On May 27, 2026, Panama’s National Assembly approved a bill which introduces economic substance rules into the Tax Code applicable to certain categories of foreign-source passive income earned by entities belonging to multinational groups domiciled in Panama. The bill will now be submitted to the Executive Branch for enactment and is expected to enter into force in 2027. 

Scope and Covered Income

The reform applies to entities belonging to multinational groups domiciled in Panama that derive certain categories of foreign-source passive income, including dividends or profit distributions, interest, royalties, capital gains, income from immovable property, and other forms of capital income.

Economic Substance Requirements and Consequences of Non-Compliance

The regulations uphold the principle of territoriality in the Panamanian tax system but provides an exception to tax certain foreign sourced passive income earned by entities that do not demonstrate sufficient economic substance in Panama. 

To be considered a “qualified entity” and retain the applicable ource-based tax treatment for such passive income, an entity must demonstrate, among others: 

• Qualified personnel appropriately remunerated in Panama; 
• Adequate facilities for carrying out the entity’s principal activities in Panama; 
• Strategic decision-making and assumption of risks within Panamanian territory; and 
• Operating expenses linked to the income-generating assets. 

Entities that fail to demonstrate compliance with the economic substance requirements, as well as with the other obligations and conditions set forth in the bill for being considered “qualified entities,” will be deemed “non-qualified entities” and will be subject to a 15% tax on the net taxable income derived from such passive income from foreign sources. 

Excluded Sectors

During the legislative process, certain regulated sectors were excluded from the scope of the rules, including merchant shipping, banking, insurance and reinsurance, securities markets, and investment fund managers, subject to compliance with the conditions established under the applicable legislation.

Relevance for Colombian Individuals and Businesses with Panamanian Structures or Investments

This reform is particularly relevant for Colombian individuals and businesses with structures or investments in Panama, as it reflects the broader international trend toward requiring real economic substance in jurisdictions traditionally used for international operations and wealth-holding structures. 

In practice, Panamanian entities earning certain categories of foreign-source passive income will need to demonstrate an effective presence and genuine operational activity in Panama, which may require reviewing how their activities are currently structured, operated, and documented. 

Brigard Urrutia is available to assist clients who need help analyzing the potential impact of these new regulations on their international structures involving companies in Panama.