Panama is off the European Union’s tax haven blacklist for the first time since February 2020. It has not been set free, however, only moved to probation.
The EU finance ministers' meeting in Luxembourg on October 9 removed Panama and Vietnam from Annex I of the bloc's list of non-cooperative jurisdictions for tax purposes and moved both to Annex II, the grey list of jurisdictions that still have commitments to meet, the European Commission said. The blacklist now holds eight jurisdictions: American Samoa, Anguilla, Guam, Palau, Russia, the Turks and Caicos Islands, the US Virgin Islands and Vanuatu.
The decision closes a fierce campaign the government of President Jose Raul Mulino fought on every front, from courting ministers in Stockholm and Berlin to shutting EU companies out of state tenders. It also gives the country its best chance in a decade to shed the unenviable reputation stemming from the Panama Papers scandal. Yet the reform that won the exit is narrow, and the step that would close the file for good is not in Panama's hands.
Mulino had predicted the exit in September and claimed it as a personal win. "This is the result of a fight that I began in the private sector and led as president from the first day," he said, adding: "Today, with this great victory, we open the doors to new investment, we gain in competitiveness and in real opportunities for Panamanians," La Estrella de Panama reported.
"Today Panama recovers something it should never have lost: trust and credibility," Finance Minister Felipe Chapman said. "Throughout this time, this affected our reputation, made business harder and made us compete at a disadvantage."
A narrow fix
The Council cited Panama's reform of what it called a "harmful" foreign-source income exemption regime. The vehicle is Law 526 of May 28, which passed the National Assembly with no votes against. It obliges Panamanian entities that belong to multinational groups and earn passive income from abroad, such as dividends, interest, royalties and capital gains, to show real substance in the country: qualified staff, physical offices, key decisions taken locally and operating costs to match.
Entities that fail the test will pay 15% on that net income from fiscal 2027, income that Panama's territorial tax system previously left untouched. Executive Decree 32, which sets out how companies prove compliance, was published on September 2.
Most of the model survives. Companies that can show a genuine physical presence keep the territorial exemption on foreign-sourced income in full, and the law targets shell entities with no staff, no offices and no commercial reality rather than the wider incorporation industry.
After the October 9 decision, the International Consortium of Investigative Journalists recalled its 2016 Panama Papers investigation, conducted with Süddeutsche Zeitung. The leak of 11.5mn documents showed how a single Panama-based law firm, Mossack Fonseca, set up more than 214,000 offshore entities linked to people in more than 200 countries and territories, and it exposed the shady dealings of numerous powerful figures worldwide.
Panama was on the EU's first blacklist in December 2017, moved to the grey list a month later, made tax evasion a crime in 2019 and was blacklisted again in February 2020 for failing to deliver promised reforms. A register of the beneficial owners of every company followed.
Probation, not acquittal
The grey-list placement turns on one standard: exchange of tax information on request. The OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes has granted Panama a new review of its compliance, and Panama stays in Annex II until it is done.
Under the Council's conclusions, Panama and Vietnam committed to request and obtain an in-depth Global Forum review by February 15, 2027, with the aim of reaching at least a "largely compliant" rating, La Estrella de Panama reported. Finance ministry spokespeople told La Prensa that Panama has formally asked for an on-site review so it can be assessed by the first half of 2027 at the latest. The EU list is next updated in February 2027, but the two processes run on separate tracks, so that date is an opening rather than a promise.
"There are some things that are in our control as a country, others not so much," said Darma Romero, senior tax manager at EY Central America, explaining that the EU defers to the Global Forum on this criterion and that the forum's evaluation of Panama starts in 1Q27.
"The European Union has not taken Panama off any list, yet. It only moved us from Annex 1 to Annex 2 within its discriminatory list because, according to them, we still have not done enough," said lawyer Adolfo Linares, who called the annual reviews by the EU's Code of Conduct Group "outrageous".
Carlos Barsallo, a lawyer and former head of Transparency International's Panama chapter, warned the country must be "careful not to end up back on the list" and pointed to virtual assets and the crypto economy as the next weak spot. "Simply passing a law is not enough, there must be a mechanism in place to combat fraud involving these new virtual assets," he told the ICIJ.
Vietnam's record shows how fast a jurisdiction can swing between the lists. Hanoi left the grey list in October 2025 after meeting its country-by-country reporting commitments, then was sent straight to the blacklist in February 2026 after a Global Forum review rated it non-compliant on exchange of information on request. It has since amended its tax administration and enterprise laws and now returns to Annex II, still pending a fresh review.
Tenders, trust and money
The listing itself carried no EU sanctions. It barred EU funds from passing through entities in listed jurisdictions and brought administrative measures such as more frequent audits, while member states were free to add penalties of their own. The heavier cost fell on financing: Sweden's export credit agency faced near-prohibitions on backing projects in blacklisted jurisdictions. The IMF has recently noted that removal would boost foreign direct investment and lower compliance costs.
After the EU kept Panama blacklisted in February, Mulino hit back by shutting companies from EU member states out of public tenders, sparing only Spain, Italy and Greece, which do not list Panama, a threat he had first made in 2024. But the Panama Canal Authority, an autonomous body overseeing the key waterway with more than $8.5bn of planned infrastructure projects, said the ban did not bind it.
The government's statement on October 9 said the exit would open the door to more European investment in every sector of the economy, but it did not say whether the tender ban has been lifted.
"Today's decision is an important recognition of the significant progress made by Panama to strengthen the country's tax framework," said EU ambassador Andrea Matteo Fontana, who said he hoped to keep working to tighten economic and trade ties.
There is no verifiable figure yet that can attribute any amount of investment to the decision, an economist wrote in La Prensa, noting that Panama recorded about $2.8bn of foreign direct investment in 2024, according to official figures. Chapman tied the delisting to an economy that grew 6.4% in 2Q26, with the jobless rate down to 8.5% from 10.4%.
The sequence of the past year runs one way: Panama left the EU's money-laundering high-risk list in 2025, passed its substance law in May and has now escaped the tax blacklist. But it has been here before. Moved to the grey list in January 2018, it was back on the blacklist two years later.