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Panama Real Estate Tax Exemptions and Improvements: 

Following a lot of inquiries from clients regarding the tax law amendments introduced in 2002 and then modified in February 2005, here is a little summary aimed to assist clients in deciding whether an investment in property will have a tax exemption and for what period of time.  

Land tax in Panama is regulated by the Tax Code, as amended by Law 6 (February 2, 2005) and Law 18 (June 18, 2006).  This begins with Article 763 of the Tax Code. According to this article, property is taxed, irrespective of whether or not the ownership or title is registered in the Public Registry.  Article 764 of the Code then proceeds to indicate which properties are exempt from land tax.  This includes those properties whose tax basis, including improvements built thereon, does not exceed $30,000.00.  Alternatively, farmland which is used exclusively for farming and properly registered with the Ministry of Agricultural Development, valued at less than $150,000.00 is also exempted from land tax.  

Article 766 of the Tax Code then proceeds to establish the tax basis for property:  

a. 1.40% over the excess of $10,000.00 of the tax basis, up to $20,000.00 over the tax basis.
b. 1.75% over the tax basis which exceeds $20,000.00 to $50,000.00.
c. 1.95% over the tax basis which exceeds $50,000.00 to $75,000.00.
d. 2.10% over the tax basis which exceeds $75,000.00
The tax basis should be understood as being the value of the land plus the improvements built thereon. 

This article, however, is regulated by Resolution 201-1411 - which indicates that there was a change in the minimum tax basis which was exempt, and so sub-section a. is no longer applicable.  Since this resolution was adopted prior to the 2005 amendment, and has not been repealed by the amendment, which increased the tax basis to $30,000 - by analogy we assume that part b. should now read from $30,000 to $50,000.00.  

So if you have a property which is worth $35,000.00, according to old evaluations, then you will pay the following taxes:  

First $30,000 - tax exempt 

1.75% over $5,000.00 = $87.50 

Alternative Property Tax Calculation - following Appraisal 

However, under the 2005 amendment, extended by Law 18 (2006), the alternative calculation is available:  
a. 0.70% over the tax basis which exceeds $30,000.00 up to $50,000.00.
b. 0.90% from $50,000.00 to $75.000.00.
c. 1% over the tax basis which exceeds $75,000.00.

This progressive combined alternative tax rate ONLY applies to properties which are up to date with the land tax, where the tax-payer presents a sworn declaration of the estimated value of the property, duly countersigned by an appraiser, before December 31, 2007.  The Cadastre Department may or may not accept the proposed value.  The value established hereunder, may not be changed by the Cadastre Department within the following 5 years.  

So, for the same $35,000 property, you would only pay 0.70% over $5,000.00 = $35.00 

Those properties which are not up to date in the payment of their land taxes and which have not presented their estimated value in a timely manner, may not take advantage of this alternative calculation.  Obviously, the purpose of this alternative calculation is to encourage property owners to bring their land taxes up to date and to present updated appraisals of the property values.  

Under the 2005 amendments, there are also changes to how improvements are dealt with and given exemptions from property taxes.  We have provided a couple of examples (under the alternative calculation for updated appraisal values).  It is necessary to present an application to the Tax Department (Cadastre) to request the exemption.  

Plain property - Property with Improvements (prior to 2007) - Property with Improvements (building permit issued by Aug 31, 2006) - Property with Improvements (building permit issued after Aug 31, 2006)

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Plain property - with no improvements: 

If you have a property, with no improvements built on it, and you register the property with an updated cadastral value before December 31, 2007 - you will be eligible to have the property taxed according to the alternative tax rate.  

Property - basis at $35,000.00: 

Property - basis is $85,000.00, this means that the property will be taxed as follows: 

Plain property - Property with Improvements (prior to 2007) - Property with Improvements (building permit issued by Aug 31, 2006) - Property with Improvements (building permit issued after Aug 31, 2006)

Property - with house/building finished & registered before August 31, 2007:

If you take those same properties indicated above, and finish building your $125,000.00 home on the property and these improvements are registered in the Public Registry before the 31st of August, 2007, then you will be taxed on your property as follows:  

Property - with basis at $35,000.00 + improvements of $125,000 = total value of $160,000.00: 

The improvements are exempt for 20 years, from the date of the Occupation Permit.  

Assuming that the property basis is $85,000.00, this means that the property will be taxed as follows: 

Annual property tax = $465.00 

The improvements are exempt for 20 years, from the date of the Occupation Permit.

Plain property - Property with Improvements (prior to 2007) - Property with Improvements (building permit issued by Aug 31, 2006) - Property with Improvements (building permit issued after Aug 31, 2006)

Property - with building permit granted before August 31, 2006, and occupation permit granted and improvements registered in Public Registry before August 31, 2007: 

If you take those same properties indicated above, and get your building permit issued before August 31, 2006 and finish building your $125,000.00 home on the property before the 31st of August, 2007 and these improvements are registered in the Public Registry before the 31st of August, 2007, then you will be taxed on your property as follows:  

Property - with basis at $35,000.00 + improvements of $125,000 = total value of $160,000.00: 

The improvements are exempt for 20 years, from the date of the Occupation Permit.  

Assuming that the property basis is $85,000.00, this means that the property will be taxed as follows: 

Annual property tax = $465.00 

The improvements are exempt for 20 years, from the date of the Occupation Permit.

Plain property - Property with Improvements (prior to 2007) - Property with Improvements (building permit issued by Aug 31, 2006) - Property with Improvements (building permit issued after Aug 31, 2006)

Property - with building permit granted after September 1, 2006 or occupation permit granted or improvements registered after September 1, 2007:  

If you take those same properties indicated above, and get your building permit AFTER September 1, 2006 or finish building and getting your occupation permit after September 1, 2007 or fail to register the improvements in the Public Registry before the 1st of September 2007, then you will be taxed on your property as follows:  

Property - with basis at $35,000.00 + residence of $125,000 = total value of $160,000.00: 

The improvements are exempt for 10 years, from the date of the Occupation Permit.  

Assuming that the property basis is $85,000.00, this means that the property will be taxed as follows: 

Annual property tax = $465.00 

The improvements are exempt for 10 years, from the date of the Occupation Permit.

If, on the other hand, you build a house worth less than $100,000.00 - you will receive a 15-year exemption from the date of the Occupation Permit.  

If you build a commercial building, rather than a residence, then the improvements are exempt for 10 years only, irrespective of the value of the improvements.  

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