Buying Property in Panama

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Buying Property in Panama - Buers Guide to Purchasing Panama Off Plan Property

Panama has been a country on the march for a number of years now. Initially promoted as a great retirement destination for Americans and Canadians who had decided to take advantage of not only the great sub tropical climate but also the very friendly taxation system.

Panama has been voted one of the top ten retirement destinations for the last several years and this has driven the demand for not only new homes but also staff to help in running some of the larger properties, but even so, a maid can be employed for just $250 per month. With the thousands of properties currently in construction, prices and demand will no doubt increase but that will only increase national wealth, improve GDP and encourage further investment. Paying a little more is not always a bad thing.
Why has Panama become one of the top places in the world to retire?

The weather definitely plays a big part, boasting year round warm, sunny days, beautiful natural landscapes; crime is low with very little violent crime. There are a number of new resorts aimed specifically aimed at the wealthy retirement market. The cost of living is very economical even though it is increasing quickly as are the prices of properties throughout the country.

New resorts close to some of the most beautiful beaches in the world are attracting wealthier tourists and retirees who wan to wake up in the morning and take a gentle stroll along the white sandy beaches, occasionally dipping their toes in the warm waters whilst reminiscing of the tailbacks, the smog and the cold winters that they lived through for years and wondering why didn't they do this earlier!

There are many good restaurants in Panama but currently very few excellent ones. This is destined to change, as wealthier residents and tourists arrive in Panama, new classy eateries are sure to open quickly.

Tourism in Panama.

Panama has a solid history of tourism especially in Panama City, the Panama Canal and with cruise line visitors. As the trend for upmarket beach resorts spreads across the globe, Panama has opened its arms to the idea of full service resorts in some of the most beautiful locations in the country. Several of these are being built in areas where the government has already allocated investment funds to create new marinas, improve road and transport networks and where five star hotels are to be opened.

It just depends on what you are searching for but there is a property with your name on it somewhere in Panama. All you need to do is take a look!

Buying Property in Panama

Buying a property in Panama is very similar to purchasing on in Europe or even the United States - there are however some differences and it is essential that you understand them:

Foreigners have the same rights as Panamanian nationals and residents with no restrictions on property purchase apart from not being allowed to buy properties within ten kilometers of a frontier or on Islands under Panamanian jurisdiction according to Article 121 of the Panamanian Tax Code.

The majority of overseas buyers however opt to purchase their property through a Panamanian Corporation to protect their assets and to avoid probate. Many countries around the world have an equivalent "rights of survivorship" in their legislation which allows property in the name of husband and wife to automatically pass onto the surviving party.

In panama the rules are slightly different and should one party die, the half of the property not owned by the survivor will go into probate and given to the designated party in the descendants will - or absence of will - in accordance with LOCAL law. This can take in excess of a year and legal costs can amount very quickly as it is all through court processes.

It makes a great deal of sense to retain a lawyer prior to having more than a close look at purchasing property in Panama. By doing so you can ask pertinent questions regarding property purchase in general and it also mean that you will be able to act swiftly and confidently when you do find a property of interest without the aggravation of having to settle for a lawyer that you are not happy to work with, but have little choice as you are on a time schedule.

Once you have found a property that suits your requirements you will be asked to pay a reservation of a few thousand dollars which will effectively remove the property from the market. Your lawyer will need to be given access to the Escritura - Public Deeds - and the Certificado de Registro Publico - A certificate of Ownership and Encumbrances. These will be used by your lawyer to perform due diligence on the property and to ascertain that the owner on the paperwork is actually the vendor and that there are no charges, debts or liens on the property. If an Escritura is not available the same search can be performed by your lawyer using a Finca or Property number - also called the Datos Registrales. The original deeds will show official stamps of the registry offices and bear signatures of owners and Public Notaries - Notarias.

The Buying Process in Panama

An initial sales agreement will then be drawn up by your lawyer and signed by the vendor and you, the purchaser. You will need to pay a deposit - A promise to Purchase Agreement - which is normally around 30% and will need to registered in the Public Registry.

Should you change your mind at this point you could lose this deposit - if there are discrepancies with the paperwork it will be refunded.

Should the vendor back out, not only will they have to repay your 30% but also a secondary amount which could equal the amount of your deposit - 30%. In this sales agreement the vendor typically arranges to pay the transfer tax and obtains the necessary clearance certificates in order to transfer the title. Meanwhile the buyer will arrange payment and re-check the searches performed by their lawyer.
The Actual final Purchase Agreement will be drawn up by your lawyer or in many cases the Notaries office. Your lawyer should also do a second search to ensure that no debts have been lodged against the property since the signing of the initial contract. The purchase contract will be signed in front of a local notary who will witness, stamp and authorize the sale.
Final payment should be made at the notaries office and is best paid through an "Irrevocable Letter of Payment" from a Panamanian Bank. This will be paid once the property has been registered at the Public Registry - Registro. You can pay the final sum with a cheque or via bank transfer but there is always a risk in paying monies before you are the registered owner. Nowadays many Notaries can immediately apply for the registration at the point of signing for an extra fee. Lawyers and Notary fees should be around 2%.
Once you have a copy of your new title deeds you will be able to give a copy to the Catastro - which is the department of taxes.
We advise that overseas buyers only purchase "Titled Properties" as against ones with "Possession Rights" which is known as Derecho Possessorio. Some properties with Possession Rights can be transferred to full title deeds and we would advise you and your lawyer to negotiate with the owner with the view that you will only go ahead with the purchase if the current "Owner" prepares a full title deeds which can then be legally transferred to you.

