Whether you are a full time resident, part time visitor, or absentee landlord, if you own property in Panama, you will be subject to property taxes. Every property is different and as such, has different inherent variables that result in different tax obligations and benefits.
This article was written in collaboration with Aldo Antinori, a property tax expert with the law firm DENFAB and we are pleased to be offering it to Panama Equity clients. Below, we discuss tax saving strategies for property owners, property sellers, and those thinking about purchasing property in Panama.
Prior to Purchasing a Property in Panama
If you are considering purchasing a property in Panama, there are certain steps you need to take into account to ensure you have a clear understanding of how much property tax you will be paying and if there are ways the property tax burden can be optimized. Here are some details you should inquire about before purchasing the property:
Find out if the property has tax exoneration on the value of improvements and if so, for how long (improvements means any construction built from the ground up). The assigned value of the land will determine the taxes. Properties registered under $30,000.00 will in most cases have no property tax obligation.
Find out what property tax rate is applied currently to your property. Depending on how old the property is and its location, it can have higher or lower property tax rates which are calculated annually based upon the registered value.
Find out if the property is owned in the name of a corporation or as an individual. If the property is owned under a corporation, you should consider purchasing the corporation assuming the registered value of the property is significantly lower than your purchase price. Reason being, the tax values do not update if the shares of the corporation are sold.
Tax Strategies for Owning Property in Panama
If you already are an owner of a property in Panama, then you need to take these steps now to make sure that your property taxes are as low as legally possible:
The first thing you need to do is to register your property with the Tax Authority (DGI) which is the Panamanian equivalent to the IRS. You will be given a Tax Identification Number (NIT) to be able to enter the E-Tax2 system. Not registering the property with the Tax Authority will not result in saving property taxes, as those start counting since the first day the property is created at the national land registry.
Make sure that your property is updated within the E-Tax2 system and if the property is still in the exoneration period and make sure tax exoneration is applied correctly. If your property is not updated you may have an incorrect balance of property taxes due and will not be able to transfer the property until the information is updated within the E-Tax2 and the due balance is paid for.
If the improvements exoneration period is about to end, or has already ended, it is important to find out what the tax status of your property is and develop a tax optimization strategy in order to pay only what is required.
If your property falls under the highest bracket, evaluate if it is worthwhile to present a new voluntary appraisal for the value of your property and register this new higher value in order to receive the preferential lower tax rate, which is approximately 50% less per year.
To avoid paying surcharges as penalties and interests on due taxes, make sure to set a reminder to pay your property taxes every 4 months or the whole year in advance to get a 10% discount.
You will not get a notification that any taxes are due; the tax administration office will accumulate them automatically together with the penalties, and not paying them could eventually put in risk the ownership of the property.
If your property has taxes that have been due for many years, you may be able to eliminate some of the property taxes owed to the Tax Authority.
If you are considering a large remodeling to your property, it may be advantageous to register the partial or total demolition and then declare the remodeling (improvements), as you can exonerate the value of the new improvements for a period of 10 years. In the case of the improvements, it is an obligation to request the construction permit and formally declare the improvements, though many homeowners omit doing so, putting their property in risk.
Absentee owners who have hired the services of a property management company should ask their property managers to inquire with a property tax specialist about these very important tax matters.
If you are Selling or Will Be Selling Soon
If you are considering selling your property in Panama, then you will definitely want to structure your property in such a way that you and the new owner pay the minimum in property taxes. Here are a few tips:
Before signing a contract be sure that your property is updated with the Tax Authority because the tax administration office can be very bureaucratic. You will want to avoid a situation where you have to meet deadlines and depend on the tax administration to update or make some correction.
If there is no capital gain on the transaction, you are entitled to a refund of the pre-paid capital gains tax that, as the seller, you are required to pay prior to closing.
For more detailed information, please contact us by filling out a form on this website.