If you follow Panama news, you have probably seen a headline saying Panama now taxes foreign income at 15%. Several landed in the same week, and most were clearly copied from each other.
No, Panama did not suddenly impose a blanket 15% tax on every expat's foreign income. Panama remains a territorial tax jurisdiction, and if you're looking at the country for residency, retirement or a second base, the change is far narrower than the coverage suggests.
Something real did happen, and it's worth understanding properly. Here is what it is, who it's aimed at, and how to tell in a couple of minutes whether it has anything to do with you.
The Short Answer
Law 526 is an economic substance rule. From 2027, certain Panamanian entities that belong to multinational groups and receive certain kinds of passive income from abroad have to show real activity behind the structure in order to keep the favorable treatment that Panama's territorial system gives them.
If such an entity doesn't meet those requirements, the affected income may become subject to 15% on the corresponding net taxable income.
That is the whole of it. Note how much has to be true before the number applies to anyone: a Panamanian entity, inside a multinational group, receiving specified passive income from abroad, that falls short on substance.
For most people considering Panama as a place to live, retire or hold a second residence, that description does not fit.
What Law 526 Changed
Law 526 of 28 May 2026 was published in Gaceta Oficial 30534-B. The implementing rules followed in Executive Decree 32 of 2 September 2026, published in Gaceta Oficial 30603-B. The regime applies beginning with fiscal year 2027, so there's time to work out where you stand.
It reaches entities incorporated or domiciled in Panama that:
The passive income categories are defined: dividends and profit distributions, interest, royalties, capital gains, real-estate capital income, and other movable-capital income.
Where a covered entity is determined to be non-qualified because it fails those substance requirements, the affected net taxable income may become subject to 15% income tax. It is not automatic, and it is not a levy on every dollar arriving from abroad.
Panama Is Still a Territorial System
This is the part the headlines flattened, and it's what should carry the most weight if you're weighing a move.
Panama continues to tax on a territorial basis. Law 526 doesn't replace that framework. It adds a specific requirement inside it, asking a defined set of entities to demonstrate substance in order to preserve the treatment they already enjoy.
So the basic proposition that draws people to Panama is intact. What has changed is that one particular kind of structure now has something to prove.
What It Means for Retirees and Ordinary Residents
If you're moving to Panama to retire, to hold a second residence, or to have somewhere to go if things turn at home, Law 526 is unlikely to be the issue the headlines make it sound like.
The regime is directed at certain Panamanian entities belonging to multinational groups, not at individuals merely because they reside in Panama. Someone drawing a pension from Canada, the United States or the United Kingdom isn't brought into a corporate substance regime by holding a Panamanian residence card.
That's not the same as saying you have no tax questions at all. It means the questions worth asking are different ones, and they mostly concern the country you're leaving rather than the one you're arriving in.
If Panama is part of your Plan B, the first step is working out which residency route fits your situation, and which tax questions, if any, need separate specialist advice. That's a conversation we have every week.
What If You Own a Panama Company?
Owning a Panamanian corporation doesn't by itself put you inside this regime.
The threshold question is whether the entity belongs to a multinational group, which generally means companies connected through ownership or control across more than one country. A Panama company owned by one person and operating on its own sits in a different position from one that is a node in a larger international structure.
So the shape of the ownership matters more than the existence of the company. If your Panamanian entity is connected to companies elsewhere and receives passive income from abroad, that's worth reviewing properly before 2027 rather than after.
What Economic Substance Means in Practice
Stripped of the terminology, Panama is asking certain entities to show there is real activity behind the structure.
Depending on the activity, that can turn on things like:
The rules also allow some activities to be outsourced to service providers in Panama, with appropriate supervision and control over the work.
For an entity inside the regime, the practical consequence is that incorporating a company and keeping a registered address may not be enough on its own.
Who Should Look Harder
Worth a proper review before 2027 if you have:
If none of that describes you, this is unlikely to be your problem. That's not a reason to avoid Panama. It's a reason to know which conversation you're having.
A Separate Question: Where Your Own Work Is Done
Law 526 should also be kept separate from the ordinary rules that decide where professional or consulting income is sourced. They are different questions and they get conflated constantly.
Having a foreign client, a foreign payer, a foreign company or a foreign bank account does not by itself make professional income foreign-source. For someone working from Panama, where the activity is performed can matter under Panama's sourcing rules, and the answer depends on the facts.
If you plan to run a consulting or service business from Panama, that's a question to put to a tax professional as part of the plan. It has nothing to do with Law 526.
Residence and Tax Residence Are Different
Immigration residence is permission to live somewhere. Tax residence decides who taxes you. They're set by different rules and they don't move together, and a Panamanian residence card doesn't by itself determine where you pay tax.
Someone leaving Canada, France or the United Kingdom can carry real tax-residence obligations in the country they left. Someone spending a large part of the year in a third country can become tax resident there without intending to. Those questions belong with a tax professional in the countries concerned, and they're worth answering before you move rather than after.
The Practical Takeaway
Panama remains one of the region's most attractive jurisdictions for people looking for residency, flexibility and an international base. Law 526 doesn't change that basic proposition.
What it does change is that it's now worth distinguishing a straightforward personal residency plan from a more complex multinational corporate structure. The first is the ordinary case and is very unlikely to be touched by this. The second deserves a proper look before 2027.
The useful question isn't whether Panama taxes foreign income. It's whether Law 526 reaches your particular structure and your particular type of income. For most readers of this article, the answer is going to be no.
Next Steps
Plan B Expat helps clients separate what applies to them from what doesn't. We work out which Panama residency routes are open to you, what the practical differences between the programs are, and where an immigration question ends and a specialist tax question begins.
Tax advice is a separate thing from immigration advice. Where a situation raises international tax questions, those go to an appropriate tax professional, and we coordinate with licensed counsel in Panama for the legal work.
Choose before you have to.
Last updated: September 2026. Written from Law 526 of 28 May 2026 and Executive Decree 32 of 2 September 2026 as published in the Gaceta Oficial, and confirmed with licensed Panamanian counsel in September 2026.
Plan B Expat provides consulting and coordination, not legal or tax advice. Always take counsel from the licensed attorneys, accountants and tax specialists in our vetted network.
Michael L.
Canadian founder of Plan B Expat. Permanent resident of both Panama and Paraguay. MBA in International Business, trilingual (English, French, Spanish), and two decades of real estate brokerage experience in Quebec and Ontario. Writes from direct experience navigating the immigration, banking, and relocation systems of both countries.
