Real Estate Law

Buying property in Panama is a great as well as safe investment but it’s important to be familiar with the procedures to make sure things go smoothly. The government encourages and welcomes foreigners to purchase/develop real estate in Panama. Foreigners can buy and sell Panamanian property legally and easily, while also
having the security of having the same rights and protections as a
local Panamanian property owner, according to Law #54. Foreign investors in Panama and the businesses in which they participate in have the same rights and duties as national or local investors and enterprises, including those that refer to the freedom of trade and industry, export and import.

The main types of properties are: Titled Property and Possession Rights Property.

Panama has a very sophisticated Public Registry with a cadastral department that oversees the registration of titled properties in the country and titled property is commonly the most preferred type since it is easily verifiable in the Public Registry and since private property is guaranteed by the Constitution of the Republic of Panama.
Titled Properties also generally incur annual property taxes when the registered value is over $30,000. The procedures to acquire Titled Property are the following: (I would recommend hiring an experienced attorney)

• Promise to Purchase Contract which usually includes a small down payment at the signing of the contract to secure the property, provide enough time for title search, coordinate payment arrangements for the
  closing and form a corporate property holding structure, if applicable.This contract should be registered with the PR to guarantee that the property can’t be sold to any third parties in the interim prior to thefinal closing.


• Title verification at the PR to ensure that the title is legally in the name of the seller and that it’s free and clear of encumbrances, liens, or misc. issues that could affect the free disposition or transfer of the title. Also the Cadastral map survey should be reviewed and in some cases, it’s recommended to have the survey done again to
ensure accuracy and to avoid any potential boundary conflicts. Also thirdly I would recommend verification of utility debts (water, electricity, telephone and sewage.)


• Buy-Sell Contract: This contract is registered at the PR and the seller is paid off in full, or if an escrow agent is used, payment is made once the title is transferred to the name of the buyer.
  
  
• Title Transfer: Ownership is officially transferred to the buyer once the title is transferred to the name of the buyer, which takes place after the Buy-Sell contract is signed and registered at the PR. If the title is in the name of a corporation and the seller agrees to sell the corporation shares, then there is no transfer of title, only a transfer
  of shares of the corporation.

These steps are necessary for purchase of Rights of Possession over a property.

• Promise to Purchase Contract like above.


Due Diligence is more complex due to the absence of a central database of information on ROP properties. Verification of Certification of ROP. This certification should contain the name of owner and accurate description of the property (size, location, limits, all the neighbors, area, boundaries)· Survey Verification: should be stamped and signed by licensed surveyor/engineer, identifying the name of the possessor and location details. · Inspection: The most important details to verify are the physical occupation status, no opposition by third parties and good faith. Have the surveyor confirm the points of the land and ensure there are no boundary conflicts with neighbors. I would recommend keeping the land well maintained and fenced to clearly delineate the boundaries of the purchased land. Verification of Permit: If the buyer intends to build a marina, airstrip, port etc. it’s necessary to verify if there are restrictions and/or regulations against such a construction.

• Buy-Sell Contract: See above


• ROP certification transfer once the ROP certification is transferred to the name of the buyer, as soon as the Buy-Sell Contract is signed by each party. If ROP is in a corporation, then seller agrees to sell
  the transfer shares and again there is no transfer of ROP certification only the corporation shares are transferred.

Title insurance is available through major international title insurers although Panamanian laws protect foreign investors. And NO property taxes on new construction! The Seller is responsible
for a 2% transfer tax and capital gains taxes.

Panama offers an attractive incentive program for retirees, and because of the lower cost of living, great climate, lower crime rate and tax advantages, Panama compares with many European choice of retirement destinations.

Some benefits for the retiree that move to Panama under a Retirement Visa:

Household goods can be brought in to Panama free of taxes.

• No property taxes for 20 years.
• No income tax on incomes earned outside Panama.
• New cars can be brought in duty free every two years.
• Discounts between 15% and 50% are offered on hotels, restaurants, movies, many professional services etc.
• Panama is a safe country.
• Panama City has a modern, American style infrastructure due to the near 100 year presence of the Americans in Panama.
• High-band Internet connectivity, cellular phone networks and ADSL in-home phone capability are readily accessible throughout most of Panama. Full-service satellite and cable TV are also very common.
• Panama's cost of living is a fraction (approximately 1/5th) of the United States.
• Panama has an ideal climate.
• Panama has medical facilities on a par with the United States.
• Panama is close to the United States with direct flights to Panama from 5 major US cities.
• Retirement visa requirements are minimal.
• Foreigners can buy and own property in Panama enjoying the same rights and protections as Panamanians.
• English is the second language in Panama and is widely spoken.
• The Pensionado Visa has an income requirement established by the Panamanian Government of US$500 per month and US$100 additional for each dependant. It is issued to those who receive a monthly income from retirement sources such as Social Security, Government or Private Companies.

