Investors Guide to Panama

The Purchasing Process

The only restrictions in place for foreign investors to Panama’s real estate market include buying property on any of the nation’s islands or within 10km of a border frontier. Other than these two areas, there are no restrictions to foreign ownership in Panama.

It is advisable to use a legal firm specialising in Panama real estate, as they will be familiar with all of the necessary due diligence processes to ensure correct advice with safe purchases. Along with advising on the correct legal documentation on the property to be purchased, the solicitor will be able to ensure whether the buyer is purchasing a titled property or the Possession rights to the property. Titled properties are preferred over Possession rights as they ensure future security with fully registered legal real estate and are eligible for mortgage financing.

An initial holding deposit will be placed to reserve the property to be purchased. The time frame between the holding deposit and the reservation deposit is when the Private Purchase Contract is drawn up. This is also when the buyer’s legal representative will carry out full due diligence checks on the property and the buyer will arrange any necessary financing.

The reservation deposit is normally between 20% and 40% of the purchasing price, minus the reservation deposit. Staged payments may be required throughout the progression of the construction. The final payment will be required upon completion when the buyer’s lawyer will arrange the transfer of the title for ownership.

Fees & Taxes

While taxation is considered to be quite high in Panama, the country offers various options for reducing costs, along with very low transaction fees for property purchases. Non-residents are only taxed on their Panamanian sourced income, so foreign earned income is not liable to be taxed. The associated purchasing costs amount to around 2% of the property value, with no other costs relating to buying a property in Panama.

Joint taxation can be arranged between married couples, although normally the taxation is arranged separately. Income on Panamanian real estate is taxed at a progressive rate with an exemption for the initial $9,000 of earnings.

Real estate property taxes are exempt for the first 20 years of ownership. After the exemption period the initial $30,000 is free of taxes, followed by a progressive rate of between 1.75% and 2.1% based on the value of the property. The deductions that can be arranged when calculating taxation of the gross rent amount include municipal and national taxes, maintenance and administrative expenses, along with the depreciation value of the property.

• Notary and legal fees – 2%
• Capital gains – 10%
• 20 year exemption from property taxes on new purchases
• Real estate property taxes are between 1.75% and 2.1%
• Income tax is between 13% and 27%
• VAT is a flat rate on the gross rental amount is 5%

Financing the Property

Panama enables buyers a fantastic range of financing options due to the large number of banking corporations operating in the country. Over 100 international banks have offices in the country enabling a wide range of financing possibilities. The terms and conditions for arranging financing for real estate purchases in Panama can vary between the companies used. The general conditions include the following terms:

• Currency of the loan is in US Dollars
• Maximum term of loan is 30 years
• Maximum Loan to Value amount is 80%
• Mortgages can be arranged up to the age of 75 years
• Interest rates are around 6.5%
• Minimum term of the loan is often 15 years. It is possible to arrange shorter terms although the repayments are often greatly increased
• If applying for financing over the age of 60, proof of life insurance may be required

More about overseas property finance

Visitors Guide to Panama
Back to Panama Home