A Guide To Buying Property in Panama

Buying property in Panama is very safe for foreign investors. It is legal for foreigners to own titled property in Panama in their personal names, although we normally recommend that clients hold all property in the name of a Panamanian corporation for asset protection and tax reasons. Panama possession rights property, however, should always be held in the name of a Panamanian corporation, where the foreign person is the shareholder (or a Panama private interest foundation or trust can be appointed as the shareholder in place of the foreign person) of the corporation.

Is it safe to buy a Panamanian corporation's shares which hold title to property in Panama?
As long as a proper due diligence investigation is done on the corporation and a proper title search is done on the property that the corporation holds, then it is generally safe to buy property this way in Panama. It is important to hire qualified attorneys to handle the due diligence, and put the proper clauses in the Buy/Sell Contract of Shares of the corporation, such as; (1) a clause that guarantees the buyer that the corporation does not have any pending debt or liability other than that established in the contract and indemnifies the buyer from any such liability, (2) a clause that makes the seller responsible for any liability for previous actions of the corporation and/or it's directors, and (3) a clause that guarantees the buyer that the purchase is for 100% of the corporations shares as well as for 100% of the property title number xxx (with the description of the property), which is duly owned by the corporation, whose shares are owned by (the seller).

Government taxes or fees for transferring property titles from the sellers name to the buyers name
The Panamanian government charges a 2% property title transfer tax. The 2% is based on the registered value (the value established in the registered deed of sale). In addition, there are other fees charged by the Public Notary and the Public Registry which total in the range of $200 to $300 for registering a buy/sell contract for the sale of real estate in Panama. It is standard practice in Panama for the seller to pay for the title transfer tax, however, in some cases, depending on the negotiation between the buyer and seller, the seller may insist that the buyer pay the title transfer taxes.

The average closing costs for Panama property transactions
The closing costs vary depending on the particular transaction. For example, if the property is held in the sellers personal name, and the buyer is transferring the property title to a Panamanian corporation (most recommended), then the closing costs would include; (1) the legal property transaction fee of US$1200 (includes; title search, buy/sell contract, closing, & property title transfer service), (2) public registry title transfer fees of approx. US$200 to US$300, (3) escrow fees from 0.5% to 1% of the transaction amount (vary depending on amount of transaction), and (4) incorporation fee of US$1000 to setup the Panama corporation.

However, if the property is held by a Panama corporation already, and the buyer is purchasing the shares of the corporation, then the transaction is relatively simple because there is no registration of title transfer, meaning that there is no title transfer tax, and no public registry title transfer fees. In this case, the closing costs would include; (1) the legal property transaction fee (includes; title search, purchase of shares contract, and closing for US$800), (2) change of directors / resident agent of the corporation (approx. $350), and (3) escrow fees from 0.5% to 1% of the transaction amount (vary depending on amount of transaction).

How long does it normally take, from start to finish, to purchase property in Panama?
The time frame from start to finish is normally about 6 weeks, however, it really depends on a variety of factors which are dependent initially on the buyer and the seller, the negotiation between buyer and seller, and subsequently dependent on the attorneys and the public registry. Generally, property transactions have the following procedures:
(1) The buyer and seller to agree on the price and terms (time frame can vary depending on the negotiation)
(2) seller provides our firm with all the due diligence documentation on the property title so we can do the title investigation (time frame depends on the seller)
(3) attorneys do initial title search & draft the promise to buy/sell contract (time frame is approx. 1 day assuming we have all the required information from buyer and seller)
(4) buyer and seller review the promise to buy/sell contract and agree to set a date to sign (time frame varies depending on the buyer and sellers)
(5) buyer sends payment for down payment and legal fees to escrow (time frame depends on the method funds were sent)
(6) buyer and seller sign promise to buy/sell contract and down payment is paid to seller from escrow
(7) final title search is completed (time frame is approx. 5 days)
(8) buyer sends final payment to escrow (time frame depends on the method funds were sent)
(9) attorneys draft final buy/sell contract (time frame is 1 day)
(10) closing takes place and buyer/seller sign final buy/sell contract (time frame is 1 day)
(11) contract is registered at the Public Registry for title transfer procedure to begin (time frame ranges from 2 to 30 days, depending on the Public Registry's volume)
(12) attorneys receive deed from Public Registry, draft official English translations, and prepare final documents to send to buyer (time frame is approx. 5 business days).

What are the normal legal fees for property transactions?
The notary and public registry costs total up to approximately $200 to $300 depending on the particular transaction. Title transfer taxes are normally paid by the seller. Escrow fees (if an escrow company is used), are normally paid by the buyer, and range from one half of one percent (0.5%) up to one percent (1%) of the transaction.

Is there liability for real estate investors that "flip" (buy & immediately sell) properties?
The liability for real estate investors in Panama is limited. The main liability for real estate investors is capital gains taxes, which some people avoid through the use of Panamanian corporations. As long as you deliver what is promised according to the terms of the buy/sell contract, buying and selling property in Panama is virtually liability free.