Information on property taxes in Panama can be conflicting and confusing.
Here are the facts.
3 Panama Property Tax Exemptions
There are 3 property tax exemptions available for titled property in Panama.
FYI: Property taxes are only levied on titled land in Panama. Right of possession (ROP) property is not taxed.
1) Property valued under specific dollar thresholds
Under the new tax law, as of January 1, 2019, Panama offers full property tax exemption as follows:
- 1st $120,000 of the value of your primary house
- 1st $30,000 of the value of your 2nd home (or commercial or industrial properties)
Therefore, if the total value of your primary property (land and improvements) is under $120,000, it is fully exempt from property taxes.
Here is an example of how Panama’s graduated property tax system works.
- If you purchase your primary residence for $200,000, you would only pay property tax on $80,000 of its value. (ie., $200,000 minus $120,000 exemption = $80,000 of taxable value.)
- The tax rate at this value is 0.5%, which means you would only pay $400 a year in property taxes on that property.
Scroll down to find out how property value is determined in Panama.
Find out more about Panama’s 2019 property tax reform.
2) Agricultural land
This exemption applies to farmland that meets both of the criteria below.
- Exclusively used for farming
- Valued at under $150,000
This means that if you live at your farm, you may want to subdivide so that your home is on a separate lot from the farm. That way, your farm would be used exclusively for farming and may qualify for the exemption. Also, you may have to reapply for the agricultural exemption every 5 years.
3) 5-20 year exemptions for new construction
This exemption applies only to new construction, not to the land.
If the building permit was issued after July 2009, the following new construction property tax exemptions apply.
- 15 year exemption — $100,000 or less in value
- 10 year exemption — $100,000 – $250,000 in value
- 5 year exemption — $250,000 or more in value
Remember, to get the exemption, you must register the property with the Exonerations Department at the Ministry of Economy.
From 1990 – 2009, Panama had a very popular 20-year property tax exemption for new construction of houses and condos. Actually, you can still benefit from it if you buy a home that is still within its 20-year tax exemption time frame.
However, you will have to pay property taxes on its increase in value. For instance, if the home was valued at $200,000 when it was registered for the exemption, that is the value that the property tax exemption covers.
If you then buy that property for $250,000, you will need to pay taxes on the difference, its increase in value of $50,000. Although, you can re-register the property in order to get the exemption to cover the new, higher value. Keep in mind the re-registering process takes at least 6 months and you will need to hire a lawyer to do the process for you.
Transfer of Exemption
The new construction tax exemption belongs to the property, not the owner. That means the exemption transfers to all subsequent buyers during the exemption time frame.
This property tax exemption is on new construction only. The land itself is not exempted. You must pay property tax on the land if its value is more than the exemption threshold.
See the “property tax rate” section below for more information.
Register Your Property For Exemption
Keep in mind, to receive the exemption, you must register your property with the Exonerations Department at the Ministry of Economy.
Ideally, you should do that immediately after you notify the public registry that you are the new owner of the property.
No one is going to come out and assess the value of your property for tax purposes. The Panamanian government does not employ assessors. It is assumed that the sales price is the same as the property’s value.
In Panama, a property’s sales price also determines how much tax you will pay. Which is one reason that sometimes the sales price that appears in the purchase contract is less than the actual sales price of the land. That way, both the new and old owner’s tax bill is lower for Panama’s various real estate taxes: property, capital gains, transfer, and more.
ROP Property & Taxes
There is no need to look for a property tax exemption for Rights of Possession (ROP) property. You don’t need one. ROP Property is excluded from property taxes. It is simply never levied.
In fact, ROP property is excluded from all land transaction taxes (capital gains, transfer fee, as well as property taxes). Learn more about ROP property in Panama.
2019 Property Tax Rates
The property tax you pay depends upon the value of the property as follows:
$0 – $120,000 = Exempt
$120,001 – $700,000 = 0.5% tax
$700,000+ = 0.7% tax
Secondary Residence, Commercial Properties, Industrial properties
$0 – $30,000 = Exempt
$30,001 – $250,000 = 0.6% tax
$250,001 – $500,000 = 0.8% tax
$500,000+ = 1.0% tax
Prior to 2019, the property tax exemptions were as follows: 1st $30K of value – exempt, $30 – $50K – 1.75%, $50 – $75K – 1.95%, $75K+ – 2.1%. Condos were taxes at slightly different rates: 1st $30K of value – exempt, $30 – $100K – 0.75%, $100K + – 1.0%>
How To Calculate Property Tax Owed
Panama’s property tax is a graduated tax. That means that the property tax on your $250,000 house is NOT $1200 (i.e., 0.5% of $250,000). The correct yearly property tax bill would be $650.
Using the rates above, here are the tax calculations for a primary residence purchased for $250,000:
- 1st $120K is exempt — Tax = $0
- Next $130K @0.5% — Tax = $650
This adds up to a yearly tax bill of $650 for a $250K house.
Of course, if you have a new construction tax exemption, you would subtract that first before you started calculating your tax.
Pay Your Property Tax
You will never get a property tax bill – ever.
If you forget to pay your bill, your 1st, last, and only reminder will be when you sell the property. Then you will get a big bill that includes all your past taxes due, plus a hefty fine.
Actually, it’s more of a lien than a bill. You will not be able to transfer the title to the new owner until you pay that bill.
Find out more about taxes required when a Panama property is bought and sold on this page of our site.
Looking to buy Panama real estate, check out our property for sale in Puerto Armuelles.
Disclaimer: I am not a tax expert. Please consult with a Panama real estate lawyer for more information.