Understanding closing costs is crucial for anyone involved in a real estate transaction in Panama. These costs, which include fees and taxes like transfer taxes, notary fees, agent commissions, and legal expenses, can significantly affect your financial planning. Both buyers and sellers need to budget for these expenses, with buyers often facing substantial costs and sellers responsible for capital gains tax and agent commissions. Being aware of these costs allows for better financial management and informed decision-making during the transaction process.
Buyers Closing Cost
When purchasing property in Panama, buyers will face various closing expenses. Here’s a breakdown of the costs buyers are responsible for:
Property Transfer Tax
The property transfer tax is levied on the transfer of real estate ownership, calculated as a percentage of the property’s registered value. The Panamanian government charges a 2% title transfer tax on the sales price or the cadastral value, whichever is higher. Additionally, a 3% advance on capital gains tax is based on the sale value. While this is generally a seller’s responsibility, it is often negotiated and should be considered by buyers.
Registration Charges
Buyers must register the property with the Public Registry of Panama, with registration fees amounting to approximately 0.3% of the sale price.
Notary Fees
Buyers are typically responsible for notary charges, including drafting and executing the sales contract. These fees generally range from $200 to $300.
Legal Expenses
It is recommended that buyers obtain a payment check from a Panamanian bank to ensure a secure and risk-free transfer of ownership. The fee for this check ranges from 0.25% to 1%, depending on the bank. Buyers do not incur taxes when purchasing property in Panama. If financing the purchase with a mortgage, the bank’s legal department will handle the sale, and the buyer will be responsible for associated fees and costs.
Sellers Closing Cost
Closing costs are a crucial factor for sellers when pricing their property and completing a sale. Below is a breakdown of seller responsibilities for closing costs in Panama’s real estate market:
Real Estate Commission
Sellers typically hire a real estate agent to market and sell their property. The real estate agent commission ranges from 3% to 4% in the primary market and around 5% in the secondary market.
Sales and Capital Gains Tax
Sellers are responsible for a 2% sales tax and a 10% capital gains tax on profits. Before 2021, a mandatory 3% advance capital gains tax was required, even if the property was sold at a loss, leading to lengthy refund processes. However, Law 208, introduced in April 2021, allows sellers not regularly trading real estate to pay a 10% tax on actual profits, eliminating the 3% advance tax requirement.
Escrow Fees
If an escrow service is used, the seller may need to share the escrow fees with the buyer, typically ranging from 0.5% to 1% of the transaction amount.
Outstanding Debts and Liens
Sellers must settle any outstanding debts, mortgages, and liens associated with the property before finalizing the sale to transfer a clear title to the buyer.
Typically, each party covers its own closing expenses. The seller handles their attorney fees for reviewing the buy/sell contract, while the buyer covers costs like drafting the contract, conducting title searches, and title transfers. However, negotiation can lead to different arrangements, such as one party covering all closing costs.
Conclusion
In conclusion, closing costs in Panama involve various fees and legal requirements that buyers and sellers must navigate. For buyers, key costs include transfer taxes, notary fees, and registration fees. Sellers must consider real estate agent commissions, capital gains tax, and legal fees, which impact their net proceeds. Real estate transactions in Panama require careful planning. By understanding and preparing for closing costs, you can achieve a smoother transaction, whether buying or selling a real estate property.
