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Capital Gains II

Capital Gains Tax in Panama*

*updated to include Law No. 18 (19th of June, 2006, published in Gazette 25,570, 20th of June, 2006)

Sale of Real Estate

One of the questions that arises when you are selling a property, is what taxes will be due at the moment or after the sale. 

Taxes in Panama are defined in the Tax Code, which was updated as recently as February 2005.  The taxes which exist here are established in Article 683 of the Tax Code: 

Artículo 683.
Son impuestos nacionales los siguientes:
1. El de Importación.
2. El de la Renta.
3. El de Inmuebles.
4. El de Naves.
5. El de Timbre.
6. El de Licencias Comerciales e Industriales.
7. El de Bancos, financieras y Casas de Cambio.
8. El de Seguros.
9. El de Consumo al Combustible y Derivados del Petróleo.
10. El de Transferencias de Bienes Corporales Muebles y la Prestación de 
Servicios.
11. El Selectivo al Consumo de ciertos Bienes y Servicios.
12. El de Transferencias de Bienes Inmuebles.

These are: 

1. Import Duties
2. Income Tax
3. Real Estate Taxes
4. Maritime Duties
5. Stamp Duty
6. Commercial and Industrial Licenses
7. Banking, Finances and Currency Exchange duties
8. Insurance Duties 
9. Petrol and Derivative Products Taxes
10. Transfer of Personal Property and Services Taxes (GST or VAT) 
11. Consumption of certain goods and services (luxuries) 
12. Transfer of Real Estate

Capital Gains does not appear to be mentioned here. 

However, article 701 of the Tax Code, as modified by Article 1 of Law 18 (2006), provides a definition of "Income Tax", which includes the following income:

a.  where there are profits from the sale of real estate (in which case the taxable income is the difference between the sale price and the basis in the property + expenses incurred in the sale). 

If the seller is in the business of selling real estate (i.e. this is a part of his ordinary business), then the income is treated as regular income. 

But, where the sale of the real estate is not part of the regular business of the seller, then the Income Tax payable is at a fixed rate of 10%, payable before registration of the transfer of the property in the Public Registry, in addition to the 2% land transfer tax which is payable on any sale of property. 

The registered basis in the property will the lower of the following:  the registered cadastral value or the value of the property in the books of the company (where it is being depreciated as an asset).  

However, until the 31st of December 2007, the tax payer may opt to present an affidavit of the new cadastral value, as provided for in article 766-A of the Tax Code, and as a consequence, the new cadastral value shall be used as the tax basis. 

This means that if the tax payer opts to have the property appraised and presents to the Cadastre Office an affidavit of new cadastral value, which is approved by the Cadastre Office, then this new value will be used to calculate the capital gains payable.  Note:  this new appraised cadastral value will also be used to calculate the alternative, annual real estate taxes due on the property. 

Obviously the calculations, especially where there is more than one sale of a given property within a year, are a little more complicated than what we have laid out above, but this should provide you with a general idea of what will be payable upon the sale of any parcel of land.

For more information or a legal opinion regarding your particular circumstances, please do not hesitate to contact us.  You may also call our offices ++507 264-5630. 

All material included in the Gray & Co. web sites is for informational purposes only and may not reflect the most current legal developments, verdicts or settlements. The information should in no way be taken as an indication of future results. The material contained herein is not offered as legal or any other advice on any particular matter.  Translations of the law are provided for informational purposes only, and are not provided as legal translations of the law. 

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