Taxation in Panama
Property taxes are only levied on properties that have a registered value of US$20,000 or more (registered value is the value stated on the public deed that is registered at the Public Registry). The maximum annual property tax is 2.10% of the registered value of the land (land value under US$20,000.00 is exempt of this particular tax, as per Law # 36 of 1995). Property tax is also levied on the declared value of the building improvements on the land, however, the laws in Panama offer tax exonerations for building improvements for up to 20 years (this was implemented by the Panamanian government to promote new construction, which makes up a large portion of Panama's overall GDP). Possession Rights properties do not incur property taxes, since the property technically belongs to the government of Panama.
Are there property title transfer taxes in Panama?
Yes, the government of Panama charges 2% of the registered property deed value each time you transfer title from one name to another name. This is why most sophisticated investors utilize Panama corporations to hold ownership to property, so that when they sell the property, they simply sell the shares of the corporation as a whole, therefore avoiding a title transfer, and avoiding the 2% title transfer tax.
Are there capital gains taxes on the purchase and sale of real property in Panama?
Yes, the law stipulates a 30% capital gains tax on the purchase and sale of real property in Panama. The capital gains tax is triggered upon the transfer of the title at the Public Registry.
Is there a way to minimize capital gains taxes on property sales in Panama?
The most common strategy that people use in Panama is to hold property in the name of a Panama corporation, and instead of transferring the property to the buyers name upon the sale, the shares of the corporation are sold as a whole to the buyer. Since corporations shares are "bearer shares" and they are not registered, there is no record of the sale. Upon the sale of the shares, the new owner simply changes the board of directors/officers to take control over the corporation.
Is there self-employment tax for real estate investors in Panama?
There are no "self-employment" taxes for real estate investors in Panama, however, local real estate investors are taxed on their income the same way any other person would be taxed on locally generated income, and they are required to file annual tax declarations. Please note that income taxes on real estate purchases and sales can generally be avoided through certain structuring techniques using Panamanian corporations and private interest foundations.
What would happen if I were to perish (die), and I have real estate in my personal name in Panama? Are there inheritance taxes in Panama, whereby the Panamanian government would keep a certain percentage of my beneficiaries' inheritance?
Yes. If your assets are in your personal name, you could lose half of your properties to the Panamanian government upon your death, thanks to inheritance taxes. For this reason, we recommend that all of our clients put their properties into Panama corporations, and utilize a Panama Private Interest Foundation to hold the shares of each corporation, which enables them to distribute their assets to their beneficiaries, avoiding all inheritance taxes, probate, and legal delays. All assets would be distributed to your beneficiaries exactly as they were left, exactly as per your wishes (according to your letter of wishes), with no deductions whatsoever.
Property and Transfer Tax
Article 766 regulates Property Tax:
The maximum annual percentage of assessment is 2.10% over the value of the land (land value under US$20,000.00 is exempt of this particular tax, as per Law No. 36 of 1995). The property tax is also levied on the declare value of the improvement build on the land. The owners must pay according to the official assessment value (which is usually the declare (commercial) value on the last purchase Deed).