Tax Information For Panama

When buying investment property in Panama, a good tax advisor and general knowledge of the tax system are important in order to make a wise investment decision.


Below is an overview of what taxes to expect when investing in Panama:

Transfer Tax

Transfer tax of 2% must be paid by the vendor at the time of property transfer.

VAT

VAT is not charged in Panama for transfers of property. However, currently the seller must pay 10% capital gains tax, regardless of how long he has owned the property.

A statutory rate of VAT (5%) is applied in Panama but is levied for basic foodstuffs, trade and medical services.

Capital Gains Tax

Capital gains tax in Panama offers the taxpayer the option to pay in one of two methods:

  1. 5% of the sum of: the cadastral value; any improvement costs; and 10% of the property’s cadastral value for each year of owning the property.
    This system of taxation consolidates the transfer tax and capital gains tax, meaning the taxpayer is not liable for 2% transfer tax or any more tax on capital gains made from the sale.
  2. 2% of the higher value from either:

    The sale price.

    Or

    The sum of the property’s cadastral value at the time of purchase, including improvement costs during ownership and 5% of the cadastral value of the property (including the improvement costs) for each year the property was held.
    This second option means taxpayers are subject to a further tax on the capital cost for each year of ownership. The gain is then divided by the number of years the property was owned and the resulting amount is then taxed at the standard income tax rates (see below).
    The 2% initial tax on the selling price can be credited as real estate transfer tax. When calculating capital gains tax liability for the property, this tax can therefore be deducted from the selling price as a 2% transfer of ownership cost.

Property Tax

Property tax depends upon the total value of the land, plus improvements, as appraised by the Land Commission (Oficina de Catastro). Maximum annual charges will not exceed 2.1% of the property value.

Income Tax

Income tax (Impuesto Sobre la Renta a Personas Naturales) is charged on income generated from Panamanian property, regardless of your nationality, address or origin.

The following are some general tax laws; however, they will vary depending upon individual circumstances.

Law 61, made in 2002 means you are exempt from income tax if your sole source of income is your job and you earn less than $800.00 a month ($10,400.00 per year).

If you earn more than this amount, you will be charged tax according to article 700 of the Fiscal Code:


TAXABLE INCOME, US$
MARGINAL TAX RATE
Up to US$3,000
0%
US$3,000 – US$3,250
52%
US$3,250 – US$4,000
4%
US$4,000 – US$6,000
6.5%
US$6,000 – US$10,000
11%
US$10,000 – US$15,000
16.5%
S$15,000 – US$20,000
19%
US$20,000 – US$30,000
22%
US$30,000 – US$40,000
27%
US$40,000 – US$50,000
30%
US$50,000 – US$200,000
33%
Over US$200,000
30%

Usually employers will withhold income tax and pay it for the employee.

Deductions apply, taking into account dependency, medical charges, contributions to education, interest rate reductions on mortgages and interest paid on loans for education.

Inheritance Tax

Inheritance tax does not exist in Panama following abolition in December 2002. However, an Intervivo tax is charged, the amount of which is dependent upon the blood relationship between the donor and the beneficiary. This tax relates to the transfer of a gift made during one’s lifetime rather than an inheritance from a will.

Leasing Property

Leasing property in Panama is subject to VAT (Impuesto a la transferencia de bienes corporales muebles con crédito fiscal) at a flat rate of 5% on any gross rent exceeding USD 3,000. However, entities with an average monthly income of less than US$3,000 are exempt from paying VAT.

Tax Exemptions

  • Any new residential property bought to use as a personal residence is exempt from paying VAT (Impuesto de Transferencia de Bienes Inmuebles).
  • Profits on real estate sales that are reinvested in new constructions can be exempt from income tax. In order to qualify, re-investment must be made in residential property valued at USD 62,500 or less.
  • Tourist zones are granted a 20-year exemption on real estate taxes. Import duties and VAT for the import of furniture, materials, equipment used for construction, as well as vehicles for at least eight passengers are also exempt.
  • In September 2006, new rules came into effect offering tax exemptions of up to 15 years on the construction of residential homes:

    Commercial buildings: 10 year tax exemption
    Other construction use: 10 year tax exemption
    Houses:
    Up to US$100,000 - 15 year tax exemption
    US$100,000 - US$250,000 - 10 year tax exemption
    More than US$250,000 - 5 year tax exemption

The above exemptions are transferable when the property is sold.

Reduced mortgage interest rates

Until May 2009, reduced mortgage interest rates up to 6.5% below regular rates are offered if the home is to become the purchaser's principal dwelling, and is valued below USD 62,500. This represents a good incentive for those wishing to move or retire to Panama.

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