BUYING PROPERTY IN PANAMA

TYPES OF PROPERTY:

Titled: Same as in the U.S. This type of property is registered in the Panamanian central registry. Property taxes are payable.

Rights of Possession (ROP): This is where the land is available under long-term rights granted by the government of Panama for the use of the land. No property taxes are due. Holders of ROP lands must apply for concessions (see below).

Titleable: This is ROP land and depending on type of usage, it may be possible to apply for and receive title from the government. All mainland properties fall into this category and can be titled.

Concessions: These are specifically designated usage applications for areas over or next to the water on ROP land that is then registered to the owners. An example would be a dock on a coastal property or home within the legal setback area. No annual fees are due until concessions are granted. When the concession is granted, it is given a registry number that is associated with the property. It is common practice to apply for the concession and then build the structure. Many concessions have been in the system backlog for several years, so in many cases structures are in existence long before the concession is granted.

Attorneys suggest that any purchase of real estate property or concession be requested under the name of a corporation. This will make it easier for future sale of the land and all purpose business activities, plus it limits the owners' liability.

Every Panamanian Corporation must pay an annual franchise tax of $250 for the first year and $300 per year after that. The due date depends upon the date that the corporation was first incorporated. A corporation is not deemed valid until it's registration at the Public Registry of Panama. Default on payment of this tax will result in a $50 fine for the first year and $300 for every year after that. Any attempt to register documents at the Public Registry will be stopped until the taxes and fines are paid.

The corporation requires three directors and it is not necessary that they be Panamanian.

This information was supplied by Manuel Berrocal, Atty. of Panama City.

Q: Is it safe for foreigners to buy property in Panama?
A: Absolutely. Buying property in Panama is very safe. There are over a dozen laws in Panama established specifically for protecting foreign investments, not to mention that private property in Panama is protected by the constitution of the Republic of Panama. Thousands of foreigners own property in Panama.

Q: Is it legal for foreigners to buy property in Panama?
A: Yes, it is legal for foreigners to own titled property in Panama in their personal names, although we normally recommend that clients hold all property in the name of a Panamanian corporation for asset protection and income tax reasons. Panama "possession rights" (as opposed to titled) property, however, should always be held in the name of a Panamanian corporation, where the foreign person is the shareholder (or a Panama private interest foundation or trust can be appointed as the shareholder in place of the foreign person) of the corporation.

Q: Is it safe to buy a Panamanian corporation's shares which hold title to property in Panama?
A: Yes, as long as a proper due diligence investigation is done on the corporation and a proper title search is done on the property that the corporation holds, then it is generally safe to buy property this way in Panama. It is important to hire qualified attorneys to handle the due diligence, and put the proper clauses in the Buy/Sell Contract of Shares of the corporation, such as; (1) a clause that guarantees the buyer that the corporation does not have any pending debt or liability other than that established in the contract and indemnifies the buyer from any such liability, (2) a clause that makes the seller responsible for any liability for previous actions of the corporation and/or it's directors, and (3) a clause that guarantees the buyer that the purchase is for 100% of the corporations shares as well as for 100% of the property title number xxx (with the description of the property), which is duly owned by the corporation, whose shares are owned by (the seller).

Q: Are there any government taxes or fees for transferring property titles from the sellers name to the buyers name?
A: Yes. The Panamanian government charges a 2% property title transfer tax. The 2% is based on the registered value (the value established in the registered deed of sale). In addition, there are other fees charged by the Public Notary and the Public Registry which total in the range of $200 to $300 for registering a buy/sell contract for the sale of real estate in Panama.

Q: Who normally pays for the property title transfer tax in Panama, the buyer or the seller?
A: It is standard practice in Panama for the seller to pay for the title transfer tax, however, in some cases, depending on the negotiation between the buyer and seller, the seller may insist that the buyer pay the title transfer taxes.

Q: Who normally pays for the closing costs on Panama real estate transactions, the buyer or the seller?
A: Generally, each party pays for their own closing costs. For example, the seller pays his/her attorney to review the buy/sell contract, and the buyer pays his/her attorney for drafting the buy/sell contract, doing the title search, title transfer, and escrow services. However, in some cases, buyers and sellers negotiate special terms whereby the buyer or the seller pays all closing costs, so it really depends on the particular negotiation between buyer and seller.

Q: What are the average closing costs for Panama property transactions?
A: The closing costs vary depending on the particular transaction. For example, if the property is held in the sellers personal name, and the buyer is transferring the property title to a Panamanian corporation (most recommended), then the closing costs would include: (1) the legal property transaction fee of US$800 - $1200 (includes: title search, buy/sell contract, closing, & property title transfer service), (2) public registry title transfer fees of approx. US$250 to US$350, (3) escrow fees from 0.5% to 1% of the transaction amount (vary depending on amount of transaction, see www.panamatitle.com for details), and (4) incorporation fee of US$600 - $1000 + tax to setup the Panama corporation. However, if the property is already held by a Panama corporation, and the buyer is purchasing the shares of the corporation, then the transaction is relatively simple because there is no registration of title transfer, meaning that there is no title transfer tax, and no public registry title transfer fees. In this case, the closing costs would include: (1) the legal property transaction fee (includes: title search, purchase of shares contract, and closing for US$800 - $1200), (2) change of directors / resident agent of the corporation (approx. $200 - 350), and (3) escrow fees from 0.5% to 1% of the transaction amount.

