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Transfer of Properties and Tax regulations Presentation by courtesy of Mr. Alvaro Aguilar, an active member of the Panama Bar Association and an associate (non-practising) member of the New York State Bar Association Panama is one of several Latin American countries that welcome foreign investment into real estate, by allowing full ownership of property by citizens of any country Tax incentives Real estate with an appraised value above US$30,000 is subject to yearly property taxes between 1.4% and 2.1%. However, the Panama Government provides incentives to the construction of buildings and ownership of residences, which encourage investments by locals interested in a secure tax shelter. The fact that construction provides needed employment to unskilled labor and addresses a chronic housing shortage, has prompted the Government to provide the following tax incentives: 1) 20-year exemption of property tax on the value of buildings and improvements, (in force until 2006, after which the maximum will be of 15 years.) 2) Exemption of Capital Gains Tax on the first sale of residences, 3) Banks granting residential mortgages for new residences below US$62,500 receive a negotiable tax credit equivalent to interest reduced in 2 to 4 points below the prevailing rate, 4) Buyers of residences can deduct from their taxable income the amounts paid as interest for mortgages without the tax credits listed in 3), 5) Developers can deduct up to $1,000 on taxable income from the sale of low-income housing with a price of less than US$14,000, 6) Developers can declare as non-taxable income the profits from sale of real estate that are re-invested in the construction of new residences, as long as the value of the new building is below US$62,500 and equivalent to four times the amount of the profits realized.
Foreign investors should seek the advice of competent tax counsel in their country of residence to determine their applicable fiscal compliance requirements and liabilities. - How is property transferred Unlike the U.S., where each county has court clerks for registration of title deeds, Panama has a single, centralized, computerized, national Public Registry where ownership and encumbrances of Property, Condominiums (called Horizontal Property), Airplanes and Ships are registered. Property-related transactions are not valid before the public until recorded at the Public Registry. The centralized system allows a title search at the Public Registry to reveal in a single day the measurements, coordinates, mortgages, encumbrances, judicial actions, restrictions, rights-of-way of each property, which is assigned a "finca" number for identification purposes. The Civil Law requires that the buyer and seller appear in person before a Notary Public to close the sale. However, parties located abroad can grant a power of attorney before their local Notary Public and Panama Consul to appoint an attorney-in-fact to conduct said formality in Panama. The Notary Public drafts a Public Deed, a true copy of which is registered at the Public Registry in 1 or 2 weeks. Transfers of property are subject to a registration duty of US$2.50 for every US$1,000 of the transaction price (usually paid by the buyer), as well as a Property Transfer Tax of 2% on the highest amount between the assesed value of the property (levied on the seller) increased at a 5% annual rate from the previous sale price, or the current sale price. Recently, the Capital Gains Tax of 10% of the sale price minus the basic acquisition cost and transaction expenses became payable at the moment of sale, instead of a schedule with a yearly tax return. The Panama Constitution guarantees the right to ownership of property, as well as equality between nationals and foreign residents before the law. However, special restrictions can be enacted for immigration and health purposes. Ownership of property by foreigners is not allowed in the areas up to 10 km away from the borders, which are covered by inaccessible rainforest - thereby leaving the best lands open to foreign investment. The seas, lakes, rivers and the Panama Canal waterway are non-transferrable public domain, while owners of beaches and islands must grant a public right-of-way to the sea. The Constitution forbids confiscation of properties as a penalty, although property acquired under money laundering schemes is subject to forfeiture. Expropriation is allowed for emergency public interest purposes, but only after a hearing with the owner and payment by the Government of fair, adequate and prompt compensation under international standards. Bilateral investment treaties with the U.S., France, United Kingdom and most European countries further ensure protection of investments from citizens of said countries. BACK / Contact Claudine
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