| Panama Real Estate: Basic Steps to Purchase |
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| Written by OffshoreWorld | |
| Monday, 08 June 2009 | |
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Panama may be the most safe and have the most reliable government in Central America. The Government has been focused on attracting foreign investment for its economy, and has passed more than 40 laws protecting foreign investment rights. This includes the Investment Stability Law (Law No 54), which guarantees all foreign and national investors equal rights. The government is also offering other incentives for foreigners to invest, spend time or live in Panama in addition to Law 54. A foreigner buying or building a new house will not pay property taxes for up to 15 years. Panama has attracted major companies such as Federal Express, DHL, Costco, Bell South, Continental and American Airlines and many others. The streets of Panama have been flooded with American franchises. Panama Real Estate- Restrictions on Foreign Ownership The following restrictions apply for foreigners buying real estate in Panama: - Article 286 of the Constitution, foreign ownership of property within 10 kilometers (6.2 miles) of an international border is forbidden. - Land that is untitled must be owned by a citizen of Panama for a minimum of two years before it can be sold to a foreign buyer. After the two-year period, the land can be titled and resold without restriction. Consider also that some untitled land can never be titled, so be sure to get professional advice before deciding to buy. - Restrictions apply on foreign ownership of waterfront and island property. If you are investing in one of the Tourism Zones, such restrictions may be avoided. All beachfront properties must provide a public right of way starting from the highest tide to the property line by law, and this distance may vary. To build over water requires a permit. The permit requires a concession from the maritime authority and the Ministry of Finance. All restrictions are of course best to be discussed with a Panamanian law firm. Panama Real Estate- Ownership Options The options to buy as an individual or through a Panamanian corporation exist in Panama. Owning property through a Panamanian corporation is best for large projects. A corporation is not mandatory, although it makes it easier to settle disputes, especially in court. A Panamanian corporation is easy to set up. A competent attorney charges about $700 plus corporate tax and agent fees totaling around $400. Once it is set up, there will be a corporate tax of $250 a year, and $150 a year in resident agent (local attorney) fees. Panama Real Estate- How To Buy Property The process of purchasing property in Panama is similar to that in the United States however, there are some important differences. It highly recommended you work with an English-speaking attorney who is well experienced in Panamanian real estate law. The basic’s of the buying process: 1. Confirm the Title Start with confirming the legal owner of the property you want to buy. Ask the owner for copies of two documents of importance- the public deed containing the title, escritura and the Ownership and Encumbrances Certificate, Certificado de Registro Publico from the Public Registry. Then give these documents to your lawyer for an updated search. If these documents are not available, ask for a property number, finca from the seller. Your lawyer will be able to search for the title with this information. The owner and a description of the property will be stated in the escritura. Any liens against the property or other legal complications are indicated in the Certificado de Registro Publico document. An attorney should check the copies of the se documents, and it is a good idea to get an updated search in any case. Also, the seller must provide copies of the survey plans of the property, and of any buildings describing the size and location of the property. In some parts of Panama getting a clear title could be a problem if your not careful. Private ownership of real estate is not allowed in the San Blas region on the eastern coast where the Kuna Indians live. The area has been designated an independent and sovereign state. There are some who’ve tried to partner with the Indians to do business with no success, and it is best to avoid the area. The government owns most property in and around Bocas del Toro and in the country’s agricultural areas. Acquiring titulo depropiedad (formal titled ownership) to any of these properties most likely will not happen. Derecho posesorio is another way to acquire land which permit’s a buyer to acquire a right to possession that is transferable, as long as the land is actively used for public good. This area is problematic. For example, a title could be obtained by a squatter through a Panamanian court when the right of possession is over private property and his possession has been undisturbed for 15 years. If claim for ownership is filed in court, it would be turned into title. Rights of possession over government property may only be transformed to title by the Agrarian Reform, but this does not cover coastlands or islands. Ownership of this type was created to give access to land to landless peasants and was never meant for speculation. Disputes over possession rights are common. It is strongly recommended you never purchase a property with possession rights only. In Panama, most property is titled and the country has a sophisticated, computerized land registry through which ownership of the property can easily be traced. In addition to having your attorney do the background check, it is recommended that you take out title insurance for any property purchased in Panama. 