Q: How long does it normally take to register a property title transfer in the Public Registry of Panama?
A: In some cases, it can be done within 2 business days, if you pay extra for quick expediting. However, in normal circumstances, it takes from 1 to 3 weeks, depending on the volume of transactions at the Public Registry.

Q: How long does it normally take, from start to finish, to purchase property in Panama?
A: The time frame from start to finish is normally about 6 weeks, however, it really depends on a variety of factors which are dependent initially on the buyer and the seller, the negotiation between buyer and seller, and subsequently dependent on the attorneys and the public registry. Generally, property transactions have the following procedures: (1) The buyer and seller to agree on the price and terms (time frame can vary depending on the negotiation), (2) seller provides the attorney with all the due diligence documentation on the property title in order to do the title investigation (time frame depends on the seller), (3) attorney does initial title search & draft the promise to buy/sell contract (time frame is approx. 1 day assuming the attorney has all of the required information from buyer and seller), (4) buyer and seller review the promise to buy/sell contract and agree to set a date to sign (time frame varies depending on the buyer and seller), (5) buyer sends payment for down payment and legal fees to escrow (time frame depends on the method funds were sent), (6) buyer and seller sign promise to buy/sell contract and down payment is paid to seller from escrow, (7) final title search is completed (time frame is approx. 5 days), (8) buyer sends final payment to escrow (time frame depends on the method funds were sent), (9) attorney drafts final buy/sell contract (time frame is 1 day), (10) closing takes place and buyer/seller sign final buy/sell contract (time frame is 1 day), (11) contract is registered at the Public Registry for title transfer procedure to begin (time frame ranges from 2 to 30 days, depending on the Public Registry's volume), (12) attorney receives deed from Public Registry, draft official English translations, and prepare final documents to send to buyer (time frame is approx. 5 business days).

Q: Are escrow companies normally used in Panama for property transactions?
A: Escrow services are relatively new to Panama, so Panamanians are not very familiar with the term "escrow", although it is quickly becoming a standard for real estate transactions nationwide with more and more Panamanian realtors selling to foreigners who are accustomed to using escrow companies in property transactions. Panama Title & Escrow Inc. (www.panamatitle.com ) is one of the first escrow companies in Panama, duly registered at the Public Registry, and has been in operation for over two years now, handling hundreds of property transactions for clients all over the world.

Q: Do purchase contracts for Panama real estate transactions need to be in Spanish, in order for them to be legally enforceable in Panama?
A: No. The law does not require a buy/sell contract to be in Spanish to be legally enforceable, however, if there is ever a dispute over the transaction in a court of law in the Republic of Panama, then the court will require that the contract be translated to the Spanish language by an official (licensed) translator of that language. When we prepare buy/sell contracts, we always prepare the original in Spanish, and we provide our clients with an official English translation of the contract.

Q: What is normally accepted as a down payment for purchasing property in Panama?
A: Generally, sellers will accept 10% as a down payment upon signing the promise to buy/sell contract. The down payment is shown as "good faith" on behalf of the buyer, so that the seller knows that the buyer is serious. However, the down payment really depends on the particular transaction and the negotiation that takes place. In some cases, sellers will demand as much as 50%, and in other cases, sellers will ask for as little as 5% or less.

Q: If I am a US citizen, can I use my IRA or 401K money to buy property in Panama?
A: Yes. There are several financial companies in the USA, such as Pensco, who offer retirement account services that facilitate movement of your IRA or 401K funds into self-directed retirement accounts, through which you can then invest in property anywhere in the world.

Q: Is it legal to buy options on property in Panama?
A: Yes, it is legal to buy options on property in Panama, however, it is an uncommon practice in Panama, and most sellers do not understand the concept.

Q: Are options available on property in Panama?
A: Yes, you can buy options on property in Panama. However, most sellers in Panama do not understand the concept of options on property, therefore, it requires that you educate the seller in this concept so that they agree to offering you an option to purchase their property.

Q: Do sellers offer owner financing or leases with purchase options in Panama?
A: Yes, leases with purchase options are common in Panama, although most sellers are interested in simply selling, not lease optioning. However, please note that rental or lease contracts must be registered with the MIVI (Ministerio de Vivienda), which is the "Ministry of Housing" in order for the lease to be legal in Panama.

Q: Is it legal to block public access to the beach if I own beach front property?
A: The laws in Panama offer public access to all beaches, oceans, lakes and rivers in Panama. Unless there is access within 1000 meters from your property, you must allow public access, according to the law.

Q: What is the liability for real estate investors that "flip" (buy & immediately sell) properties?
A: The liability for real estate investors in Panama is limited. The main liability for real estate investors is capital gains taxes, which some people avoid through the use of Panamanian corporations. As long as you deliver what is promised according to the terms of the buy/sell contract, buying and selling property in Panama is virtually liability free.

For questions or clarification on this topic please contact an attorney.