Buying Property in Panama

There are virtually no restrictions for non-residents to purchase in Panama because foreigners have the same rights as Panamanians, capitalizing on the opportunities here is easy.

However, most choose to do so through a Panamanian corporation in order to ensure asset protection and to avoid probate. Panama does not have the equivalent of “rights of survivorship”, so if a property is owned by two people and one of them passes on, half of the property goes into probate and if will be given to whoever is designated in the decedent’s will or the absence of a will, in accordance with local law.

The probate process in actually a court process and it may take one year or more and substantial legal costs may be incurred.

But first, let us walk you through the simple steps you’ll need to take in order to purchase property legally and safely in this country. Purchasing a property in Panama is very similar to the process in the U.S.A. or Europe – but there are some important differences.

Important Steps

1. The first thing you need to do is confirm the legal owner of the property. After you’ve found the property you want to buy, ask the owner for two important documents – the public deed containing the title (escritura) and the Ownership and Encumbrances Certificate (Certificado de Registro Publico) from the Public Registry. You should then give these to your lawyer for an updated search. Even if these documents are not available, ask the seller for a property (finca) number. With this information, your lawyer will be able to search for the title. Make sure all the documents are originals and bear the signatures, as well as official stamps, of the registration office.
2. Enter into a Promise to Buy-Sell Agreement, whereby you give the seller a down payment and set a date for the transfer of title. Normally there is a penalty if either party backs out. During the period set out in the agreement, the seller pays the transfer tax and obtains the clearance certificates necessary to transfer the title; the buyer arranges for payment (by arranging financing, etc.). At the agreed upon time, both parties sign the final contract.
3. Transfer of the title. Once Step 2 is completed, your lawyer will draft the final purchase and sale contract. He or she will gather all documents and make an additional search to ensure that no liens or mortgages have been filed in the meantime. The lawyer will then put the contract into final form and draw it up as a public deed at which time all parties will got to a Notary Public to sign the deed. A Notary Public in Panama is not like the notaries you may have used in the U.S.A. Panama’s notaries are high-ranking officials and are granted far more responsibility than their American counterparts very similar to Europe. They represent neither the buyer nor the seller.
4. Transfer of funds. The safest thing is to pay the balance of the purchase price through an irrevocable letter of payment from a local bank in Panama. Your lawyer should be able to assist you in obtaining such a document in which the bank irrevocably promises the seller to pay the balance of the sale price upon the transfer of the title to the buyer. The other, riskier way to pay the balance of the purchase price is to give the seller a bank draft on a bank in Panama upon the signing of the public deed at the Notary Public. The risk is making the payment before you obtain the registered deedusually the next step in the process.
5. Record your purchase at the public registry, as it is not final until you do so. This process normally takes a few weeks, but can be done in about 10 days by having your attorney file the documents directly at the main office of the public registry in Panama City. If you are in a great hurry, the public registry charges an additional fee of $250 for the next day registrations (provided all the documents are in order). Once the registration process is complete, your lawyer will give you the registered deed and make sure that a copy is filed with the tax records department (catastro) at which time the property will be yours.

Taxes

Income Tax:

Personal income tax in Panama is based on a sliding scale, ranging from a minimum of 10%, to a maximum rate of 27%. For temporary residents, the tax is only applied to Panamanian-sourced income.

Transfer Tax:

Transfer taxes in Panama are paid by the seller, and are 2% of either the updated registered value of the property or the sale price – whichever is higher. The updated value is the registered value, plus 5% per annum of ownership. If the property is bought by a corporation, it is customary for the shares of the company to be sold (instead of the property), thus eliminating the need to pay transfer tax.

Inheritance Tax:

Inheritance taxes in Panama have been completely abolished. However, the probate process will take about a year and legal fees will have to be paid.

Rental Income Tax:

If you receive rental return on your property, you will be liable for income tax up to a maximum of 30% (on returns greater than $200,000). However, if you invest in one of the special “tourism zones”, you may be exempt from income tax for 15 years.

Property Tax:

Properties with a registered value of $30,000 or lower do not pay property tax. For properties of a higher value they pay as follows: 1.75% from $30,000 to $50,000; 1.95% from $50,000 to $75,000; and 2.10% over any property value above $75,000. However, houses or apartments for residential use which construction permit is issued before 1st September 2006 and which completed construction is registered before 31st August 2007, get a 20 year property tax exemption period to any new buyer. Houses or apartments where construction permit is issued after 1st September 2006, will have the following exemption on property tax:

Value up to $100,000 15 years exemption
Value from $100,000 to $250,000 10 years exemption
Value over $250,000 5 years exemption
The land itself is not exempted and would continue to pay property tax if its value is above $30,000.

Please note that the pensioners are not exempted from paying property tax, except as detailed above for new constructions.

Capital Gains Tax:

Real estate gains should be included in the annual tax return, and are taxed at whatever level the individual is being assessed for income tax. Or, if you have held the property for more than two years, then you may choose to pay a flat 10% tax on the gross profit.

Rights of Possession

You may find properties in Panama, especially in rural areas, that do not have title but is held under “right of possession”, which are a type of squatters rights. These are normally acquired by the undisturbed possession of the land for 15 years or by assignation of national land by the Agrarian Reform or municipalities. In many cases (such as island properties), rights of possession may never be converted to title. In some instances it is possible to do so. We do not recommend the purchase of rights of possession. If you are interested in a particular piece of property under these circumstances, we recommend that you negotiate for the seller to obtain title and then transfer it to you. The best way of knowing if a property is titled is to request that the seller gives you the registration details of the property (Finca or lot number and other data as explained in Step 1).