Taxes in Panama

• Income Tax - Impuesto sobre la renta a Personales Naturales
• Panamanian personal income tax is charged on a sliding scale from 2% through to a maximum of 30%. Temporary residents are only taxed on income derived in Panama
• Transfer Tax - Impuesto de Transferencia de Bien Inmueble (ITBI)
• The vendor pays the Transfer Tax in Panama and is charged 2% on EITHER the updated registered value of the property or the actual sales price, whichever is the highest. This new updated value will be the registered value due plus 5% per year for each year it was owned. Corporate owned properties will normally simply sell the shares - as against the property - and by doing so eliminates the need to pay the transfer tax.
• Property Tax - Impuesto de Inmuebles
• All property in Panama over the value of $30,000 is due to pay an annual property tax at an average of 2% of the appraised value of the property. This tax is calculated by the Land Commission - Oficina de Catastro.
• Inheritance Tax - 2002 saw the end of inheritance taxes in Panama. There is however a tax on gifts - inter vivos - of properties located in Panama. The taxable rate depends on the relationship between the giver and the receiver.

Rental income Tax

Rental Tax in Panama is charged on a sliding scale with a maximum of 30% once revenues are in excess of $200,000. Typical Rental income on most rental properties in Panama is taxed at 15%, plus an education tax of 2.75% If you are able to invest in one of the designated "Tourism Zones" you may be exempt from income tax for up to fifteen years depending on the property. These exemptions can be passed from one owner to another within the designated time period.

Capital Gains Tax

Capital Gains Tax in Panama is typically included your annual tax returns and are charged at whatever rate is applicable based on your overall figures for the year. If you have owned the property for more than two years you can choose to pay a flat fee of 10%.

Value Added Tax and leasehold property in Panamá

Impuesto a la transferencia de bienes corporales muebles con credito fiscal. The leasing of innovable properties in Panama is subject to pay VAT IF the monthly rate exceeds US$ 3,000 at a flat rate of 5%.

Panama and Residency

Panama has been very successful at attracting residents and investors through the years with many American and Canadian retirees taking advantage of the Tourist Pensioner Visa or Turista Pensionada. This visa can be granted indefinitely to people who receive a monthly income of $500 per person or $600 per couple which is paid from either a Government or Private Corporation.

There are certain exemptions for importation that will apply but this visa will NOT qualify you to become a Panamanian National
There are a number of options for those who wish to take up residency in Panama, all of which require application through Panamanian lawyers. You will be required to travel to Panama to file the visa application and also to obtain the visa itself. Thos under 18 years old must qualify through their parents.

Many foreign residents have successfully received visas under the "Solvencia Economica Propia" system which is designed for those who wish to live but NOT work in Panama and must show that they are a Person of Means.

Panama continues to encourage foreign investment and in fact offer incentive programs for those on the Pensionada Visa - which is not necessarily age related. These benefits offer tax exemptions and large discounts on basic services and utilities with savings of up to:

• 50% off entertainment
• 50% off closing costs for home loans
• 50% off hotel stays
• 30% off bus, boat, and train fares
• 25% off airline tickets
• 20% off medical consultations
• 20% off professional and technical services
• 15% off at fast-food restaurants
• 15% off hospital bills
• 15% off dental and eye exams
• 10% off prescription medicines
• 25% off at restaurants

Banks in Panama

For nearly 30 years, Panama has offered world class banking which is well regulated. All banks in Panama must have a physical presence in the form of an office, employees and operations. Panama created in 1995 a Financial Analysis Unit to monitor money laundering.

This body now supervises and investigated any transaction of over $10,000 especially where they could be suspicious. Although Panama offers investors secrecy for their finances, any funds in excess of ten thousand dollars MUST be declared upon arrival.

Rental yields in Panama

There are currently only for Panama City regarding rental yield as the areas along the coasts tend to operate on short term holiday rentals. Percentages vary depending on the property and its location however apartments in the city with approximately 120m2 saw a yield of nearly 11% on the twelve months up until November 2007. Apartments of 190m2 say a little over 11% for the same period. Larger properties in excess of 250m2 still faired very well with yields of between 7% and 9%.

Buying Property in Panama through a Corporation

We would advise overseas investors to create a Panamanian Company with which to purchase and protect your property. This is easily achieved and can protect you from any legal proceedings or asset seizure in your home country. According to the Panamanian constitution, the government cannot seize any private real estate unless it a procedure which is similar to eminent domain. The owner will receive a fair market value for the land plus any improvements

Reasons to buy property in Panama

Foreign investors are attracted to Panama property investment due to the following incentives:

• US dollar-based economy
• Low inflation and zero foreign exchange risk
• Absence of exchange controls
• Equal treatment of foreign and local citizens
• One of the most flexible company laws in the world
• No restrictions on 100 per cent foreign-owned companies
• No restrictions on mergers, acquisitions or joint ventures
• Excellent tax holidays for specific investments
• High percentage of labour force is bilingual

Current off plan developments suitable for international investors:

Tropical Marina and Beach Resort - Las Brisas de Amador, Causeway Towers, Isla Perico - Nüere Boquete Panama.