A little history may help.
In the beginning, land in Panama did not belong to anyone. The indigenous people used it collaboratively.
Then the Spanish came.
They declared all land in Panama belonged to the Spanish Crown. However, the Crown only cared about the land from Colon to Panama City - for the same reason it is valuable now, as a port for global trade.
In the interior, the Crown continued the communal tradition of Panama's indigenous people by selling some land to villages to be owned collectively. Some large tracts of land were also granted to favored subjects. On the rest, the Crown recognized the right of small farmers to use, but not own, as much land as they needed.
At that point it was a bit like feudal England. The Crown was fine with you using its land as long as you played nice and obeyed the King or Queen. And even after its grants and sales, almost all of the land in Panama remained untitled and in the Crown's domain.
Then, 300 years later, Spain left. All of that land now belonged to the new government.
Not Much Titling Going On
The new Panama government asked its citizens to title any land they were using by showing proof of their land claim. But very few bothered to do that.
Getting title was an expensive and long process. Even many of the wealthy folks didn't do it. That's because once you title, you must start paying property and capital gains taxes.
Titling today is much cheaper and somewhat faster. However, most land in Panama continues to be ROP with the government holding the title. So in many ways it continues today the way it did when Panama was a colony of Spain.
Of course, as we all know, even in North America with its almost 100% titled property, government can step in. Have you heard of Eminent Domain? Trump and Cruz were arguing about it in a debate a few months ago. That is, if the state needs your property they can come in and take it, with a "fair market" compensation, of course. Trump and Cruz were arguing whether it was okay for the government to take land to build a parking lot.
It means you can use the property any way you want, just as if you held title to the land. It means you own the right to use the land, just as if you had the title.
Except, because you don’t own the title, you don’t have to pay taxes.
Required Research
Since ROP properties are not registered with the State, you need to make sure that the person selling you the property really owns it. See this post on how to buy ROP property safely for more on how to do that.
To avoid doing that work, you can buy ROP land from someone like us who has done all that work for you. We go through an extensive investigative process to ensure that there is a clear ownership trial and collaborative documentation for all our ROP properties.
Required Maintenance
In addition to research, you have to go out and physically claim your property in a noticeable way. Something that says there are new owners of this property. We always recommend that you immediately put up a fence. If a fence is already there, paint the fence. At a minimum, have someone go out on a somewhat regular basis and keep the grass cut. Just something so everyone knows that the property is owned and cared for by you. You don't have to be there yourself, the fact that you are hiring someone to cut the grass is enough. Or you could build a rancho or some sort of structure.
You are establishing that you are the new owner, the person that holds the right to use the property. If there is ever a legal challenge, the court will ask for your proofs of ownership. That is when you pull out your evidence of activity.
We have been establishing ownership of our ROP property for years. We put up fences on all our properties and maintain them. We also get to know our neighbors. That isn't necessary, but it is a good idea for many reasons. My husband especially loves to chat with all the neighbors. He even knows the names of all their dogs. Because of this there is no doubt in anyone's mind about who owns those properties - we do. And that certainty of ownership is entirely passed on to you, when you buy our property.
Maintenance & Titled Property Keep in mind, you need to keep your eye on titled property too. If someone is using your land for 10 years in good faith (that is, they didn't know you owned it), they can get title. Or in 15 to 20 years if they are using it in bad faith (that is they know you own it, but decide to ignore that fact.)
Of course, that can happen in the States too.
My sister-in-law lost part of her land because for years she allowed a neighbor to garden a section of it. When she went to sell it, she faced a legal battle to keep that "garden" as part of her land. She lost. Her neighbor is still gardening that strip. My sister-in-law sold her property minus that section. She never got reimbursed for the loss.
You can avoid my sister-in-law's loss in both Panama and the US by simply having the people using your land sign a document. A document that states they are using the land on a temporary basis, or even better yet make it a rental agreement, even if only for a nominal fee. That precaution works for both ROP and titled land.
Pay No Taxes
ROP property is excluded from property taxes and all land transaction taxes (i.e., capital gains, transfer fee).
Learn more about Panama property taxes & exemptions here.
There is a big market for ROP property. It is routinely bought, sold, and traded - just like titled property.
You can just as easily earn a profit reselling ROP land as titled land.
In fact, some people prefer ROP to titled property. This is because, as I've mentioned, you don't have to pay property or capital gains tax with ROP property. In addition, ROP land tends to be cheaper than titled land.
As I alluded to in this post, some of the same kind of land issues with ROP (and titled) property in Panama occur in North America as well (think of my sister-in-law's property loss and eminent domain).
Now that you have a clearer understanding of what ROP means, you can decide if the benefits of ROP land outweighs the costs.
Which type of property are you looking to buy? Please share in comments below.
Check out these links to get our guide to titling Panama property . You can also read about 3 things you must do when you buy ROP property.
If you have questions, please feel free to call us or leave a comment below.
October 31, 2015
Buying within a Sociedad Anonima shields the party from legal suit.
