How to Purchase Property in Panama

An all important caveat needs to be taken in consideration when buying property in this isthmus connecting North and South America. For any real estate transaction in Panama, a contract written solely in English carries no legal weight and is generally not recognized. All contracts for property must be in Spanish on a formal public deed and signed before a public notary in order to be legally enforceable. As with any, executed contracts are legally binding documents and care must be taken to read thoroughly and understand before signing. Hiring a reputable attorney is recommended. Panama’s embassy maintains a list of lawyers and their Supreme Court receives complaints about lawyers and decides whether to sanction them. The following is derived from the U.S. Embassy website and using a knowledgeable attorney is always recommended:

Foreigners can buy and own property in Panama with the same rights and protections as Panamanian citizens. In 1998, the Investment Stability Law was created to encourage foreign investment. This law protects foreign investors for ten years and provides a safeguard from changes in tax, customs duties and both municipal and labor laws. If property is bought in the name of a company twenty year exoneration from real property tax is granted by the National Registry of Tourism. The exoneration covers the company as long as land is used for tourist activities. In an effort to spur investment the government also grants a one-time exoneration from import duties to help in construction, remodeling, and furnishing of building. Property tax exemptions apply to all new construction on a sliding scale according to value. It has recently been in the news that the property tax exemption for buyers of homes and condos is due to expire on August 31, 2007 and unless construction on the property purchased is complete by that time, you will no longer be eligible for the full 20-year property tax exemption. However it is not expiring altogether and if your property was built within the last twenty years the annual property tax exemption would be in effect for twenty years from the date construction was completed. It is important to note that Article 121 of the Panamanian tax code states that foreigners and Panama corporations with foreign ownership cannot purchase property located less than ten kilometers from borders or on most islands.

There are two methods to buy real estate in Panama: one is the purchase of titled property which is applicable to land recorded and titled in the Public Registry (Registro Publico) system which keeps a record of all properties in the nine provinces. The second is an acquisition method commonly used with land located in historically protected areas for instance the tropical paradises of “Bocas del Toro” in the northernmost province and “Portobelo” located in the Province of Colon on the Atlantic portion of the Isthmus. Properties such as these are beachfront, islands and real estate located within special tourism zones in turn owned and managed by the Government and only “possession rights” (derecho posesorio) which are a kind of squatter’s or concession rights are granted for a determined period of time over these lands.

Process – Titled Properties

It is necessary to complete due diligence of the property including a complete title search, review of cadastral maps, verification of tax good standing of the land, verification of good standing in utility bills (water and sewage, electricity, telephone, etc.), as well as verification of any other special characteristic, limitation of the property, liens or encumbrances over the property. A professional surveyor should perform a physical inspection with the approved blueprints to verify the map points, measurements and boundaries to avoid future land conflicts and to ensure the seller is selling only what he has a lawful right to sell. The next step is to prepare a Promise to Purchase Agreement. This agreement is to secure the property, through a down payment of 10% to 20% of the total purchase price, generally in order to have enough time to properly execute the due diligence regarding the property, obtain financing and arrange details to complete the transaction. Parties agree on a purchase price, term of the agreement and penalties if one of the parties does not comply with the contract. This agreement shall be duly recorded in the Public Registry in order to affect third parties and to ensure the property is not sold to another person.

When the term of the contract is due and the final balance is paid to the seller, it is time to prepare the final Purchase and Sale Agreement sale contract. The seller shall process the Property Transfer Tax and the Capital Gains Tax, obtain a good standing property certificate as well as a good standing water and sewage certificate. The buyer will pay for notaries and registration expenses of this agreement. It is important to include an indemnification clause in the event of hidden defects of the property. Once the public deed containing such an annotation is duly registered, title transfer has been completed. Generally, payment is not delivered to owner until the proper transfer of ownership is undertaken.

Payment

The safest way to pay is by an irrevocable letter of payment issued by a bank, contingent on receiving from the seller proper title to the property. The bank holding the funds issues the irrevocable letter of payment to the seller and pays it as soon as it is presented with the registered public deed transferring title to the buyer. The buyer often opens a bank account (or gets a mortgage) and then formally requests that the bank issue this letter, which is considered to be an appropriate form of payment. If the buyer does not obtain a mortgage, he pays the bank for this service.

If real estate that is registered in Panama has a valuation exceeding $30,000 is will subject to real estate taxes unless it has the exemption that is granted for twenty years to new property.

Possession Rights Properties

These are non-titled properties wherein a sort of land lease is granted based on the occupation and use of certain territories over time. Since this is usually beachfront property gravitating towards tourist investment purposes in 2006 the government enacted Law No.2 governed through the Ministry of the Economy and the Cadastral Office whereby concession periods were extended from 40, 60 and 90 years and in some instances provides the opportunity to purchase coastal properties with restrictions. This law was designed to give security to national and foreign investors. It is important to note however that litigation has surrounded the purchase of land use rights, caution should be exercised when considering this type of property and one should always be guided under the auspices of a skilled attorney familiar this special category of property.

New Program Jumpstarts Opening a Business

Last month, a new law went into effect, making it quicker and easier to open a business in Panama. It's known as "law number five" (in Spanish, Ley 5 del 11 de enero de 2007) and reduces the amount of paperwork required to open a business. All you need is a computer and an e-mail address to get most any business up and running via the new system, called Panama Emprende (Panama Ventures). Representatives from the Chamber of Commerce and Government Innovation Secretariat (SIG) say the new process is very secure and increases transparency in Panama (by eliminating some of the "middle men" who may be tempted to ask for bribes). David Saied, head of the Finance Ministry (MEF) Public Policy department, says the online registration process takes 15 minutes and there are just five screens to navigate. Go to this website https://www.panamaemprende.gob.pa and follow the instructions.

Among other things, you must enter your cédula (national ID number), address, and other company information, indicate the type of business, and check the online reference to find out whether you must pay a Tasa de Aviso de Operación (notice of operation fee) of $15 or $55. The fee, if applicable, can be paid online via Banco Nacional de Panamá (National Bank of Panama, or BNP) or via credit card.

Under the new law, an Aviso de Operación (Notice of Operation, or AO) obtained via Panama Emprende substitutes commercial licenses for many businesses. The Ministry of Trade, or MICI, at tel: + (507) 507-MICI (6424) can be reached to provide more details. Potential business-owners off-line can go to the MICI and use one of the computers available just for this purpose. Once a business is registered online, the MICI will visit and inspect it to ensure that the details reported online are correct. Certain types of business are barred from using the online system, as more rigorous registration processes are required. These exceptions include transportation companies, establishments that serve liquor, casinos and gaming companies, hospitals and clinics, government concessions (like port installations), and companies in the media, banking, real estate, insurance, or telecommunications industries.

The Panama government says the new program costs $250,000 and puts the country at the number 26 spot for ease of opening a business on the World Bank's "Doing Business" index. The administration said in July it hoped to see 1,500 new businesses open with Panama Emprende by the end of the year. By Aug. 15, the goal had already been reached and beyond--some 2,132 businesses have already used the system to obtain their notice of operation. The new businesses encompass a wide range of services, from car repair shops to beauty salons and represent the creation of at least 4,000 new jobs.