Panama Real Estate Law

A rise in real estate related litigation in Panama is raising eyebrows, but a closer examination reveals that his is evidence of the integrity of Panama’s real estate markets.

Much of litigation swirling through the courts is rooted in the country’s boom era condo markets In the midst of a feverish market, buyers left deposit money and contracts in the hands of developers with little thought to the implications. Now that times have changed in their home countries, some of these buyers are looking for an exit sign.

It would be unfair to say that boom era buyers were foolish to enter into agreements for units that wouldn’t be delivered for years in the future. Promises of an ocean front unit in paradise, can lead even the most sober buyer to throw their heart over the bar. What we can do is learn from the experience of these back out buyers, while snapping up some of the bargains they are leaving behind.

Litigation is always a bad outcome in a real estate deal. One of the best insurance policies against disappointment is to buy a finished until rather than one still on the drawing board. Always work with a buyer’s agent able to guide you along the way. Make sure to have your deal reviewed by a Panamanian attorney prior to closing.

Thousands of successful real estate transactions are done every year in Panama. If you were to look into the details of these you would find that the buyers involved were very adept at crossing T’s and dotting I’s. Haste and a failing of attention to detail are not advised in any endeavor. Take you time and your real estate ventures in Panama will be among your best.

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Article 764 of the Panamanian Tax Code indicates which properties are exempt from property tax. These properties include:

1. Properties registered at a value of 30,000 USD or less including improvements to the land, i.e. construction
2. Land used exclusively for farming and registered with the Ministry of Agriculture and Development at less than 150,000 USD.

The tax basis should be understood as being the value of the land plus the improvement. Article 766 of the Tax Code goes on to establish the property tax table to be the following:

Registerd Value of Property

• Under 30,000 – Yearly Tax Percentage 0%
• 30,001 – 50,000 – Yearly Tax Percentage 1.75%
• 50,001 – 75,000 -Tax Percentage1.95%
• Over 75,001 – Yearly Tax Percentage1.95%

If you have a property valued at 100,000 USD you should pay the following in property taxes:

2.10% of 100,000 USD (0.00 USD for the 0 -30,000 bracket which is tax exempt) + (349.98 USD for the 30,001 – 50,000 bracket at a rate of 1.75%) + (487.48 USD for the 50,001-75,000 bracket at a rate of 1.95%) + (524.98 USD for the 75,001 – 100,000 bracket at a rate of 2.1%) = a total of 1362.44 USD for annual property taxes

Alternative Property Tax Calculation – following Appraisal

Under the recent real estate tax amendment of 2005, the following alternative tax rate is applicable to properties whose property taxes are paid up to date and whose registered value in the public registry has been updated with a sworn declaration of the estimated value of the property, duly signed by an appraiser:

Registerd Value of Property

• Under 30,000 – Yearly Tax Percentage 0%
• 30,001 – 50,000 – Yearly Tax Percentage 0.70%
• 50,001 – 75,000 -Tax Percentage 0.90%
• Over 75,001 – Yearly Tax Percentage 1.0%

So the same property under the alternative property tax calculation would be as follows:

1.0% of 100,000 USD (0.00 USD for the 0 -30,000 bracket which is tax exempt) + (139.99 USD for the 30,001 – 50,000 bracket at a rate of .70%) + (224.99 USD for the 50,001-75,000 bracket at a rate of .90%) + (249.99 USD for the 75,001 – 100,000 bracket at a rate of 1.0%) = a total of 614.97 USD for annual property taxes

Those properties which are not paid up to in property taxes and which have not presented their estimated value in a timely manner, may not take advantage of this alternative calculation.

If you have real estate, with no improvements built on it, and you register the property with an updated cadastral value within one year of the publication of the amendment to the Tax Code – i.e. December 2007 – you will be eligible to have the property taxed according to the alternative tax rate.

In order to apply for the alternative property tax calculation you must present the following documentation:

1. Application addressed to the Director of the Cadastral Department
2. Paz y Salvo (Certificate of good standing from the tax department)
3. Paz y Salvo (Certificate of good standing fro the Public Registry)
4. Copy of cedula of the property owner or Paz y Salvo from the Company which owns the property
5. Current appraisal issued by an approved appraisal official