The legislature had already given their full approval in September by passing Bill 509 after 3 debates.
The new property tax rates are effective January 1, 2019.
There are now new and higher exemptions from property taxes
This means that if you buy your primary home in Panama for under $120,000, you will not owe any property taxes. Starting January 1, 2019, your property would be fully exempt.
Currently, Panama’s property tax is a graduated tax. I believe that is not changing.
If so, when you purchase a $200,000 house you would only pay property tax on $80,000 of its value. (ie., $200,000 minus $120,000 exemption = $80,000 of taxable value.)
As you will see in the tax rates below, that means you would pay a 0.5% property tax rate on this $80,000 of value. Which means, you would only owe $400 a year in property taxes. Wow.
This is a substantial reduction in property taxes in Panama.
Currently, only the 1st $30,000 of property value is exempt from property taxes.
Since the majority of property in Panama is valued under $120,000, this means that most property in Panama will be exempt from property taxes.
You can read about the current (through 2018) property tax rates in Panama in this post.
The reform bill also offers an amnesty program for those who currently have unpaid property taxes.
My understanding is that if you pay your taxes by December 31, 2017, all fines and interest will be waived. Any unpaid tax through August 31, 2017 is eligible for the amnesty program.
I am not positive about the details of this amnesty program. If you know more, please share in the comment section below.
Keep in mind, if you own titled property, you owe taxes.
You will never get a bill for your taxes. It is up to you to remember to pay them - and on time! If you don't pay them, the government will take their cut (tax + interest + fees) when you sell your property.
Primary Residence
$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
Currently, the Panama government is spending alot of time and energy encouraging people to title their property. For many reasons, the government wants to improve its real estate transaction systems. A first step is getting land titled.
Most land in Panama is not titled. And most people are happy with owning Right of Possession (ROP) or untitled land. One reason for this is that once land is titled, it will be taxed.
For this reason, it is hard to convince people to title their land.
They have never paid property taxes, and never expected to do so. And really, who wants to pay taxes? Plus many property owners cannot afford to pay property taxes, of any amount.
The solution: Exempt most property owners from property taxes.
Since most land in Panama is valued at under $120,000, the government decided to make that the exemption threshold.
This rationale for the property tax reform is complete and total conjecture on my part. I have not read anything to support my supposition, but it seems right to me.
What do you think? Please share your thoughts in the comments below.
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.
Under the new tax law, as of January 1, 2019, Panama offers full property tax exemption as follows:
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.
Scroll down to find out how property value is determined in Panama.
Find out more about Panama's 2019 property tax reform.
This exemption applies to farmland that meets both of the criteria below.
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.
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.
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.
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.
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.
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.
The property tax you pay depends upon the value of the property as follows:
Primary Residence
$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%>
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:
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.
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.
