The EU takes Panama off its list of non cooperative tax jurisdictions

On October 9, 2026, finance ministers of the European Union, meeting as the Council of the EU in Luxembourg, removed Panama and Viet Nam from the EU list of non cooperative jurisdictions for tax purposes. Panama had been on that list continuously since February 2020. The list now has eight names, among them Russia and several United States territories.

Panama has not been given a completely clean sheet. It has been moved to what the EU calls Annex II, a monitoring document for countries that are cooperating but still have reforms to finish. Even so, the move matters for anyone who owns a Panamanian company, banks in Panama or is considering residency there.

What the list is

The EU created the list in December 2017 as part of its strategy on tax matters outside the bloc. Countries are judged on three broad tests: tax transparency (sharing information with other tax authorities), fair taxation (not offering harmful preferential regimes) and the international standards against base erosion and profit shifting, the techniques multinationals use to move profits to places where they pay little tax.

The work is prepared by the Code of Conduct Group, a committee of senior officials from the member states supported by the European Commission.

There are two parts. Annex I is the list itself, often called the blacklist. Annex II, sometimes called the grey list, records jurisdictions that have made commitments and are being watched until they deliver.

Why Panama was on it

Panama's listing in February 2020 came down to transparency. In November 2019 the Global Forum on Transparency and Exchange of Information for Tax Purposes, the OECD linked body that peer reviews how well countries answer requests for tax information from abroad, rated Panama "partially compliant". The EU requires at least "largely compliant", so Panama went onto Annex I.

Over time a second concern was added: Panama's exemption for foreign source income. Like many territorial systems, Panama did not tax income earned abroad, and the EU considered the regime harmful because companies could book passive income such as dividends, interest and royalties in Panama without having any real operations there.

What changed

The decisive step was Law 526, approved by the National Assembly on May 27, 2026 with 70 votes and published in the official gazette on May 28. From the 2027 tax year, Panamanian entities that belong to a multinational group and earn foreign source passive income must show genuine economic substance in Panama: adequate staff, premises, assets, operating expenses, and real direction and control of the activities that produce the income. Entities that fail the test are taxed at a flat 15% on that net income. Regulated banks, insurers, securities firms, fund managers and shipping companies operating Panamanian flagged vessels are largely excluded, as long as the income is tied to their supervised activity.

In its October 9 statement the Council said Panama had reformed its harmful foreign source income regime and had been granted a new Global Forum review of its information exchange. It therefore moved Panama to Annex II until that review is done. According to La Estrella de Panamá, Panama, Montenegro and Viet Nam have committed to obtaining that review by February 15, 2027, with the aim of reaching at least "largely compliant".

President José Raúl Mulino said the decision reopens the door to new investment. Finance Minister Felipe Chapman attributed it to concrete and verifiable reforms. Earlier in 2026, according to the same newspaper, Mulino had barred companies from most EU member states from public tenders in response to the listing.

What it means for companies, banking and residents

• Companies. While a country is on Annex I, EU member states are encouraged to apply defensive measures to payments going there, such as refusing tax deductions, applying controlled foreign company rules (which tax a parent on the income of a low taxed subsidiary) or charging higher withholding tax. Payments to Annex I jurisdictions also trigger automatic reporting under the EU's cross border tax arrangements rules. Each member state applies its own list and timetable, so relief arrives country by country.
• Banking and reputation. Panama left the Financial Action Task Force grey list, the international watch list for weaknesses in anti money laundering controls, in October 2023, and the European Commission removed it from its own high risk anti money laundering list in March 2024. With the tax blacklist gone as well, Panamanian banks and companies face fewer red flags in European due diligence.
• Individuals. Law 526 applies to entities in multinational groups, not to people. Panama continues to tax individuals mainly on income earned in Panama.

The caveat is that Annex II is a probation. If the Global Forum review goes badly, Panama could return to Annex I. The next update of the list is scheduled for February 2027.

What it means if you are considering Panama

For residency applicants, nothing in the immigration rules has changed. What has changed is the backdrop. A Panamanian holding company or bank account now carries less reputational baggage in Europe, which matters if you do business with EU counterparties. If you use a Panamanian company to hold investments, check whether Law 526 applies to your structure before 2027. We help clients choose a residency route, work with our local team of lawyers and tax advisers in Panama, and quote a fixed fee in writing.

If you hold or plan a Panamanian company or foundation, our company structuring service can review whether it still fits your residency and banking, and whether another jurisdiction would serve you better.

This article is general information, not legal, tax or investment advice.