In May 2026 the Economy and Finance Committee of Panama's National Assembly began its consultations 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.
Here are the facts, set out plainly.
What Bill 641 actually targets
Bill 641 does not affect individual residents of Panama. It targets a specific category of legal entity: companies that belong to multinational groups and 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 receives income from other group companies and parks it 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 moved
Panama was first put on the European Union's Annex I list of non-cooperative jurisdictions in December 2017, taken off in January 2018 after making commitments, and listed again in February 2020. In the version of 17 February 2026 it was still there, alongside American Samoa, Anguilla, Guam, Palau, Russia, the Turks and Caicos Islands, the US Virgin Islands, Vanuatu and Viet Nam. The EU's finding was that Panama "has a harmful foreign-source income exemption regime and has not resolved this issue yet".
Being on this list is a real commercial problem. Companies in EU member states dealing with entities in listed jurisdictions face stricter scrutiny, extra reporting and, in several countries, defensive tax measures on payments into them. President José Raúl Mulino wanted Panama off the list, and Bill 641 was the legislative attempt to satisfy the EU's conditions.
The approach is the one the EU accepts elsewhere: either the foreign passive income of group companies is taxed at 15%, or the entities earning it demonstrate genuine local substance. In the enacted law that means qualified, paid staff and adequate premises in Panama, strategic decisions taken and risks borne in Panama, and adequate operating costs in Panama.
What happens if an entity fails the substance test
The draft debated in May would have taxed entities classified as non-qualified at 15% on gross foreign passive income, with no deductions. Applied to gross rather than net income, the effective burden on entities with thin margins could have exceeded Panama's standard 25% corporate rate applied to profit.
That changed in committee. The enacted Law 526 sets a single and final rate of 15% on net taxable income. Foreign tax actually paid on that income can be credited, capped at the Panamanian tax, with no refund and no carry-forward.
The draft also restricted how the staff and resources of an outsourcing provider could count towards several entities' substance at once. The final law allows a provider in Panama to serve several clients, but the hours counted for one entity cannot be counted again for another, and outsourcing abroad does not count at all. Groups currently running several Panamanian entities from a single service provider with overlapping staff will need to look closely at that rule.
The shipping industry: a specific problem
The sector most concerned was 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, often with no local staff or offices of their own. Whether shipping would get a carve-out, and whether the EU would accept one, was one of the open questions in May. The enacted law answered it with a separate substance test for companies on the Panamanian registers, built on registration, supervision and the link between the vessel and its income.
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, concerned clients asked 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 was 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 or of Law 526. Your foreign salary, foreign dividends, foreign pension and foreign capital gains remain outside Panamanian taxation under the current framework. That is not what was reformed.
If you operate a Panamanian entity as part of a group with entities in other countries and no genuine local presence: from fiscal year 2027 that entity needs either real substance in Panama or it pays 15% on its net foreign passive income. The era of the pure Panamanian shell is ending.
Could the EU one day extend its requirements to individual residents? Theoretically. But that would require a fundamentally different political move, and the EU's own logic makes it unlikely. The EU can pressure Panama to regulate multinationals. It cannot easily tell Panama how to tax its own residents.
Wherever you live, your home country's own rules still apply to a structure you control abroad. How CFC and attribution rules reach a foreign company is worth understanding before you rely on any jurisdiction's exemption.
Panama still makes sense
Panama remains one of the most practical residency options in the Americas. A US dollar economy. High-quality private healthcare. An efficient logistics hub. Residence routes such as the Friendly Nations Visa and the Qualified Investor programme. And 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.