On October 9, 2026, the Council of the European Union removed Panama from its list of non-cooperative jurisdictions for tax purposes, commonly known as the EU tax blacklist. Panama had been on that list since February 2020. It now sits on Annex II, a separate list of jurisdictions that cooperate with the EU but still have commitments to complete.
For companies, investors and families with Panamanian structures, this is the most important change to Panama's international tax standing in six years. Here's what the EU decided, what changed in Panama to make it possible and what remains pending.
EU finance ministers updated the list at their ECOFIN meeting on October 9, 2026. Panama and Viet Nam were moved from Annex I to Annex II. According to the European Commission, Panama was removed after taking significant steps to address its outstanding issues. KPMG's analysis explains that the key step was the reform of Panama's foreign-source income exemption regime, in line with EU guidance.
Panama's Ministry of Economy and Finance welcomed the decision as a sign of international confidence in the country as a financial and business center.
The reform is Law 526 of May 28, 2026, published in Official Gazette No. 30534-B. It adds a new chapter to Panama's Tax Code with economic substance rules for certain foreign-source passive income.
Who it applies to. Entities incorporated or domiciled in Panama that are part of a multinational group and earn foreign-source passive income. A multinational group means two or more related entities that are tax residents in different jurisdictions, including the parent company, its subsidiaries and its permanent establishments. An entity is part of the group if it is included, or should be included, in the group's consolidated financial statements.
What income it covers. Six types of foreign-source passive income:
The substance conditions. To keep this income outside Panamanian tax under the territorial principle, the entity must report it every year in its income tax return and show that it meets three conditions in Panama:
The law evaluates whether these resources are enough based on the nature, scale and complexity of the activity, the type and amount of income, the number of income-generating assets, the level of risk and the group's structure in Panama.
Pure holding companies. Entities whose main activity is holding shares in other companies, with non-habitual acquisitions and sales, don't have to meet conditions 2 and 3, provided they don't carry out commercial or substantial investment activities with those shares. The same applies to entities that only acquire, hold or transfer real estate on a non-habitual basis. They must still meet condition 1 and the reporting obligations.
Outsourcing. The activities under conditions 1 and 3 can be outsourced, as long as they are carried out in Panama. The provider must have adequate staff and premises, its resources can't be counted for more than one client at the same time, and the entity must supervise the provider and keep the supporting documentation.
What happens if an entity doesn't comply. An entity becomes "non-qualified" if any of the following applies:
In that case, its foreign-source passive income is taxed at a single and final rate of 15% on net taxable income for that fiscal year. Net taxable income is gross income minus the documented costs and expenses directly related to generating that income. Fines, surcharges and interest under the Tax Code can also apply.
When it applies. From fiscal year 2027. The law was regulated by Executive Decree 32 of September 2, 2026, published in Official Gazette No. 30603-B, for fiscal periods starting on or after January 1, 2027. The Ministry of Economy and Finance will keep a registry of these entities and can verify compliance at any time, and the documentation must be kept in Panama.
The law also sets specific rules for regulated banks, securities firms and insurers, which are excluded for income from their regulated activity; for intellectual property; and for merchant marine activities.
Panama's territorial tax system remains in place for everyone else. Local companies, individuals and groups that operate only in Panama aren't affected by Law 526. For multinational groups that use Panamanian holding or financing entities, it's the change to review before 2027.
The Council added Panama to Annex I on February 18, 2020. At the time, the concern was tax transparency: Panama didn't have a rating of at least "Largely Compliant" from the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes. In later reviews, the EU's main concern became Panama's foreign-source income exemption, which it treated as a harmful tax regime. Law 526 was Panama's answer to that concern.
Being on Annex I doesn't create penalties by itself, but it allows EU member states to apply defensive measures. In December 2019, EU finance ministers agreed that each member state should apply at least one of four tax measures to listed jurisdictions:
With Panama off Annex I, the basis for these EU-coordinated measures disappears. Two European reporting rules also change:
The changes take effect when the revised annexes are published in the Official Journal of the European Union. Each member state also applies its own defensive measures and, in many cases, its own national list of non-cooperative or low-tax jurisdictions. Leaving the EU list doesn't automatically remove Panama from those national lists, so companies should review the rules of each country they work with.
Annex II isn't a blacklist. It's a list of jurisdictions that cooperate with the EU but have committed to complete specific reforms. The EU monitors them closely, and a jurisdiction that doesn't meet its commitments can be moved back to Annex I.
For Panama, the pending commitment is an in-depth review of its exchange of information on request by the OECD's Global Forum. The outcome of that review will be key to staying off the blacklist.
There's one more detail for larger groups. Under the EU's public country-by-country reporting rules, introduced by Directive (EU) 2021/2101, large multinationals must report their data separately for jurisdictions on Annex I and for those that have been on Annex II for two consecutive years. Completing the Global Forum review on time keeps Panama out of that category.
The next update of the EU list is expected in February 2027.
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No. The Council of the European Union removed Panama from Annex I on October 9, 2026. Panama is now on Annex II, the list of cooperative jurisdictions with pending commitments.
The Council added Panama to Annex I on February 18, 2020. It remained listed until October 9, 2026.
According to the European Commission, Panama took significant steps to address its outstanding issues. The main step was Law 526 of 2026, which adds economic substance requirements for foreign-source passive income earned by Panamanian entities of multinational groups.
Law 526 of May 28, 2026 requires Panamanian entities that belong to a multinational group and earn foreign-source passive income to report that income every year and show economic substance in Panama: adequate staff and premises, strategic decisions and risks in Panama, and adequate operating costs in Panama. If they don't, that income is taxed at a single rate of 15%. It applies from fiscal year 2027.
No. It only applies to Panamanian entities that are part of a multinational group and earn foreign-source passive income, such as dividends, interest or royalties. Local companies, individuals and groups that operate only in Panama aren't affected.
No. Pure holding companies, which only hold shares or real estate on a non-habitual basis, must have adequate staff and premises and meet the reporting obligations, but don't have to meet the conditions on strategic decisions and operating costs.
Annex II lists jurisdictions that cooperate with the EU on tax matters but still have commitments to complete. It isn't a blacklist, but the EU monitors these jurisdictions and can move them back to Annex I.
Panama is waiting for an in-depth review of its exchange of information on request by the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes.
EU-coordinated defensive measures are tied to Annex I, so they lose their basis once the revised list is published in the Official Journal. However, some member states keep their own national lists, so check the rules of each country involved.
The EU reviews the list twice a year. The next update is expected in February 2027.
This article is for general information and is not legal or tax advice.
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