Panama has long been known as one of the oldest and best-known tax havens in the world. Now the country is making it even easier and less expensive to own a home, property, and farmland.
A new property tax law went into effect on Jan. 1, 2019, and understanding it may save you thousands of dollars in property taxes.
Under the new law, there are basically three new property tax schemes:
- Properties under US$120,000 (of registered value) are exempt from property tax. This is an increase from the previous US$30,000 tax exemption. Under this new law there are no more “land or improvement taxes.”
- Properties valued from US$120,001 up to US$700,000 will now pay 0.5% on the difference over the US$120,000 exemption. All properties over US$700,000 will pay 0.7% on the amount over US$700,000.
- To qualify, the property must be registered as “Patrimonio Familiar” (Family Patrimony), or as “Vivienda Principal” (Primary Residence) for the new tax scheme to be applied to the property. (This is an application that you must complete and submit to receive the new taxation.)
Patrimonio Familiar is a property that is destined for permanent family habitation use by its owner(s).
Vivienda Principal is destined for permanent residential habitation by its owner(s), and the property does not constitute a Patrimonio Familiar.
Panama’s new property tax structure has caused some confusion for expats—both for those wanting to purchase and to those who already own.
Personally, I found it very straightforward to understand, but please keep in mind that I’m not a tax expert, so please seek professional help for your particular situation.
Here are some essential things to know before applying for the new tax:
- If your property is currently tax exempt, you will not want to re-register it under the new tax scheme. Wait until your exemption has expired, then file for the Patrimonio Familiar tax.
- Properties valued from US$120,001 up to US$700,000 will now pay 0.5% on the difference over the US$120,000 exemption.
- All properties over US$700,000 will pay 0.7% on the amount over US$700,000. To qualify, the property must be registered as “Patrimonio Familiar” (Family Patrimony), or as “Vivienda Principal” (Primary Residence) for the new tax scheme to be applied to the property. (This is an application that you must complete and submit to receive the new taxation.) Patrimonio Familiar is a property that is destined for permanent family habitation use by its owner(s). Vivienda Principal is destined for permanent residential habitation by its owner(s), and the property does not constitute a Patrimonio Familiar. Panama’s new property tax structure has caused some confusion for expats—both for those wanting to purchase and to those who already own.
- If you don’t know if your property has an existing exemption, no problem. Just obtain your property tax information to determine the status (and remaining time) on your exemption. (I recommend seeking professional assistance for this step.)
- If your property was purchased in a corporation, the property value and exemptions remain the same. (Again, seek professional assistance.)
- It’s rare but possible that a property was purchased with a tax exemption but you have not received the exemption. During the process of registering the property with the Dirección General de Ingresos (DGI), the system may have changed the information. In this case, you will need to formally request the DGI to equalize the exemption. (Again, get help for this.)
- If you own more than one property, only your primary residence (Patrimonio Familiar) has the right to receive the new tax schedule.
- All additional residencies, land, commercial, and/or industrial properties will be taxed according to this schedule:
- Valued up to US$30,000: Exempt.
- US$30,001 to US$250,000: Taxed at 0.6%.
- US$250,001 to US$500,000: Taxed at 0.8%.
- Values over US$500,001: Taxed at 1.0% (only the excess of the threshold is taxed).
- Values over US$700,001: Taxed at 0.7% (only the excess of the threshold is taxed).
On a US$850,000 home, the owner would be exempt on the first US$120,000; US$120,001 to US$700,000 is taxed at 0.5%; US$700,001 and over would be taxed at 0.7%.
Agricultural Land
An exemption also applies to all farmland.
To receive the exemption, the property must:
- Be used exclusively for farming.
- Be valued under US$150,000.
If you own farmland, it is important to know that your home cannot be a part of the farm. You will want to subdivide your property so your home is on a separate lot from the farm.
You must also re-apply every five years for the agricultural exemption.
Pay Your Property Tax
Remember, it is incumbent on you to pay your property tax!
You will never receive a property tax bill… never, ever.
Should you not pay your property tax, the only reminder will come when you sell your property, when you will receive a bill for all your past due taxes, plus a large fine. Actually, it’s more of a lien than a bill. You will not be allowed to transfer the title to the new owner until the tax bill is paid in full.
Why The Changes?
Under the new law, most of the property in Panama will now be tax exempt, because much of the property is valued under US$120,000.
Changes to the property tax scheme were implemented with the hopes of encouraging people living on Rights of Possession (ROP) property to register their property. They would then have “title” to their property without having to incur the additional financial burden of paying taxes on that property.
ROP property is excluded from all taxes (land, capital gains, transfer fees, and property taxes). It is simply never levied.
The government has been under a lot of pressure to reform the real estate industry, and getting land properly titled is a major improvement. Keeping land ownership affordable makes it easier to convince people to title their land.
Time To Invest In Panama
There is no better time to invest in Panama than right now.
While Panama City has become more expensive, there are still excellent opportunities to purchase an existing home, buy land and build to your specifications, to invest in agriculture, or to just buy raw land.
This is a perfect country to start or expand your real estate diversification plan.
Dusty Tubbs
