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Panama and the EU Blacklist: Fiscal Reforms and the Future of Residency and Investment in 2025

For entrepreneurs and investors with a global vision, a country’s fiscal reputation is a decisive factor when considering a change of residence or business expansion. Panama, known for its territorial tax system and strategic location, has been under the scrutiny of the European Union. The recent decision to keep Panama on its list of non-cooperative jurisdictions for tax purposes has raised questions. However, behind this news, a robust strategy is being developed by the Panamanian government to address EU concerns and exit the EU blacklist. This article breaks down the current situation, proposed reforms, and what this means for those looking to settle or invest in Panama in 2025 and beyond.

Current Context: Why Is Panama Still on the EU Blacklist?

Since 2017, the European Union has maintained a list of jurisdictions that do not comply with its standards for tax transparency and fairness. This list, updated semiannually, seeks to combat tax base erosion and profit shifting. Panama has remained on this list due to a foreign-source income exemption regime that the EU considers harmful, as well as deficiencies identified by the Global Forum in its information exchange framework.

According to the conclusions of the European Council, Panama has a harmful foreign-source income exemption regime that it has not yet resolved.

This situation has occasionally meant that European companies operating in Panama face restrictive measures. Recognizing and addressing these concerns is crucial for Panama’s international image and its ability to attract legitimate foreign investment.

Panama’s Response: Commitment to Transparency and Modernization

The Panamanian government has been transparent about its position and has reaffirmed its commitment to international cooperation and fiscal transparency. The President of the Republic, José Raúl Mulino, has publicly stated that the country continues to work intensely to achieve its exclusion from the list. This stance is supported by the Ministry of Economy and Finance, which emphasizes the significant progress already made in fiscal and regulatory matters.

The government’s main objective is to elevate Panama’s international image and regain investor confidence. This commitment is fundamental to ensuring that Panama remains an attractive destination for tax residency and business.

Keys to the Panamanian Proposal: A Strengthened Territorial System

The Panamanian Ministry of Foreign Affairs, through Vice Minister Carlos Hoyos, has been developing a detailed proposal that seeks to comply with the technical requirements of the EU. This strategy is designed not only to exit the EU blacklist but also to strengthen Panama’s position as a responsible international business hub.

Not a Renunciation of the Territorial Tax System

One of the most important clarifications is that this proposal does not imply a modification or elimination of the fundamental pillar of the Panamanian tax system: territorial taxation. Panama will continue to tax only economic activities carried out in or from its territory. Vice Minister Hoyos has been emphatic:

“There will be no surprises here; there will be no international message that frightens away foreign investment. Rather, it will be quite the opposite.”

What Does Modernization Imply? Real Economic Substance

The proposed modernization focuses on ensuring real economic substance for international companies operating in the country. Inspired by successful models such as those in Costa Rica and Uruguay, this reform seeks to:

  • Avoid purely administrative structures: The goal is to prevent the use of Panama as a vehicle for tax evasion in other jurisdictions, ensuring that business operations have a genuine physical and operational presence.
  • Maintenance of exemptions for passive income: Passive income from abroad will remain under the exemption regime, provided there is no economic substance in Panama generating that income. This preserves the essence of the territorial system for investors and companies with genuine operations.
  • Attraction of operational investments: Encourage the arrival of companies that generate employment and real economic activity in the country, which directly benefits the local economy.

Dialogue with the EU is constant, and high-level meetings have been scheduled in Brussels to continue demonstrating the progress and solidity of the Panamanian proposal. To better understand how these reforms relate to current taxation, you can consult our guide on taxes in Panama for expats and tax residents.

The Impact for International Investors and Entrepreneurs

Panama’s exit from the EU blacklist will have a profoundly positive impact on the perception and reality of doing business in the country. International credibility is an invaluable asset that attracts capital and facilitates global transactions.

  • Restoration of Credibility: As Giulia De Sanctis, president of APEDE, points out, exiting the EU blacklist is much more than a technical achievement; it is about regaining the trust of the international community.
  • Attraction of European Investments: The EU Ambassador to Panama, Izabela Matusz, has highlighted that the exclusion from the list will eliminate restrictive measures currently faced by European companies, opening new investment and trade opportunities.
  • Greater Competitiveness: Moisés Cohen, president of the Panamanian International Services Council (COSIP), emphasizes that a positive image is the primary factor for attracting capital. System improvements, without modifying territorial taxation, will strengthen Panama’s competitiveness. This is especially relevant for those interested in how to start a company in Panama as a foreigner.

This scenario of greater transparency and international commitment reinforces Panama’s stability and attractiveness for those seeking a legitimate and well-regulated platform for their businesses and personal lives.

Panama: A Strategic Destination for Tax Residency and Business in 2025

Beyond tax discussions, Panama remains a country with undeniable appeal. Its strategic geographical position, robust economy based on the US dollar, and growing infrastructure make it an ideal hub for logistics, trade, and services. Panama’s determination to exit the EU blacklist will not only enhance its reputation but also solidify its position as a competitive and responsible international financial and business center.

For those considering a change of residence or the expansion of their operations, these reforms represent a step towards greater clarity and stability. Panama is laying the groundwork for a future where transparency and real economic substance are the pillars of its tax system, ensuring a favorable environment for legitimate investors and entrepreneurs.

Conclusion: A More Transparent and Attractive Future for Investors in Panama

Panama’s path to exiting the EU blacklist is a testament to its commitment to international standards of transparency and fiscal justice. The proposed reforms, far from weakening its territorial system, modernize it and make it more robust and attractive for investments with real economic substance.

At Panamaway.com, we understand that clarity and legal certainty are paramount for your strategic decisions. If you are considering moving your tax residency or establishing a company in this vibrant country, we invite you to contact our experts. We will guide you through the process, ensuring a smooth transition in compliance with current and future regulations. Panama and the EU blacklist are complex topics, but with the right advice, you can fully leverage the opportunities this country offers.

Ready to explore your future in Panama? Contact us today and start planning your success.

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