{"id":5142,"date":"2026-08-10T09:00:00","date_gmt":"2026-08-10T14:00:00","guid":{"rendered":"https:\/\/panamcham.rewind10.com\/challenge-of-law-526-of-2026-economic-substance\/"},"modified":"2026-08-10T09:00:00","modified_gmt":"2026-08-10T14:00:00","slug":"challenge-of-law-526-of-2026-economic-substance","status":"publish","type":"post","link":"https:\/\/panamcham.rewind10.com\/en\/challenge-of-law-526-of-2026-economic-substance\/","title":{"rendered":"Challenge of Law 526 of 2026 -Economic Substance"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>Author: Ivelisse Bonilla<\/strong> &#8211; Chair of the Legislation and Tax Committee \/ Tax Director &#8211; Arias<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Panama recently adopted Law 526 of 2026, which created an exceptional economic substance regime by introducing specific rules that must be observed by all companies incorporated or domiciled in Panama that (i) form part of a multinational group \u2014two or more entities linked by ownership or control and tax resident in different jurisdictions\u2014 and that (ii) earn passive income in the form of dividends or profit participations, interest, royalties, capital gains, income from real property and other income from movable capital.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The law provides that every entity falling within its scope must file annually the income tax return for the relevant fiscal period covering foreign-source passive income, together with the information needed to demonstrate that it meets the economic substance criteria. Given this premise, it is important to understand the concept of a <strong><em>Multinational Group<\/em><\/strong>, since it is a key element in determining whether the effects of this law reach a given entity or not.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In that regard, item 4 of article 707-B provides the following: <em>\u201c4) Multinational Group: A group of two or more entities, linked by ownership or control, tax resident in different jurisdictions, including its parent company, its subsidiaries and its permanent establishments<\/em>\u201d. This concept is also supplemented by certain conditions set out in the same article, among them that the group member entity be included in the group\u2019s consolidated financial statements, or that it should have been included had the entity been required to prepare such statements; or that it should be included in them if the equity interests in that entity were listed on a public securities market. Where this is the case, even if the entity is excluded on the grounds of size or financial statement disclosure, it would still be classified as a member of a multinational group.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Article 707-E of the law sets out a list of circumstances for determining the existence of adequate economic substance, centered on three relevant elements: the availability of adequate human resources and facilities; strategic administration or management; and the incurring of adequate operating expenses. The sufficiency of these elements must be assessed in light of the nature, scale and complexity of the activity; the amount and type of passive income; the assets involved; the level of risk; and the operating structure of the multinational group.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The law will enter into force in January 2027; even now, however, a company that is a member of a multinational group faces the real challenge of rethinking its role within the group to which it belongs and demonstrating, objectively and with documentation, that its structure has economic substance elements, whether through its own resources or through outsourced services.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Finally, we must note that Law 526 was approved recently and arises with the primary aim of achieving competitiveness, reinforcing the commitment to transparency and complying with international standards, objectives clearly defined by the Republic of Panama as a roadmap for raising its levels of competitiveness worldwide. The law states that its implementing regulations must be approved within 90 days of its enactment, which falls at the end of this month of August 2026.<\/p>\n\n","protected":false},"excerpt":{"rendered":"<p>Author: Ivelisse Bonilla &#8211; Chair of the Legislation and Tax Committee \/ Tax Director &#8211; Arias<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"comite":[7],"class_list":["post-5142","post","type-post","status-publish","format-standard","hentry","category-noticias","comite-legislacion-e-impuestos"],"acf":[],"_links":{"self":[{"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/posts\/5142","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/comments?post=5142"}],"version-history":[{"count":0,"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/posts\/5142\/revisions"}],"wp:attachment":[{"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/media?parent=5142"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/categories?post=5142"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/tags?post=5142"},{"taxonomy":"comite","embeddable":true,"href":"https:\/\/panamcham.rewind10.com\/en\/wp-json\/wp\/v2\/comite?post=5142"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}