2. Promise to Buy Next is to enter into a Promise to Buy-Sell Agreement once it is known the title is in order. A down payment will be given to the seller and a date will be set for the transfer of title. There is normally a penalty if any party backs out. During the period stated in the agreement, the seller will pay the transfer tax and will obtain the clearing certificates necessary to transfer title. You, the buyer will arrange for payment by arranging financing etc. Both parties will sign the final contract at the agreed-upon time. 3. Title Transfer When step two is accomplished, your lawyer will draft the final purchase and sale contract. All documents will be gathered and will make an additional search to make sure that no liens or mortgages have been filed in the meantime. The contract will then be put into final form and will be drawn up as a public deed. All parties will then go to a Notary Public to sign the deed. Notaries in Panama, unlike in the United States are high-ranking officials and are granted for more responsibilities. The notaries do not represent the buyer or seller. 4. Transfer of Funds To pay the balance of the purchase price in the safest way is through an irrevocable letter of payment from the local bank in Panama. Your lawyer should be able to help you in obtaining one. The irrevocable letter of payment, similar to escrow is a letter whereby the bank irrevocably promises the seller to pay the balance of the sale price upon the transfer of the title to the buyer. Another way, involving more risk when paying the balance of the purchase price is to give the seller a bank draft drawn on a bank in Panama upon signing of the public deed at the Notary Public. One of Panama’s international banks should be able to provide this if you already have an account with them. The risky part is making the payment before obtaining the registered deed. 5. Record of Purchase at the Public Registry Until the purchase is recorded at the public registry, it is not final. The process normally takes a few weeks, but if your attorney files the documents directly at the main office of the public registry in Panama City it can be done in about 10 days. The public registry will charge an additional fee of $250 for next-day registrations assuming all documents are in order if you are in a hurry. Your lawyer will give you the registered deed and will make sure that a copy is filed with the tax records department, catastro, once the registration process is completed, and the property will be yours. Panama Real Estate- Transaction Costs Commissions for real estate agents generally range from 3.5% to 5% of the selling price, and are paid by the seller. The buyer must pay the expenses regarding Title at the Public Registry. The amount to be paid is estimated according to article 314 of the Fiscal Code. Closing costs typically amount to around 3%, including legal fees, registration and notary fees. Panama Real Estate- Taxes Transfer Tax: In Panama, transfer taxes are paid by the seller, and are 2% of either the updated registered value of the property or the sale price, whichever is higher. The registered value is the updated value, plus 5% per annum of ownership. If a corporation buys the property, it is customary for the shares of the company to be sold, instead of the property, in return eliminating the need to pay transfer tax. Inheritance/ Gift Tax: In Panama, inheritance taxes have been eliminated. However, taxes are imposed in gifts, inter-vivos of properties located in Panama. The rate depends on the degree of relationship between the donor and the donee. Rental Income Tax: As a property owner receiving rental income, you are liable for income tax up to a maximum of 30%. If you invest in one of the “tourism zones”, you may be exempt from income tax for 15 years. Property Tax: Properties with a registered value of $20,000 or less do not need to pay property tax. Properties that have a higher value are subject to the following payment structure: 1.75% from $20,000 to $50,000; 1.95% from $50,000 to $75,000; and 2.10% over any property value above $75,000. You may be exempt from property tax for up to 20 years if you buy or build a residential property in Panama. This exemption applies to cases where the construction permit is issued before January 1, 2004, and completed construction registered before December 31, 2004. The following exemptions on property tax apply to houses or apartments where construction permits are issued after January 1, 2004: - Value up to $100,000: 15-year exemption - Value from $100,000 to $250,000: 10-year exemption - Value over $250,000: Five-year exemption The exemption is transferable during the exemption period to any new buyer. Not exempted is the land itself and would continue to pay property tax if its value is above $20,000. Capital Gains Tax: Gains from real estate should be included in the annual tax return, and are taxed at whatever level the individual is being assessed for income tax. Panama Real Estate- Financing Of all the Latin American countries, Panama may the easiest to get a mortgage. Foreign residents will find local financing available, that is residents holding an approved visa, even if the resident does not spend all year in Panama. Fixed-rate mortgages may be found from Banco General for residential property for up to 90% of the selling price, over a maximum of 30 years. For raw land purchases, up to 70% can be borrowed, repaying the loan over a maximum of 10 years. More info: Caporaso & Partners Law Office www.taxhavens.us, info@taxhavens.us |
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| Last Updated ( Thursday, 06 August 2009 ) |
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