PANAMA Trends and Developments Contributed by: Mariano Oteiza Díaz and Estefanía Alemán, Icaza, González-Ruiz & Alemán
cooperative jurisdictions for tax purposes, together with the banking, regulatory, and reputational conse - quences of inclusion on that list, has provided power - ful additional incentive for jurisdictions to adopt and enforce adequate substance requirements. Panama, having navigated a challenging international reputa - tional environment in recent years, has compelling reasons to align fully with these standards. Law 526 is the result of that commitment. Panama’s regulatory journey: a decade of progressive alignment Law 526 does not emerge in isolation. It is the latest and arguably the most significant step in a decade- long process through which Panama has systemati - cally modernised its corporate regulatory framework to bring it into line with the standards prevailing in comparable jurisdictions. Understanding this context is essential to appreciating both the significance of the new law and the trajectory it represents. Law 52 of 2016 established mandatory accounting records requirements for two categories of Panama - nian legal entities particularly relevant to international structuring: those that do not carry out operations with effects within Panama, and those exclusively dedicated to holding assets, whether within or outside Panamanian territory. As strengthened by Law 254 of 2021, entities within scope must maintain accounting records and supporting documentation for a mini - mum of five years; those exclusively holding assets must maintain records reflecting the value of assets held, the income received therefrom, and the related liabilities, and must deliver their accounting records or copies thereof to their registered agent annually by 30 April. Law 51 of 2016, also amended by Law 254 of 2021, established Panama’s regulatory frame - work for the automatic exchange of financial account information in line with the OECD Common Reporting Standard (CRS), enabling the systematic exchange of tax information between Panama and its partner jurisdictions. Panama also enacted a beneficial ownership regis - tration regime, requiring all companies and private foundations to maintain up-to-date information on their ultimate beneficial owners and to make that infor - mation accessible to competent authorities through
a secure system administered by registered agents. This regime aligns Panama with the Financial Action Task Force (FATF) recommendations on beneficial ownership transparency that have become a baseline expectation across the international financial services industry. Beneficial ownership registers have similar - ly become a standard due diligence requirement of banking counterparties and foreign regulators dealing with Panamanian entities. Together, these measures have brought Panama into substantive alignment with the corporate governance and transparency standards of jurisdictions such as the BVI, the Cayman Islands, Singapore, Uruguay, the Seychelles, Jersey and Guernsey, all of which have enacted comparable frameworks for account - ing records, beneficial ownership, and economic sub - stance. Law 526 adds economic substance to this framework, completing the alignment and addressing the one regulatory gap that the OECD and the EU had most consistently identified as a point of concern. Law 526: a targeted regime, not a general rule One of the most important features of Law 526 is what it does not do. It is not a general economic substance requirement applicable to all Panamanian entities. Its scope is specifically limited to entities that simultane - ously satisfy three conditions: they must be incorpo - rated or domiciled in Panama; they must form part of a multinational group; and they must receive passive income from foreign sources. A multinational group, for purposes of Law 526, is defined as a group of two or more entities linked by ownership or control, whose members are tax resident in different jurisdictions, including the parent entity, its subsidiaries, and any permanent establishments. Critically, a Panamanian entity does not form part of a multinational group merely because it holds foreign assets, maintains offshore bank accounts, or receives dividends from a foreign investment. The determining factor is the existence of a cross-jurisdictional control or ownership link between entities that are tax resident in two or more different jurisdictions. The vast majority of Panamanian private interest foun - dations, closely held holding companies, and family wealth vehicles used for personal or family estate
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