Buying property in Panama can be a lucrative investment, but understanding the real estate tax system is essential to making informed decisions. Whether you’re an investor, an expat, a resident, or a retiree, familiarizing yourself with Panama’s tax landscape can save you time, money, and potential legal complications. In this guide, we’ll break down the critical aspects of real estate taxes in Panama, covering everything from property tax rates to exemptions, and provide practical tips to navigate the legal framework effectively.
What Are the Real Estate Taxes in Panama?
There are two main types of real estate taxes in Panama. The Annual Property Tax (IBI) covers the land, construction, and property improvements, calculated annually based on the registered property value. The Property Transfer Tax (ITBI) is due during property sales and is typically handled at the notary office. This tax is applied when the property changes ownership, amounting to 2% of the higher value between the updated registered value and the sale price. Additionally, selling a property may also incur capital gains tax.
Property Tax Rates for Different Property Types
Panama’s property tax framework is crucial for prospective real estate buyers, including investors, expatriates, and retirees. Here’s an overview of the current system:
Primary Residences
The property tax rates in this jurisdiction are as follows:
- Properties valued up to $120,000: Tax-exempt, resulting in $0 annual property tax.
- Properties valued between $120,001 and $700,000: Subject to a 0.5% tax rate, resulting in an annual tax of $2,900.
- Properties valued over $700,001: Subject to a 0.7% tax rate, calculated based on the property’s assessed value.
Panamanian property owners can benefit from tax exemptions by designating their property as “Tributary Family Patrimony” or “Primary Residence.” This designation allows the updated property tax system to apply under Tax Law 66, which exempts the first $120,000 of the property’s registered value. For properties with higher values, the tax rates range from 0.5% to 0.7%. These provisions benefit individual property owners, married couples, single parents, retirees, pensioners, and properties held in trust accounts.
Secondary Properties
For other properties, including commercial, industrial, second homes, or raw land, the property tax rates effective January 1, 2019, are as follows:
- Properties valued up to $30,000: Tax-exempt, with $0 annual tax.
- Properties valued between $30,001 and $250,000: Subject to a 0.6% tax rate, resulting in an annual tax of $1,320.
- Properties valued between $250,001 and $500,000: Subject to a 0.8% tax rate, resulting in an annual tax of $2,000.
- Properties valued over $500,001: Subject to a 1% tax rate.
If you are a first-time buyer of a house or condo in Panama and intend to make it your primary residence, you can benefit from a 3-year property tax exemption for properties valued between $120,000 and $300,000. This exemption requires a formal declaration of the property as your primary residence and is not granted automatically.
Are Some Properties in Panama Tax Exempt?
Law 28 of 2012 provides tax exemptions for newly constructed residential properties in Panama completed between 2012 and December 31, 2018. These exemptions apply solely to the registered value of the construction improvements, excluding the land value. For residential properties, the duration of the tax exemption varies: properties with a construction value up to $120,000 receive a 20-year tax exemption; those valued between $120,001 and $300,000 benefit from a 10-year exemption; and properties valued at $300,001 or more receive a 5-year exemption.
All other types of construction, such as commercial or industrial, are eligible for a 10-year tax exemption based on the registered construction value. To retain these tax exemptions, property owners must avoid registering the property as Tributary Family Patrimony or Primary Residence. It is important to note that the tax exemption applies only to the construction value, not the land value. Property tax remains applicable to the land if its value exceeds $30,000.
Understanding Panama Property Tax Law
In Panama, Law 401 offers significant tax advantages for real estate owners. One of the key provisions is a 25% reduction in property taxes for 2024, available to those who pay their taxes in advance. Specifically, property owners who settle their 2024 property tax payments by November 30, 2023, qualify for this discount. The law also extends benefits to those making early payments for the fiscal year 2025 and provides substantial discounts for individuals or corporations addressing overdue taxes or penalties.
This legislation is part of the government’s effort to generate revenue while incentivizing taxpayers to resolve outstanding issues and reduce their tax exposure. The 25% discount is a valuable opportunity for property owners in Panama to save on their tax obligations, and it encourages early financial planning. Property owners interested in this offer should act promptly and ensure their taxes are paid before the deadline to take advantage of the discount.
Conclusion
In conclusion, understanding and navigating Panama’s real estate tax system is essential for anyone considering purchasing property in the country. From progressive tax rates to valuable exemptions and the importance of compliance, each aspect of Panama’s tax framework requires careful consideration.
Strategic tax planning can help you minimize your tax liability and ensure that your investment remains profitable in the long term. Whether you’re purchasing a new home, investing in commercial property, or acquiring undeveloped land, it’s wise to consult with a tax professional who is familiar with Panama’s real estate laws.
By staying informed and proactive, you can make the most of Panama’s real estate opportunities while avoiding the common pitfalls that can arise from misunderstandings or mismanagement of tax obligations.
