The news is finally out. After months of back and forth on what (not) to include, Panama’s National Assembly passed Law 49, extending the amnesty on penalties and interest on back taxes of all shapes and sizes, including any outstanding property taxes, owed through December 31, 2018.
So, if you own real estate in Panama and owe any real estate taxes, we’d recommend taking care of it now, before holiday season heats up. Simple as that.
According to ANATI, the cadastral office of Panama’s land registry, you should make sure you’re paying the right amount of taxes by confirming that the appraisal value is updated and correctly registered with them. You can do it by visiting the DGI E-Tax website and typing in your NIT, or by sending ANATI an email: firstname.lastname@example.org
Things get more complicated if you’re looking to sell or make improvements to your property and trying to update its appraisal value with ANATI. If that’s where you are now, you’ll have six months to get up to date with the new taxes due for those new appraisal values and you won’t be levied interest or penalties during that time-frame.
After January, when the new tax rates kick in and the moratorium ends, things will get more official, let’s say. Tax authorities will hook up with mortgage lenders to get tax notifications out to owners with outstanding mortgages — no more thinking Panama’s government doesn’t have tentacles to reach all the way down the Beaches Corridor!
The 2017 Tax Reform: A Look at Primary and Secondary Residences, Exemptions and More
Under the momentous tax reforms that passed in October last year, 100% exemptions were increased to $120,000 (up from $30,000) on the value of primary residences, meaning properties under that threshold will be fully exempt starting January 1, 2019.
The rates step-up from there as follows:
- Primary residences:
- $0 – $120,000 = exempt from taxes
- $120,001 – $700,000 = 0.5% tax rate
- $700,000+ = 0.7% tax rate
As an example, if your home is valued at $350,000 balboas, you’d pay 0.5% on $350,000 minus $120,000. That’s $1,150 balboas in property taxes a year.
- Secondary residences and commercial and industrial properties:
- $0 – $30,000 = exempt from taxes
- $30,001 – $250,000 = 0.6% tax rate
- $250,001 – $500,000 = 0.8% tax rate
- $500,000+ = 1.0% tax rate
The Why for President Varela
As we said before, President Varela has made it his mission to formalize the titling of properties across the country — meaning land that has hitherto been untitled and simply held under laws of possession, but also: untaxed. Since a vast majority of landholdings in Panama fall under the $120,000 threshold, the move should help correct this “informal” system and pave the way toward a more modern and formal land holding — and accounting — regime, including better protections for owners with titled land.
Panama has also been getting pressure from the World Bank and other lending institutions to step up their game on collecting millions of dollars of unpaid taxes, a challenge across Latin America — including property taxes, that owners usually just sit on until they need to sell.
President Varela’s historic tax reform was a gargantuan effort to get Panama’s coffers in good order as his term comes to an end. His government has played a careful balancing act between public sector fiscal responsibility and the mega public infrastructure projects reshaping the country, all of which, by design, will create positive externalities for all of us living in Panama for decades to come — including for real estate owners. That’s the long view.