On 9 October 2026, the finance ministers of the European Union approved a new version of the list most people have in mind when they say "tax haven". Panama is no longer on it. The Council conclusions adopted that day cut Annex I, the list of non-cooperative jurisdictions for tax purposes, from ten names to eight: American Samoa, Anguilla, Guam, Palau, the Russian Federation, the Turks and Caicos Islands, the US Virgin Islands and Vanuatu. Panama and Viet Nam left the list.
For anyone who lives in Panama, banks there, or holds a Panamanian company somewhere in a structure, two questions follow. What did Panama change to get off the list? And does that change touch you? The first answer is a law that most people outside Panama's tax profession have not read. The second answer, for most individuals, is no. For companies that sit inside an international group, it is a clear yes, from 1 January 2027.
What the list said about Panama in February
The EU list is revised twice a year, and the Council conclusions spell out why each name is on it. In the version of 17 February 2026, Panama was entry number five, with two findings.
The first was that Panama "has a harmful foreign-source income exemption regime and has not resolved this issue yet." That is a direct reference to the feature Panama is best known for: territorial taxation, under which income earned outside the country is not taxed in Panama. The EU's objection was never to territorial taxation as such. It was to letting companies book passive income such as dividends, interest and royalties in Panama, untaxed, without doing anything in Panama.
The second finding concerned exchange of information on request. Panama had committed to fixing deficiencies identified by the OECD's Global Forum and to requesting an in-depth review.
In the October version, Panama has moved to Annex II, the part of the conclusions that tracks commitments by jurisdictions the EU treats as cooperative. There it appears among the jurisdictions "waiting for an in-depth review by the Global Forum", alongside Montenegro and Viet Nam. The harmful-regime finding is gone. Belize, which was waiting for the same kind of review in February, no longer appears in Annex II at all.
What Panama changed: Law 526 of 2026
The harmful-regime finding was resolved by Ley 526 of 28 May 2026, published the same day in the Gaceta Oficial No. 30534-B. The Brief explained the draft in May, while it was still before the National Assembly, in what Panama's Bill 641 actually does. The enacted text adds a new chapter to the Fiscal Code under the title "Economic substance rules for foreign-source passive income", and it is narrower than the headlines suggested.
Who is covered
The rules apply to entities that belong to a multinational group and are incorporated or domiciled in Panama. The law defines a multinational group as two or more entities, linked by ownership or control, that are tax resident in different jurisdictions, including the parent, its subsidiaries and permanent establishments. An entity counts as part of the group if it is, or would have to be, included in the group's consolidated financial statements.
Which income is covered
Six types of foreign-source passive income are listed in the new article 707-C:
- dividends and profit shares;
- interest;
- royalties;
- capital gains;
- income from foreign real estate;
- other income from movable capital, such as leasing of movable assets.
Trading income, service fees and other active income are not in the list.
The substance test
To keep that income untaxed under the territorial principle, a covered entity must report it in its annual income tax return and show three things in Panama:
- adequate, paid and qualified staff and adequate premises for the core activities that generate the income;
- that the strategic decisions are taken and the risks borne in Panama;
- that it incurs adequate operating costs in Panama, beyond staff and premises.
Two lighter tests apply. A pure holding company, whose main activity is holding shares and which does not trade them habitually, only has to meet the first condition plus the reporting and registration duties. The same lighter test applies to entities whose only activity is acquiring, holding or transferring real estate on a non-habitual basis. The core activities may be outsourced, but only to a provider working in Panama, and the provider's staff hours cannot be counted twice across several clients.
The price of failing it
An entity that does not report, does not meet the conditions, reports partially or files information inconsistent with reality becomes a "non-qualified entity". Its foreign-source passive income is then taxed at a single, final rate of 15% on net taxable income, with fines, surcharges and interest on top where they apply. Foreign tax actually paid on that income can be credited, capped at the Panamanian tax, with no refund and no carry-forward.
There is a separate formula for intellectual property, modelled on the OECD's nexus approach: only the share of income that corresponds to development spending in Panama, with a 30% uplift, stays untaxed. There is a general anti-abuse clause that lets the Ministry of Economy and Finance disregard arrangements with no valid commercial reason. And there are carve-outs for supervised banks, insurers, securities firms and regulated fund managers on income from their regulated business, and a special substance test for shipping companies on the Panamanian registers.
When it starts
Article 6 is short: the law applies from the fiscal year 2027. Article 4 gave the executive 90 days to issue regulations. The same law also rewrote the definition of a permanent establishment in article 762-M of the Fiscal Code, including a 183-day threshold for construction projects and for services provided through staff present in Panama.