Residency

Panama has many very attractive visas for pensioners and investors. The most popular visas to relocate to Panama are described below.

You need to travel to Panama in order to obtain your visa and you need to be present for the filing of the application. For most visas, you receive an interim card lasting three months and, within that time frame, the visa should be issued (although it can take as long as four months). For the Tourist Pensioner Visa, however, there is no interim card and your permanent visa should be issued about four to eight weeks after filing. If you are not already living there, you need to be in Panama when the visa is approved. If you obtain a visa to reside in Panama, but wish to live overseas, we recommend that you visit Panama at least once a year (legally you may be out of the country for up to two years). In any case, you must obtain a multiple-entry permit, valid for up to two years, before leaving, and must never let it expire while overseas. Once you obtain a visa in Panama, even if you decide to live here permanently, you are required to obtain a multipleentry permit should it be necessary for you to travel often or unexpectedly.

The general rules:

All visa applications must be made through a Panamanian lawyer.

There is no age limit for any of these visas, but the applicant must be at least 18 years old. Those under 18 will qualify for a visa as dependents of their parents.

All overseas documents to be presented to the authorities must be authenticated by a Notary and by the Panamanian consulate nearest you, or by a notary and the Apostille. The Apostille (The Hague Convention of 1961) is a faster way of authenticating documents and is normally obtained through the Secretary of State in your home state (in the U.S.) or through the Foreign Office (in Britain). For Canada, please check with the Panamanian Embassy or consulate nearest to you home city.

All documents must be current (within four months of visa application) and passports must have at least one year remaining before expiration.

Dependents: If your spouse is to be covered by your visa, you will be required to present a marriage certificate. However, if your original marriage certificate is over six months old, you’ll need to request a new one. If your children under 18 are to be covered by your visa, you’ll need to present new birth certificates (not originals).

None of these visas grant work permits.

The Tourist Pensioner Visa (Turista Pensionado)

This visa is granted indefinitely and is designed for persons whose pension (from a government entity or private Corporation) is $500 or more per month ($600 or more for a couple per month). The benefits include one time exemption of duties for the importation of household goods (up to $10,000) and an exemption every two years of import duties for a car. You will still need to pay sales tax. However, please note that under this visa you will not qualify to acquire Panamanian nationality.

Person Of Means Visa (Solvencia Economica Propia)

This visa is designed for those who wish to live in Panama and not seek employment, but live of their own means or private investments. To qualify, a person must have one of the following:

Two-year fixed-term deposit account in any local bank, with a minimum of $200,000. After these two years, the funds may be withdrawn.

Investment in real estate in the Republic of Panama in the amount of at least $200,000, and proof of other means of income.

Two-year fixed-term deposit account in any local bank with a minimum of $120,000 and investment of real estate in the Republic of Panama in the amount of at least $80,000, and proof of other means of income to support his/her stay in Panama.

Both the fixed-term deposit account and the real estate mentioned above, must be in the personal name of the applicant (NOT under a corporation, foundation or trust)

For each dependent, the applicant must show an additional $75 monthly income. This is normally shown by bank references from a local bank showing at least $10,000 per dependent in any type of account.

This visa is granted provisionally for one year and after renewal it is granted permanently with the right to be issued in Cedula (local identity card).

Five years after obtaining the permanent visa, holders may be eligible to apply form Panamanian Nationality, provided all other requirements necessary at the time of application for citizenship are met. The citizenship process is completely separate from visa application.

Bank Accounts

Since the 1980’s Panama has offered a world-class banking centre and at the moment there are about 90 banks operating in Panama. Of these 90 banks, around 40 bear a general license, which allow them to provide general banking services to local and foreign residents.

The banking system in Panama is very well regulated, and differs from other jurisdictions in that banks always need to have physical presence (offices, staff, operations, etc) and comply with all required safeguards and asset minimum, as well as with banking rules and the regular supervision of the Banking Superintendent’s Office.

Due to worldwide money laundering prevention measures, since 1995, Panama created a Financial Analysis Unit, which supervises and investigates suspicious transactions and receives reports from the banking centre and other financial entities of cash activity over $10,000. Also Panama has banking secrecy rules, the banks will disclose information to the Financial Analysis Unit if money laundering is suspected or regarding transactions over $10,000 in cash.

The above has resulted in the banks exercising special care when opening bank accounts, both for local and foreign nationals and implementing a strict know-your client policy.

For your better reference, banks will request at minimum the following for each of the signatories in the account-dated no more than a month before opening the account:

2 bank references and 1 accountant or lawyer’s reference. Or

1 bank reference, 1 broker’s reference and 1 accountant or lawyer’s reference.

All references must be to the attention of the bank of your choice. Banking or brokerage references should include mention of the amount of funds you keep there (actual or average balance), since when you are a customer and that the account has been managed appropriately; And you need to bring source of funds evidence, which may be: letter from your employer or retirement agency stating your income; or tax return. Also, please bring a copy of your credit report. This does not mean you need to disclose ALL of you income, only the source of such income as you will be bringing or transferring to Panama.

Although Panama does not have currency controls and bringing funds in or taking them out of the country is not illegal or restricted, nor does it require a special permit, please note that if you bring into the country more than $10,000 in cash or issued checks or other monetary instruments made to bearer or to your name, you must declare them in the Customs form you will be given at the airplane.