Passive Income Companies: Panama Is Not the Only Option

A detailed map of Central America lies on a wooden desk, with pins marking specific locations. Surrounded by papers, an elegant pen, and a set of keys.

For a long time, Panama was the default answer whenever the conversation turned to holding assets outside a person's home country. That assumption now deserves a closer look. Panama's Law No. 526 of May 28, 2026 introduced economic-substance rules for Panamanian entities that both belong to a multinational group and receive specified foreign-source passive income.

The regime applies from fiscal year 2027. It does not end Panama's territorial system, but it does make substance—not incorporation alone—the decisive issue in the cases covered by the law. Costa Rica belongs in the same conversation.

In my experience, most clients are not looking for a complex structure or a traditional offshore setup. They want something that works: a clear vehicle that does not complicate day-to-day operations and allows them to organize assets and income in a practical way. Costa Rica already operates under a comparable framework. Law No. 10,381, enacted in 2023 and applicable to foreign-source passive income from January 1, 2024, introduced rules for non-qualified Costa Rican entities that belong to multinational groups. Costa Rica should therefore not be overlooked.

A passive-income company is generally a vehicle that earns returns from assets rather than from an active local business. Typical income may include dividends, interest, royalties, capital gains, income from immovable property, and other returns on movable capital. The label, however, does not determine the tax result. The source and character of the income, the entity's place within a group, and the substance maintained in the jurisdiction all matter.

The use cases are diverse. These structures may serve as holding vehicles for intellectual property, centralizing a brand, software, or another intangible asset and receiving licensing or royalty income. They may also support estate and succession planning connected with real estate, particularly when a person holds investments in several countries. Costa Rica offers an additional institutional advantage: it is a long-standing democracy in the Americas and an OECD member.

Another common objective is efficiency and organization—not aggressive tax planning. A properly designed structure can clarify income sources, separate risk, facilitate a future sale, and simplify succession. Often, the real sophistication is not complexity; it is choosing a structure that is proportionate, defensible, and properly maintained.

From a tax perspective, Costa Rica remains principally territorial, but the analysis cannot stop there. Under Law No. 10,381, specified foreign-source passive income received by an entity that belongs to a multinational group may be taxed at 15% when the entity is considered non-qualified because it does not demonstrate adequate economic substance in Costa Rica. A qualified entity may preserve the non-taxable treatment, subject to the statutory requirements and the anti-abuse rule. The law also provides tailored substance treatment for pure holding companies and entities that acquire, hold, or transfer immovable property on a non-habitual basis.

This is not an automatic exemption, and every structure must be reviewed carefully: where the income arises, how it is generated, whether the entity belongs to a multinational group, whether adequate economic substance exists, and how the arrangement interacts with the investor's home-country rules, controlled-foreign-company provisions, withholding taxes, reporting duties, and banking requirements. If those elements are aligned, Costa Rica can be a genuinely attractive option.

Banking must be part of the analysis from the beginning. Costa Rican corporate accounts can be obtained in appropriate cases, but approval is never automatic and will depend on the bank's due diligence, the beneficial owners, the source of funds, the expected transactions, and the commercial rationale of the structure. A company without a functional banking solution will not achieve its objectives.

Costa Rican companies may be used by nationals and foreign investors alike, subject to the ordinary corporate, tax, beneficial-ownership, and compliance requirements. I have seen them used by local clients organizing assets abroad and by foreign investors seeking a stable, understandable, and operationally practical jurisdiction from which to centralize selected income streams.

The point is not to replace Panama—or any other jurisdiction—with Costa Rica. It is to recognize that there is no universal answer. The correct jurisdiction depends on the assets, income, ownership chain, countries involved, required substance, banking needs, compliance cost, and long-term objective. Not every structure needs to be elaborate, but every structure should be credible.

In my view, what matters is that the structure makes practical sense, works on a day-to-day basis, is easy for the client to understand, and aligns with the client's objectives—whether protecting assets, organizing income, facilitating succession, or planning for the long term. The jurisdiction is not the strategy; it is one component of it.

SEBASTIAN JIMENEZ

Attorney at Law