Real Estate Taxes in Panama

Are there government taxes or fees for transferring property titles from the seller’s name to the buyer’s name?
Are there annual property taxes in Panama, and if so, how much?
What about property title transfer taxes?
Are there capital gains taxes on the purchase and sale of real property?
What about inheritance taxes?
Is there self-employment tax for real estate investors in Panama?
If I am a US citizen, can I apply a 1031 exchange to buying property in Panama, thus deferring my US capital gains taxes?

Are there government taxes or fees for transferring property titles from the seller’s name to the buyer’s name?
Yes, the Panamanian government charges a 2% property title transfer tax. This tax is based on the sale price or the updated value, whichever is higher. In addition, other fees charged by the Public Notary and the Public Registry for registering the buy/sell contract vary depending on the length of the document and on the value of the sale.

Are there annual property taxes in Panama, and if so, how much?
Yes. Property taxes are only levied on properties that have a registered value of $30,000 or more. (The registered value is that stated on the public deed that is registered at the Public Registry.) The maximum annual property tax is 2.10% of the registered value of the land. (Land valued at less than $30,000 is exempt, per Law # 6 of 2005.) Property tax is also levied on the declared value of the construction on the land, although laws in Panama offer tax exonerations for building improvements for up to 20 years. This law was implemented by the government to promote new construction, and the economic benefits it creates. Possession Rights (ROP) properties do not incur property taxes, since the property technically belongs to the government of Panama.

What about property title transfer taxes?
Yes, the government charges 2% of the registered value on the property deed each time you transfer title from one name to another. This is why most investors utilize Panamanian corporations to hold ownership to property. In this way, when they sell the property, they simply sell the shares of the corporation as a whole, avoiding a title transfer and the 2% title transfer tax.

Are there capital gains taxes on the purchase and sale of real property?
Yes, the law stipulates a 10% capital gains tax on the purchase and sale of real property in Panama. The capital gains tax is triggered upon the transfer of the filing for payment of transfer tax.

What about inheritance taxes?
There are no inheritance taxes in Panama, but the probate court process is lengthy and you will have to pay your lawyer’s fees. This is another reason to hold your Panamanian properties in a Panamanian corporation, and utilize a Panama Private Interest Foundation to hold the shares. This enables the corporation to distribute its assets to your beneficiaries, avoiding all inheritance taxes, probate, and legal delays. All assets will be distributed to your beneficiaries exactly as you designate, with no deductions whatsoever.

Is there self-employment tax for real estate investors in Panama?
There are no "self-employment" taxes for real estate investors in Panama, but local real estate investors are taxed on their income the same way any other person in Panama is taxed on locally generated income, and they are required to file annual tax declarations. Income taxes on real estate purchases and sales can generally be avoided through certain structuring techniques using Panamanian corporations and private interest foundations. Please consult a Panamanian attorney about how to do this.

If I am a US citizen, can I apply a 1031 exchange to buying property in Panama, thus deferring my US capital gains taxes?
This is best answered by your U.S. tax attorney or CPA. In general, foreign property is not considered to be "like-kind" to U.S. property under the IRS code. However, if you are relinquishing foreign property, then an exchange for Panama property might be possible.