Panama’s government will introduce specific legal changes demanding foreign companies prove they have real operations inside the country. Economy and Finance Minister Felipe Chapman announced the plan on January 2, 2026, framing it as a critical step to get Panama removed from the European Union’s list of non-cooperative tax jurisdictions. The initiative focuses on adopting international standards for economic substance without raising taxes on local businesses.
Chapman clarified the proposal is not a broad tax reform. It targets multinational groups and international firms using Panamanian legal entities. These entities must now demonstrate physical offices, hired personnel, and operational expenses within national territory. The goal is to show their activities extend beyond mere formal or administrative functions.
“The so-called economic substance implies that foreign companies established in Panama accredit that they have physical offices, hired personnel, and operational expenses in the country,” Chapman stated. [Translated from Spanish]
The minister confirmed the changes will be incorporated via a specific article in the Tax Code. He stressed the requirements are not aimed at Panamanian taxpayers or companies operating under special economic regimes. The Colon Free Zone, the Multinational Company Headquarters regime (SEM), and the EMMA regime will remain untouched.
A Long Road Off the EU List
Chapman acknowledged Panama will not exit the European Union list of non-cooperative tax jurisdictions quickly. Removal depends on the approval and effective implementation of the new legislation. In the best-case scenario, he estimated the country could achieve this by late 2026 or early 2027.
The process is currently in a phase of broad consultation with various economic and social sectors. Chapman also firmly rejected speculation about Panama abandoning its territorial tax principle. He cited countries like Costa Rica and Uruguay which have met international standards while maintaining similar systems. The government’s position is to align with global norms without overhauling its foundational tax model.
This legislative push addresses long-standing international criticism. Panama has faced scrutiny for its corporate registry system, which critics argue facilitates offshore structures with no real local activity. Being labeled a tax haven carries reputational damage and can lead to defensive financial measures from other nations.
“These demands are not directed at Panamanian taxpayers, but mainly at multinational companies that use anonymous societies or other legal figures,” the minister added. [Translated from Spanish]
Officials argue that enforcing economic substance rules could create a positive domestic impact. Chapman presented it as a potential opportunity for job generation. Incentivizing real operations could lead more companies to establish substantive offices, theoretically contributing to economic growth and a gradual reduction in unemployment.
The move occurs within a broader fiscal context. Minister Felipe Chapman has recently managed other complex financial files, including the nation’s public debt trajectory. This latest policy aligns with a stated government focus on long-term economic vision. Chapman reiterated a commitment to creating dignified and sustainable jobs as the basis for strengthening human development in Panama.