On 11 May 2026, the Economy and Finance Committee of Panama’s National Assembly opened debate on Bill 641. Within days, the commentary online had done what it always does: turned a targeted corporate tax measure into a generalised panic about Panama as a destination.
I covered this in a recent video. Let me set out the facts plainly.
What Bill 641 Actually Targets
Bill 641 does not affect individual residents of Panama. It targets a specific category of legal entity: subsidiaries of multinational groups that hold foreign-source passive income – dividends, interest, royalties, capital gains – in Panama without conducting any genuine economic activity there.
Think of it this way: a Swiss holding company sets up a Panamanian subsidiary. That subsidiary invoices other group companies and parks the proceeds in Panama, paying zero tax because the income has no connection to Panama under the territorial principle. No staff. No office. No real decisions made there. Just a registered address and a bank account.
That is the structure Bill 641 targets. Not you as an individual living and working in Panama.
The EU Blacklist: Why Panama Is Moving Now
Panama has been on the European Union’s Annex I list of non-cooperative jurisdictions since 2017, briefly removed in 2018 after making commitments it subsequently failed to deliver on. As of February 2026, Panama remains on the list alongside American Samoa, Anguilla, Guam, Palau, Russia, the Turks and Caicos Islands, the US Virgin Islands, Vanuatu, and Vietnam. See the official EU list.
Being on this list is a real commercial problem. German companies dealing with Panamanian entities face stricter audit scrutiny and restrictions on deducting invoices from blacklisted jurisdictions under the German Steueroasen-Abwehrgesetz. President José Raúl Mulino wants Panama off the list, and Bill 641 is the legislative attempt to satisfy the EU’s conditions.
The EU requires one of two things: either Panama taxes foreign passive income at the global minimum rate of 15%, or the entities earning it demonstrate genuine local substance – qualified staff, real premises, strategic decisions actually made in Panama, operational expenses proportionate to the activity. All four substance tests must be satisfied simultaneously, according to KPMG Panama’s analysis of the bill.
What Happens If an Entity Fails the Substance Tests
Under the bill as drafted, entities classified as non-qualified would face a 15% tax on gross foreign passive income – not net. That distinction matters. Applied to gross rather than net income, the effective burden on entities with thin margins could exceed Panama’s standard 25% corporate rate applied to profit.
KPMG Panama’s analysis also flagged a detail that will force corporate restructuring: the legislation limits the shared use of personnel and facilities across multiple entities to satisfy the substance tests. Groups currently running several Panamanian entities from a single office with overlapping staff will need to consolidate.
The Shipping Industry: A Specific Problem
The sector most concerned is shipping. Panama has one of the world’s largest ship registries. Vessels are registered through Panamanian entities that are subsidiaries of international shipping companies and freight firms. Those entities have no local staff or offices – they exist solely to hold the registration. Whether shipping gets a carve-out, and whether the EU would accept one, is one of the open questions in the parliamentary debate.
This Pattern Has Happened Before
Panama is not the first country to go through this process. Costa Rica made similar changes in 2023 and 2024 under equivalent EU pressure. Uruguay did the same several years earlier. In both cases, the changes applied to multinational corporate structures, not to individual residents. In both cases, the initial commentary generated more alarm than the facts warranted.
When Costa Rica went through this, I fielded calls from concerned clients asking whether it was still viable to live there tax-efficiently. It was then. It still is. The same logic applies to Panama now. If you live in Panama, your foreign-source income is not on the table in this debate.
What This Means for You
If you are an individual living in Panama, or considering moving there: the territorial tax principle for natural persons is not part of Bill 641. Your foreign salary, foreign dividends, foreign pension, and foreign capital gains remain outside Panamanian taxation under the current framework. That is not what is being reformed.
If you operate a Panamanian entity as part of a multinational structure with no genuine local presence: that entity will need to either establish real substance in Panama or accept a 15% gross income tax. The era of the pure Panamanian shell is ending.
Could the EU one day extend its requirements to cover individual residents? Theoretically. But that would require a fundamentally different political move, and the EU’s own internal logic makes it unlikely. The EU can pressure Panama to regulate multinationals. It cannot easily tell Panama how to tax its own residents.
Panama Still Makes Sense
Panama remains one of the most practical residency options in the Americas. USD economy. High-quality private healthcare. Efficient logistics hub. Friendly Nations Visa and Qualified Investor Visa providing straightforward residency routes. A territorial tax system that, for individuals, is not under threat.
If you are thinking about Panama as a residency base or as part of a broader international structure, the Bill 641 debate should not change that calculus. What it should reinforce is a principle worth repeating: no structure should depend entirely on a single jurisdiction’s rules remaining unchanged indefinitely.
For a full overview of Panama as a residency and tax destination, see the Panama country page. For a deeper read on how CFC rules interact with offshore structures more broadly, the article on CFC rules and offshore entities is worth your time.
If you want to understand how Panama fits into a properly structured Plan B – residency, banking, corporate setup, and the sequencing that makes it work – get in touch.
