreign passive income streams could be subject to a single and final 15% rate. The regulation will be essential to determine the documents, forms and criteria that will be required. In simple terms, the entity should not be just a well-organized folder; there must be real decisions, people who understand what they manage, reasonable expenses and evidence that the structure works in practice.
Bibliographic references
Republic of Panama. Law 526 of May 28, 2026, establishing economic substance requirements for certain foreign-source passive income.
Ministry of Economy and Finance of Panama.
ational Assembly of Panama. Editorial note: The practical application of Law 526 should be reviewed once the final regulation is issued.