One of the main incentives to buy property in Panama was the 20‐year property tax exemption law, first passed in 1990 to encourage economic development and investment. The exemption freed buyers of new homes or condos from paying property tax for up to 20 years.
Once the 20‐year exemption ends, the following exemptions will apply to all new construction:
- Up to $100,000 value, 15 years exemption
- From $100,000 to $250,000, 10 years exemption
- Value above $250,000, 5 years exemption
The exemption has been extended several times, but finally expired Aug. 31, 2007. The government has introduced new exemptions of five to 15 years, depending on the value of the property. Though real estate companies, construction companies, and developers lobbied for the return of the 20‐year blanket exemption, the government refused.
The government of Panama had a change of heart. On Saturday, Dec. 22, Housing Minister Balbina Herrera extended the 20‐year tax exemption until Dec. 31, 2009. All land and real estate improvements thereon, located in Panama, are subject to real estate
taxes. Real Estate tax is appraised by an agency of the Ministry of Economics and Finance. It must be paid according to the official assessment value, which is usually the declared value.
The maximum annual percentage of assessment is 2.10%, which is based upon two items:
- The value of the land
- The declared value of the improvements built
The taxable base will depend upon the total value of the land plus all improvements. Real estate transactions at prices of more than the appraisal value will automatically increase the value of said properties for tax purposes. Certain properties and improvements thereon are exempt or can obtain exemptions from real estate taxes according to special incentive tax laws.
Real Estate Properties with assessed official values of less than US $30,000.00 are exempt from taxes. Real estate taxes have priority over all encumbrances on the property.
Taxes can be paid in three installments, namely by April 30th, August 31st, and December 31st. A tax clearance certificate must be obtained before any real estate transaction can be completed and will be required by the Panamanian Public Registry Office for any transaction regarding the property.
Real Estate transfer Taxes:
- A Transfer tax must be paid by the seller at the moment of transfer of the property.
- A 2% real estate transfer tax is levied on the transfer of real estate based either upon (1) the sale price stated in the official purchase/sale document (sale contract) or (2) upon the official property value, which ever is higher.
- The taxpayer must also pay a 3% real estate transfer tax over the greater of the purchase price of the property or the official property value, increased by 5% per year of tenancy.
- Sale of a new residential property is exempt from this tax if the buyer uses it as a personal residence. The real estate transfer tax can be offset as a direct credit against the income tax levied on a capital gain arising from the sale, if any.
- Income on capital gains resulting from the sale of real estate is taxed in full, and on a separate basis regardless of whether the company or the individual had a net taxable income or a net operating loss.