Real Property Transfer Tax (approx 2%) equivalent to the "state deed stamp tax" in the USA |
| Property Tax (Zero Taxes for up to 20 years. See exemptions below. |
Capital Gains Tax upon sales ( 10% in most cases). See details below: |
REAL PROPERTY TRANSFER TAX
Sellers pay a real estate transfer tax when title is transferred to the purchaser.
The tax rate is 2% of either the updated registered property value or the sales price, whichever is higher.
The updated registered property value is the original purchase price (or value submitted to the Public Registry) plus 5% per annum of ownership.
Options:
- The taxpayer may select between paying the 2% real estate transfer tax over the sales price, increased by 5% per year of ownership. Or,
- Paying income taxes at a 5% rate of the purchase value of the property, increased by 10% for each year of ownership.
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If the taxpayer selects the 2nd option no further taxes on the Capital Gains will be levied.
PROPERTY TAXES
Properties with a registered value of $30,000 or less do not pay property taxes.
Properties of a higher value will pay property taxes as follows:
1.75% from $30,000 to $50,000
1.95% from $50,000 to $75,000
2.1% for any property valued over $75,000
Alternative Property Tax Calculation: Under a 2005 amendment to the law, there is an alternative calculation:
0.70% over the amount exceeding $30,000 to $50,000
0.90% from $50,000 to $75,000
1% of the amount exceeding $75,000
Note: This amounts to an approximate savings of 50% compared to the Regular Tax Rate.
Availability: The Alternative Property Tax calculation is only available on properties which are up to date with their property tax payments and the taxpayer presents a sworn declaration of the property's estimated value countersigned by an appraiser within one year of this law coming into effect (by June 30, 2006). The Tax Department (Cadastre) may or may not accept the proposed value. If it does, the Cadastre Department cannot change the value for at least 5 years.
Exemptions: A law change was approved on March 10, 2008, by the Panamanian Legislature to extend the 20-year property tax exemption until Dec 31, 2011. ( the original limit had been set as the 31 of August of 2007)
To qualify for this exemption:
a) the BUILDING permit must have been issued before July 1, 2009, AND
b) the REGISTRATION of improvements in the Public Registry must be completed BEFORE December 31, 2011.
Note : Property owners must register for their tax exemption with the appropriate government office, it is not an automatic exemption. ( The Panama Team recommends hiring a Panamanian lawyer for this purpose, for around $200 they will file all the paperwork needed to obtain your tax exemption for you).
For Commercial Buildings:
Any value of the building: 10-year exemption
The exemption is transferable during the exemption period to any new buyer.
The land itself is not exempted and will continue to incur property taxes if its value is above $30,000.
CAPITAL GAINS TAX
Panama has Capital Gains taxes. The rates differ between individuals, real estate dealers, and corporations.
Individuals: Individuals who are not real estate dealers (not in the business of buying & selling) will pay a flat 10% Capital Gains tax rate. You are allowed to sell real estate on an occasional basis without being classified as a professional real estate dealer who pays the higher rate.
Real Estate Dealers: Individuals who are in the business of buying & selling real estate are considered "real estate dealers". Dealers will include the Capital Gain as normal income in their annual tax return and pay whatever level is being assessed as income taxes. This could be up to a 27% (maximum rate).
Corporations: Corporations who sell real estate will pay a flat 30% Capital Gains tax rate.
Taxable Base: Capital Gains taxes are determined by using a formula called "Taxable Base". The costs incurred with purchasing and making improvements on your property are called "Cost Basis". You determine Cost Basis by adding the purchase price + costs of improvements + Closing costs (purchase & sale). If you acquired the property by inheritance or as a gift, the Cost Basis is the official Public Record of land value + value of the permanent structures on the day title transferred to you.
Here's another way of putting it: Capital Gains are determined by the difference between the sales price and the property's Basis plus sales expenses.
Payment: If you qualify for the flat 10% rate, you must pay it before the title transfer is registered with the Public Registry.
Tip: If the property is owned by a corporation, the corporation's shares can be sold (instead of the property), eliminating the need to pay the Capital Gains tax.
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