Panama has an extremely friendly property tax regiment. In the past, the most favorable tax treatment was awarded to new construction projects, when all newly constructed homes and condominiums benefited from a 20 year property tax exoneration from the date of delivery. This helped encourage Panama’s burgeoning construction industry for many years. Later, the law for property taxes in Panama was modified to apply only to the improvements (home or condo) on a property, not to the land, but for most condo owners in Panama City, the result was still a tax bill of less than five hundred dollars per year.
The final year for which buildings qualified for the full 20 year exoneration was 2014. This exoneration is a benefit which stays with the property, not with the purchaser. As such, if you purchase a property with a 20 year exoneration that is fifteen years old, you will still benefit from a five year tax exemption. Because of this generous modification of the law for property taxes in Panama , resale buyers can still find condos with tax exonerations that will extend until 2034.
In the proceeding law, new construction benefited from a shorter tax exoneration ranging from 5 to 15 years depending on the value of the property (with less expensive properties having longer exonerations). In addition, commercial use properties benefited from a 10 year exoneration regardless of property value.
Per Panama’s most recent property tax law, which went into effect in January of 2019, tax rates overall for both pre-construction and existing properties were dramatically reduced. Many property owners and real estate investors realized a property tax cut of 70% or more when the newest law went into effect. And in the process, the playing field in some sense was leveled between new construction and existing inventory (ie. already constructed homes and condos became more attractive to many buyers – especially for those buying a property as a primary residence).
Property Tax Rates for Primary Residence
To qualify as a primary residence, the home should be the residence where the owner spends the majority of their time. This home can be inhabited by a single person, single parents or married couples, and while the form does distinguish between these conditions, the tax benefit applies to everyone equally, both nationals and foreigners.
Primary residences now receive a tax exemption for the first $120,000 of the property’s registered value, and only pay .5% after that up to $700,000 in value. As a result, for example, a property registered with a purchase price of $300,000 that is registered as a primary residence pays only $900/year in property taxes.
If you are purchasing your first property in Panama and you register it as a primary residence, you can also qualify for a three year tax exemption regardless of the property’s construction date, if it’s value is between $120,000 and $300,000.
If it is a new building, the three year tax exemption starts on either the date that the certificate of occupancy is issued, or the date when it is registered in the public registry, whichever happens first. In the case of second-hand properties, the three years shall be counted from the date that the property’s sale is registered in the Public Registry of Panama. This incentive, together with others like the preferential interest rates that Panama offers, has helped thousands of new buyers in the first few years of home-ownership and fueled growth in the real estate and construction sectors.
In order to register a home as a Primary Residence, the owner must submit the corresponding paperwork:
The property’s rightful owner must present to the Dirección General de Ingresos (DGI) a sworn signed declaration that the home will be used as a primary residence together with a copy of the owner’s cedula or passport and a copy of the property’s deed. If it is a married couple that is requesting the Primary Residence, they must also attach a copy of their marriage certificate, and if the marriage was celebrated outside of Panama, the certificate must be validated by the Government of Panama. If the couple has children, they must also attach a copy of their birth certificates. Slight variations apply in case of divorced, widowed or legal people. (Note the law clearly states that foreigners may qualify for Primary Residence status. However, it is important to have a legal opinion before making a purchasing decision on this criteria alone)
Note if you still have years of tax exoneration left, it would be wise to wait until they conclude before applying for a Permanent Residence exemption, since the exemption would void the remaining exonerated years. Below you will find the tax table for primary residences as of January 2019:
Property Tax Rates for Investment Properties and Second Homes
Second homes and investment properties in Panama are taxed slightly higher, but do receive an exoneration on the first $30,000 of property value. Beyond thirty thousand dollars, property taxes are calculated on a sliding scale starting at .6% and maxing out at 1%.
The property tax rate on all other properties is as follows:
- Note: Land used exclusively for farming and registered with the Ministry of Agriculture and Development and valued at less than $150,000 is tax exempt.
As an example, if you have a property valued at $200,000 USD that does not qualify for an exemption, you would pay the following in property taxes:
0.00% on the first $30,000 = $ 0.00 USD
0.6% on the next $170,000 = $1020.00 USD
Total Tax Burden = $1020.00 USD
Property taxes in Panama, whether for primary residences, second homes, or investment properties, are paid in three annual installments. A 10% discount is applicable if the entire annual tax is paid within the first 30 days of the year. Interest and penalties apply when taxes are not paid on time, and its important to note that the Panamanian government will not send you a tax bill.
Property owners are responsible for reviewing their tax bills online or in person directly to the DGI (the Panama equivalent of the IRS), and balances owed can be paid online through many local banks or directly at the DGI.
Contact us for more information regarding property taxes in Panama and how they may pertain to your purchase decision. With a finca number and owner name, we can even do a quick review of any registered property tax exoneration your property may have!
Image by Nattanan Kanchanaprat from Pixabay
