The new Panama Real Estate Law

The Facts About New Panama Property Tax Law

The new property tax structure in Panama, which takes effect this month, has created a lot of confusion. I asked our legal advisor to analyze the law and its potential impact on our clients. It may be confusing, but the new law will save many of our clients thousands of dollars a year.

He researched the law and discussed the details with colleagues, accountants, and tax experts to better understand the impact. It was still difficult to get specific answers from the tax office, so there is still room to interpret certain items in the law. But here is his opinion of the new property tax law:

This new law implements three (3) new fundamental property tax schemes:

1. The tax exemption increased from $30,000 to $120,000 for properties declared as Familiar (homestead) Patrimony. In other words, properties with a registered value under $120,000 will be exempt from property tax (new properties are exempt for ten years). There won’t be any more “land or improvement tax,” but your property tax will remain the same if you have an exemption.
2. The law dramatically reduces the property tax percentage. Before, it was up to 2.1 percent (land and improvements combined). From now on, properties valued between $120,000 and $700,000 will pay 0.5 percent on the difference between $120K and $700K. Then, from $700K and up, the applicable property tax will be 0.7 percent.
3. As an owner, you are obligated to declare your property (only one property) as your “Familiar Patrimony” and have the new property tax scheme applied to your property in accordance with the items above.

Now, it is very important for you to know the following:

1. If your property already has the 20-year tax exemption applied, YOU DON’T HAVE TO DECLARE YOUR PROPERTY AS YOUR “FAMILIAR PATRIMONY.” If you do that, the new property tax scheme will be applied to your property, and you will lose your 20 years (or whatever years are left) of your current tax exemption. Once your tax exemption expires, you must declare the property as “Familiar Patrimony,” and you´ll receive the benefits of the new property tax scheme.
2. Remember, if you have a current property tax exemption, you must pay only 1 percent as land tax if the land value is over $30,000. The first $30K of land value is tax-exempt.
3. Suppose your property does not have an existing tax exemption in place or the 20 years have expired. In that case, there is no expiration date or time limit to declare your property as “Familiar Patrimony,” as some people have suggested. You can declare it as soon as your exemption expires.
4. If you don´t know whether your property has an existing exemption, don´t worry. It will be a matter of obtaining your property tax information (you’ll need your special access code), and then we can confirm the exemption status and how many years remain.
5. Some of you might have purchased your property through a corporation. If so, the property values and the exemption remain the same. But, again, it is important to obtain your property tax information, and we can help with that.
6. In a few cases, owners bought a property with a tax exemption, but once the purchase was officially registered, the DGI tax system may have automatically changed the information. If that’s the case, you will need to request an “equalization process,” which means asking the DGI to “equalize” the exemption to reflect the improvements from the newly completed purchase and any change in value.
7. In most cases, a Catastral Update (registered value) will be conducted so the tax office has updated information about your property, owner, value, and exemption.
8. If you have several properties, only your primary home will be considered Familiar Patrimony or eligible for the tax exemption (currently applied). Commercial, industrial, second residences, and lands will have a tax application as follows:

• 0% up to $30K.
• From $30K to $250K, the tax rate will be 0.6%.
• From $250K to $500K, it will have a tax rate of 0.8%
• Over $500K, the tax rate will be 1%.

What to do?

1. Suppose we have the tax access code for your property. In that case, we can review your property tax information, assess the current status (including any exemptions), and determine whether we need to file an update or correction request.
2. If your property does not have an exemption, you´ll have to apply and register it under the Familiar Patrimony registry to obtain the benefits of the new property tax scheme. If you have more than one property, your primary home will be considered Familiar Patrimony, and you´ll have to pay the regular property tax on other properties.
3. Update your cadastral information, if necessary.
4. Confirm your property tax exemption rights (if any) to be applied to the property.
5. Pay the land or improvement taxes due (if any).

Tightening global liquidity and the slowdown in China is restricting the capital available to the mining sector. Additionally, prices for many commodities have been under pressure this year, so it is more difficult for miners to make the case to lenders that they should be afforded more leeway. That has led to reduced spending on exploration and development.

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