The Private Income Retiree Visa has an income requirement established by the Panamanian Government of US$750 per month earned from a CD deposited at the National Bank of Panama. At current rates, the deposit could be around US$200,000 (keep in mind this amount may fluctuate). The deposit should be renewed every 5 years to maintain the status.

The Person of Means Visa has three options:

• Purchasing a property of US$200,000
• Having a CD deposited in a Panamanian bank for 2 years in the amount of US$200,000 (Does not need to be renewed)
• A combination of the two options above, purchasing a property of US$80,000 AND having a CD deposit of US$120,000.

Issuing of visas takes between 30-60 days.

TITLE TRANSFER TAX: Title Transfer Tax is paid every time a Property Title is being transferred at the Public Registry of Panama. The Title Transfer Tax amount is 2% of the registered value or the transaction value, which ever is higher.

CAPITAL GAINS TAX: Capital Gains Tax is paid every time a Property is being transferred at the Public Registry of Panama, based on the difference between the transaction value and the registered value. The Capital Gains Tax is 10% of said amount (the difference between the transaction value and the registered value).

PROPERTY TAXES

Property Tax is paid every year based in a percentage established in the law. Property Tax is only paid if the registered value is above $30,000.00. Properties with a registered value of more than $30,000 should pay Property Tax according to the following combined scale (according to the Article 766 of the Fiscal Code):

Property Tax: Registered value of Property: - 1.75% (Property Tax) - from $30,000 to $50,000 (registered value of Property); plus - 1.95% (Property Tax) - from $50,000 to $75,000 (registered value of Property); and - 2.10% (Property Tax) - on values above $75,000 (registered value of Property).

Example, a property valued at $100,000 would have the following annual tax:

Registered value of Property: Property Tax:

From $30,000 to $50,000: ($20,000 x 1.75%) = $350.00 , plus From $50,000 to $75,000: ($25,000 x 1.95%) = $487.50 , plus From $75,000 to $100,000: ($25,000 x 2.10%) = $525.00 Total yearly Property Tax = $1,362.50

The article 34 of the Law 6 of Feb.2, 2005, modified the article 766-A of the Fiscal Code, as follows: The progressive combined alternative tariff of this tax, is the following: a. 0.70% of the amount exceeding $30,000 to $50,000. b. 0.90% of the amount exceeding $50,000 to $75,000. c. 1% of the amount exceeding $75,000.

Example, a property valued at $100,000 would have the following annual tax:

Registered value of Property: Property Tax: From $30,000 to $50,000: ($20,000 x 0.70%) = $140.00 , plus From $50,000 to $75,000: ($25,000 x 0.90%) = $225.00 , plus From $75,000 to $100,000: ($25,000 x 1%) = $225.00 Total yearly Property Tax = $590.00

The progressive combine alternative tariff will be applied to all real estate that is paid up to date in property taxes.

The properties that are not up to date in property tax will pay according to the tariff of the article 766 of the Fiscal Code.

TAX EXONERATIONS/INCENTIVES FOR NEW CONSTRUCTION:

The government of Panama offers several tax breaks for developers, depending on the type of project and the location. For example, in certain areas of Panama, the government offers tax exonerations on importation of construction materials, equipment, automobiles, and more. In addition, property taxes are exonerated for up to 20 years on new construction, offering buyers tax incentives.

Tax Benefits for Developers: Since the enactment of Cabinet Decree No. 109 (1970), successive legislation has been passed offering tax benefits to developers. As the nation's largest employment sector, the construction industry received these incentives to help bolster investment in this sector, which would in turn benefit the country's overall employment picture. It has been widely accepted that, as a result of these incentives, purchasers of real property have also benefited.

Cabinet Decree No. 44 (1990), and its implementation through Resolutions No. 201-1622 in December 12, 1990, enunciates that the purchaser of residential units, apartments or single homes, built within the time table set forth in the Decree, is exempt from property tax (improvements value) for up to 20 years from when construction began. It is important to note that this exemption does not include property tax on land, but refers to the dollar value on all improvements on new construction.

Like Kind Exchanges: The developer also benefits from an exemption of income tax, if the earnings obtained from the construction are reinvested into new construction projects within two years. Certain conditions apply. This tax incentive is similar in nature to those referred to in the United States as the 1031 exchange or "the like kind exchange".

As mentioned above, article 3 of Cabinet Decree No. 44 (February 17, 1990), states the following:

Starting February 1, 1990, income obtained from selling real property, which is reinvested in new constructions, will be exempt from income tax, as long as the cost of the new construction is at least four times applicable in each case. If the cost of the new construction does not exceed the amount mentioned above, the tax payer will be authorized to deduct from the income originally obtained, at least twenty percent (20%)........

In other words, if you sell real property and purchase similar new construction real property (within 2 years)valued at four times your sales price, you will be exempt from paying Capital Gains taxes.