Who is not touched
The most important sentence for individuals is the one the law does not contain. The new chapter speaks only of entities that belong to a multinational group. A person who lives in Panama and receives dividends, interest or a pension from abroad in their own name is not a multinational group, and nothing in Law 526 changes how that income is treated. Panama's territorial system for individuals, described on the Panama country page, is where it was.
The same holds for a Panamanian company that is not part of a group with entities tax resident in other jurisdictions, as the definition is written. The trouble is that many private structures do form such a group without their owners thinking of them that way. A Panamanian company owned by a holding company in another country, or a Panamanian company that owns a subsidiary abroad, sits in a chain of entities resident in different jurisdictions. Whether the consolidation test in the definition is met is a question for the accountant, and it should be asked before the 2027 books open, not when the first return is due.
What the delisting changes for people in the EU
For residents of EU countries, the list has never been just a reputational matter. The clearest example is the EU's mandatory disclosure regime for tax intermediaries, Directive 2018/822, known as DAC6. Its hallmark C.1 makes certain cross-border arrangements reportable where deductible payments between associated enterprises go to a recipient resident in a jurisdiction "included in a list of third-country jurisdictions which have been assessed by Member States collectively or within the framework of the OECD as being non-cooperative".
With Panama off Annex I, payments to a Panamanian recipient no longer trigger that particular limb. They can still trigger the neighbouring ones: hallmark C.1 also covers recipients in jurisdictions with no corporate tax or a rate of zero or almost zero, payments that are fully exempt in the recipient's country, and payments that benefit from a preferential regime. An untaxed foreign dividend booked in Panama can still fit those descriptions. Delisting removes one reporting trigger. It does not make a structure invisible.
Individual EU member states also refer to the EU list in their own legislation, each in its own way. Anyone whose structure was designed around Panama's listing, for example to avoid a national penalty that applies to payments into listed jurisdictions, should have the national rule re-read rather than assume the problem has disappeared.
What the episode says about territorial tax countries
Panama did not abandon territorial taxation. Article 707-A of the new chapter says so in terms: the substance rules decide whether passive income stays untaxed "in accordance with the principle of territoriality". What changed is that the exemption for passive income of group companies became conditional on substance. The pattern matters for anyone comparing the countries that don't tax foreign income. For individuals, territorial systems remain largely intact. For companies, "not taxed because it was earned abroad" now increasingly comes with the question "and what do you actually do here?"
That is also why the EU list is a poor guide to where tax is low. None of the eight jurisdictions still on Annex I is there because of its tax rate alone. American Samoa, Guam and the US Virgin Islands are listed for not applying automatic exchange of financial information, Palau for not having signed and ratified the OECD's multilateral convention on administrative assistance, Russia for a holding-company regime, and Anguilla, the Turks and Caicos Islands and Vanuatu for structures without real economic substance. Low-tax places that cooperate are not listed. The list measures cooperation, not rates, which is one reason The Brief has argued that boring, cooperative jurisdictions win over the long run.
What to do now
For a person living in Panama on a residence permit, such as the Qualified Investor route reshaped by Decree 17, the October decision asks for nothing. The personal tax position is unchanged, and a country of residence that is no longer on the EU's non-cooperative list is one item fewer to explain in a European bank's compliance questionnaire.
For anyone holding a Panamanian company inside a wider structure, the to-do list is concrete:
- Map the group. List every entity linked by ownership or control and where each is tax resident. If there is more than one jurisdiction, assume Law 526 may apply and confirm it with the accountant.
- Identify the income. Separate passive foreign income (dividends, interest, royalties, gains, foreign rent) from active income. Only the first is in scope.
- Decide on substance or tax. Either build real staff, premises, decisions and costs in Panama, or price in 15% on net passive income from 2027. A company that cannot do the first and does not want the second may no longer be the right vehicle.
- Re-check EU reporting. If you or your advisers are in the EU, look again at DAC6 hallmark C.1 and any national rule that once referred to Panama's listing.
There is also a reminder in all of this that zero tax is not zero cost. Panama's exemption for foreign passive income still exists. From 2027, for companies in groups, it is paid for in salaries, offices and board meetings in Panama City.
Work with Sebastian
If you hold a Panamanian company in your structure, or live in Panama and want to know whether the 2027 rules change anything for you, that is the kind of cross-border question Sebastian works on with internationally mobile clients. Book a consultation.
