Are there restrictions on foreign ownership?

For foreign buyers in Panama, the following restrictions apply:
1. Under Article 286 of the Constitution, foreign ownership of property within 10 kilometers (6.2 miles) of an international border is forbidden.

2. Untitled land must be owned by a citizen of Panama for a minimum of two years before it can be sold on to a foreign buyer. After the two-year period, the land can be titled and resold without restriction. (Note: Some untitled land can never be titled, so get professional advice before you decide to buy.)

3. There are restrictions on foreign ownership of waterfront and island property. Such restrictions may be avoided if you are investing in one of the Tourism Zones. By law, all beachfront properties must provide a public right of way starting from the highest tide to the property line. (This distance may vary.) Permits to build over the water require a concession from the maritime authority and the Ministry of Finance. (One exception to this restriction is Contadora in the Pearl Islands, where there is no restriction on foreign ownership.) These restrictions are best discussed with our law firm.

What are my ownership options?
In Panama, you have the option to buy as an individual or through a Panamanian corporation. For large projects, its best to own property through a Panamanian corporation. Although not mandatory, it makes it easier for you to settle disputes, especially in court. However, even for an individual property there are some advantages especially when it comes time to sell, plus there are estate planning advantages as always. See Panama corporations.

Step One: Confirm the title
The first thing you need to do is confirm the legal owner of the property. After you’ve found the property you want to buy, ask the owner for copies of two important documents—the public deed containing the title (escritura) and the Ownership and Encumbrances Certificate (Certificado de Registro Público) from the Public Registry.  If we have found the property for you we will of course obtain these for you and then our law firm will be able to do an updated search. If these documents are not available, ask the seller for a property number (finca). With this information our lawyers will be able to search for the title.

The escritura states the owner and carries a description of the property. The Certificado de Registro Público document indicates whether there are any liens against the property or other legal complications. The copies of these documents must be checked by an attorney. An updated search is wise in any case. The seller must also provide copies of the survey plans of the property, and of any buildings describing the size and location of the property.

Getting clear title to property in some parts of Panama can be a problem if you’re not careful. It is best to avoid the San Blas region on the country’s eastern coast, for example, where the Kuna Indians live in what has been designated an independent, sovereign state, where private ownership of real estates is not allowed. Some people have attempted to partner with the Indians to do business here, with no success.

In addition, most of the property in and around Bocas del Toro (and in the country’s agricultural areas) is owned by the government. You cannot readily acquire título de propiedad (formal titled ownership) to any of these properties. Another way to acquire land is through derecho posesorio (rights of possession), which permit a buyer to acquire a right to possession that is transferable, as long as the land is actively used for the public good. This is a problematic area. For instance, a squatter may obtain title through the 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 to 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. This type of ownership was created to give access to land to landless peasants; it was never meant for speculation. Disputes over possession rights are common. We recommend that you never purchase a property with possession rights only – though we know of several people who have done so without a problem.

Most property in Panama is titled, and the country has a sophisticated, computerized land registry through which you can easily trace the ownership of property. Nevertheless, in addition to having our lawyers do the background checking, we recommend that you take out title insurance for any property purchase in Panama, which we can assist you with.

Step Two: Promise to buy
Once you are satisfied that the title is in order you will enter into a Promise to Buy-Sell Agreement, whereby you give the seller a down payment and set a date for the transfer of title. Normally, there is a penalty if either party backs out. During the period set out in the agreement, the seller pays the transfer tax and obtains the clearance certificates necessary to transfer title. You arrange for payment by arranging financing, etc. (see our mortgage broker services). At the agreed-upon time, both parties sign the final contract.

Step Three: Transfer the title
Once Step Two is completed, our law firm will draft the final purchase and sale contract. We will gather all documents and make an additional search to make sure that no liens or mortgages have been filed in the meantime. Our lawyers will then put the contract into final form and draw it up as a public deed. Then all parties will go to a Notary Public to sign the deed. Panamanian notaries are high-ranking officials and are granted far more responsibility than their American counterparts. They represent neither the buyer nor the seller.

Step Four: Transfer the funds
The safest thing is to use our firm’s escrow service or you can pay the balance of the purchase price through an irrevocable letter of payment form a local bank in Panama. If you don’t have a bank account in Panama we can assist you in opening one and then the letter of payment can be easily procured from the bank once it has been funded. 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. The other, riskier way to pay the balance of the purchase price is to give the seller a bank draft drawn on a bank in Panama upon the signing of the public deed at the Notary Public. This draft can be obtained from one of Panama´s international banks if you already have an account with them. The risk is making the payment before you obtain the registered deed – usually the next step in the process – so we don’t recommend this option.

Step Five: Record your purchase at the public registry
The purchase is not final until it is recorded at the public registry. This process normally takes a few weeks, but can be done in about 10 days by having our law firm file the documents directly at the main office of the public registry in Panama City. If you are in a great hurry, the public registry charges an additional fee of $250 for next-day registration (provided all documents are in order). Once the registration process is completed, our lawyers will give you the registered deed and will make sure that a copy is filed with the tax records department (catastro)…and the property will be yours.

Transaction Costs
Real estate agent commissions in Panama typically 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. This scale is rather cumbersome, but as a general guide, closing costs typically amount to around 3% (including legal fees, registration and notary fees).

Panamanian Real Estate Taxes
Transfer tax: Transfer taxes in Panama 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 updated value is the registered value, plus 5% per annum of ownership. If the property is bought by a corporation, it is customary for the shares of the company to be sold (instead of the property), thus eliminating the need to pay transfer tax.

Inheritance / gift tax: Inheritance taxes in Panama have been completely abolished. Despite this, taxes on gifts (inter-vivos) of properties located in Panama are in effect, and the rate depends on the degree of relationship between the donor and the donee. This does not apply to property owned anywhere outside Panama.

Rental Income Tax: If you receive rental return on your property, you will be liable for income tax up to a maximum of 30% (on returns greater than $200,000). However, if you invest in one of the special “tourism zones,” you may be exempt from income tax for 15 years.

Property Tax: Properties with a registered value of $20,000 or lower do not pay property tax. For properties of a higher value they pay as follows: 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.

If you buy or build a residential property in Panama, you may be exempt from property tax for up to 20 years. However, this provision is being phased out gradually, although it has been rolled back several times. The 20-year exemption applies to cases where the construction permit is issued before June 30, 2007 and the completed construction registered before Dec.31, 2008. Houses or apartments where construction permit is issued after June 30, 2007, will have the following exemption on property tax, unless it is rolled back again:

• Value up to $100,000: 15-years exemption
• Value form $100,000 to $250,000: 10-years exemption
• Value over $250,000: Five-year exemption

The exemption is transferable during the exemption period to any new buyer. The land itself is not exempted and would continue to pay property tax, if its value is above $20,000.

Financing

It is easier to get a mortgage in Panama than anywhere else in Latin America. Local financing is widely available for foreign residents – that is, residents holding an approved visa, even if they do not spend all year in Panama. See mortgage brokering services.