What this can mean is that the person that the innocent party was negotiating with, the one they met, got to know, and shook hands with, is never seen after the document is signed. That person is was quickly replaced by a powerful Panamanian lawyer, who is the agent or officier for that corporation.
This can be fine, as long as everything goes smoothly. However, if there are some disagreements down the road, or if the intent from the start was to defraud, the innocent expat will discover that he/she is at a tremendous disadvantage, as an individual when facing off against a Panamanian corporation.
Our advice to expats is simply this: Don’t ever sign any documents for purchase or for sale with an anonymous corporation, or with a buyer or seller who has plans to transfer documents to a corporation before all payments have been made, received, and signed that individual.
You do not ever (never, ever) want to find yourself in court, as an individual, facing charges, or trying to seek damages against a corporation.
The person you thought you were doing business with may disappear completely, or they may claim that they have never met you, don’t know what you are talking about, and that everything you are saying is untrue. That person could even sue you for slander for accusing them of something that is absolutely true. Then you’d be involved in two separate lawsuits.
Meanwhile, the seller, or his corporation, may be represented by one of the wealthiest, best-connected lawyers in Panama. A lawyer who may be working overtime to cheat you out of every cent you have invested in Panama. This is not a pleasant prospect.
Never sign a contract with a Panamanian corporation. This is a risk that you do not have to take. Instead, do the following: If there is a property that you are interested in, and it is being held by a Panamanian corporation, have the owner sell it to himself first. Then he can sell it to you.
At least this way you are both being completely transparent, and you face the same risks. This “leveling of the playing field” will keep your business dealings much friendlier. If the seller, or buyer, is unwilling to transfer the property to himself first, he probably wasn’t someone that you should be doing business with. You are better off. Let someone else take the risk.
Many expats are encouraged to establish their own corporations in Panama, even if only to create an umbrella agency for managing their home, their car, any investment properties, etc. The notion is that this is the best way to safeguard oneself, and one's family, from legal repercussions in the event of some unseen “event” in which they might be found legally at fault, and be sued in court. I think that this notion is promoted primarily by Panamanian lawyers, who are always looking for another way to charge expats a couple of grand. Our family does own a couple of corporations in Panama. But we do not see them as the absolute safeguard that others may.
The notion of running one’s entire life in Panama as if you are actually just a mere shareholder in a corporation, instead of an individual, has been touted as the best way to stay out of trouble. This is certainly the idea behind corporations in the US. We all know stories of friends or acquaintances in the US who have lost their shirts investing with an LLC that declared bankruptcy. Meanwhile, the actual people involved in the corporation didn’t lose a penny of their own assets.
Here in Panama, the formation of private corporations has been taken one step further. Unscrupulous US citizens, drug dealers, and smugglers have historically been able to hide the movement of their assets behind a “front” of their various corporations, in an attempt to defraud the Internal Revenue Service.
I cannot say how effective this has been for all investors who follow this practice. However, since Panama is such a small country, and since news travels so quickly here by word of mouth, as well as by internet, it is really quite easy to see which expats are managing their real estate portfolios, in particular, under the name of one or more corporations. There is one investor in our town who has each of his numerous properties registered as a separate corporation. I seriously doubt if this will decrease his tax liability in the US. In fact, I wouldn’t be surprised if any his attempt of his to do so, landed him in jail.
It is no secret that the IRS has recently increased its scrutiny of US expats living in Panama and in other nations considered to be “tax havens”. It is just a matter of time before tax evaders are found out, and brought to justice in the US. In fact, there have been reports of unscrupulous Panamanian lawyers actually turning in their own clients to the IRS for a hefty reward. If part of your interest in investing in Panama is to evade paying your US tax bill, our opinion is that this is a very risky proposition.
For more information on related topics, check out these posts:
MultiPlaza Mall Racked Up A $48K Bill. Water Company Cut Off Their Water YesterdayOne of our maids had to pay IDAAN (the water company) the $600 she owed before they would fix her pipes. It is not unusual for people to rack up a 400 or even $1000 bill with IDAAN.
Of course, IDAAN won't necessarily come out and fix your pipes even if you have paid in full.
Which means, if you buy property in Panama, make sure the owners pay off any outstanding water and electricity bills BEFORE you sign a sale contract.
But I have never heard of IDAAN cutting off someone's water before. Even if they haven't paid for years.
(FYI - a residential water bill is somewhere between $3-$9/mo - depending upon where you live and if you get a discount. )
But IDAAN did cut off the water to the huge and very popular MultiPlaza Mall in Panama
It happened yesterday, October 28th.
They owed $48,000.
Wow!
Maybe they just thought they could continue to skate by. Or maybe someone ticked off a bigwig at IDAAN.
But I imagine the other big malls checking their IDAAN balances today.
A spokesmen for the mall said they were preparing a statement in response to the situation.
Hum.. I wonder what explanation you could give for owing 8 times more money than most Panamanians earn in a year.
Source:
http://newsroompanama.com/
