Properties for Sale in Panama

Tax and Offshore Investment in Panama

Tax regimes vary greatly throughout Latin America. While some countries are investor friendly, others are not so open. There are several benefits (i.e. retirement programmes, tax discounts) but also some tax obligations. In this section we provide an analysis of the different tax structure in each country where January First Real Estate lists properties. This information may be very important for you to choose you retirement destination or where to invest. Keep in mind that there are related visa and residence issues which are discussed in Visa/Residence Requirements. In case you need more information or have doubts on any of these issues, the specialised staff in January First Real Estate will be glad to answer all your questions, click here.

Real estate assets are, without doubts, one of the most secure and profitable ways of investment. There are two main reasons for this:

1. Properties always tend to increase their value in the long term.
2. They generate an income for their exploitation (rental/yields).

Taxes and Costs in Panama

Rental Income Tax
The territorial concept of income is a cornerstone of Panama tax law. Under this concept, only income from Panamanian sources is subject to income tax. This applies to both corporate and individual taxation.

Individual Income Tax (Impuesto sobre la renta a Personals Naturales)
Rental income earned by nonresident individuals is taxed at the standard progressive income tax rates, withheld by the tenant.

Income tax
Taxable Income US$ / Marginal Tax Rate
Up to US$3,000 / 0%
US$3,000 – US$3,250 / 52% on band over US$3,000
US$3,250 – US$4,000 / 4% on band over US$3,250
US$4,000 – US$6,000 / 6.5% on band over US$4,000
US$6,000 – US$10,000 / 11% on band over US$6,000
US$10,000 – US$15,000 / 16.5% on band overUS$10,000
US$15,000 – US$20,000 / 19% on band over US$15,000
US$20,000 – US$30,000 / 22% on band over US$20,000
US$30,000 – US$40,000 / 27% on band over US$30,000
US$40,000 – US$50,000 / 30% on band over US$40,000
US$50,000 – US$200,000 / 33% on band over US$50,000
Over US$200,000 / 30% on all income over US$200,000

All individuals, with the exception of employees earning a single salary, are required to file an income tax return. Resident individuals are taxed on their total income received from Panama sources, including income from employment, from rendering personal services, from business activities, and investment income. Income tax is levied at progressive rates, depending on the taxable income.

Rental Income
Rental income is taxed at the standard income tax rates. The taxable income is the gross rent less allowable deductions.

Allowances
Taxpayers are entitled to the following personal deductions from taxable income:

• Each single person, US$800 annually;
  
• Each married couple filing jointly, US$1,600 annually;
  
• US$250 for each of the taxpayers’ dependents as legally defined;
  
• All medical expenses incurred in Panama if duly substantiated and not covered by insurance;
  
• All interest paid on mortgage loans for acquiring or improving the taxpayer’s principal private residence in Panama, subject to a maximum deduction of US$15,000 annually;
  
• All interest paid on loans used to cover educational expenses in Panama if properly documented. Interest paid on state sponsored loans to cover educational expenses in or outside Panama;
  
• Educational taxes paid or withheld;
  
• Political contributions up to a maximum of US$10,000 annually;
  
• Dues paid to non-profit organizations or societies;
  
• Specified charitable donations and health insurance premiums;
  
• 25% of representation expenses not reimbursed by the employer, up to US$6,000 annually;
  
• A deduction of 1% of the total sum received by a worker as a result of the termination of the labor relationship, for each complete period of 12 months worked with the same employer; in addition to a basic deduction of the first US$5,000 of the balance that results after applying the deduction of 1% on the total sum received by the employer
  

Income tax is generally payable in advance. Taxpayers must file with their income tax return for the previous year, a declaration showing an estimate of the current year’s income. Individuals are required to deduct and withhold every month their amount of tax liability.

Value Added Tax (Impuesto a la transferencia de bienes corporales muebles con crédito fiscal)
Leasing immovable property in Panama is subject to VAT. But entities with an average monthly income less than US$3,000 are exempted from VAT. This tax is imposed at a flat rate of 5% on the gross rent exceeding US$3,000.

Property Tax (Impuesto de Inmuebles)
Real estate located in Panama, whether urban or rural, is subject to property taxes. The tax base depends on the total value of the land, plus all improvements, as appraised by Land Commission (Oficina de Catastro). Real estate transactions at prices above the appraisal value automatically increase their value for tax purposes.
Properties with a registered value of US$30,000 or below do not pay Property Tax. The property tax is imposed at progressive rates.

Property tax
Property Value US$ / Marginal Tax Rate
Up to US$30,000 / nil
US$20,000 – US$50,000 / 1.75% on band over US$20,000
US$50,000 – US$75,000 / 1.95% on band overUS$50,000
Over US$75,000 / 2.10% on all income over US$75,000

Exemptions
Various exemptions are available, including for non-profit-making organizations or government entities. Houses or apartments with construction permits issued after 1st January 2004 have the following exemptions:

Property tax exemptions
Property Value US$ / Exemption
Up to US$100,000 / 15 years
US$100,000 - US$250,000 / 10 years
Value over US$250,000 / 5 years
This exemption is transferable to any new buyer. The land itself is not exempt, and is subject to Property Tax if its value is above US$20,000.

Capital Gains Tax
Capital gains resulting from sales of real estate located in Panama are taxed under a special regime. Under this regime, the taxpayer can opt to be taxed in two ways:
1) 5% of the sum of the following:
i. The property’s cadastral value
ii. Improvement costs
iii. 10% of the property’s cadastral value for each year of owning the property
This method of taxation consolidates the transfer tax and the capital gains tax, meaning the taxpayer choosing this option is not liable for the 2% transfer tax. Taxpayers choosing the first option are not subject to any more tax on capital gains arising from the sale.
2) 2% of the higher value between:
- The sales price, and
- The sum of the property’s cadastral value at the time of acquisition, improvement costs effected at the time of ownership, and 5% of the cadastral value of the property (including the improvement costs) for each year the property was held
Taxpayers choosing the second option are subject to a further tax on the capital gains. The taxable gain is the selling or transfer price less the following: the acquisition cost or the cadastral value, transfer costs, and 10% of the acquisition cost for each year the property was held. The gain is then divided by the number of years the property was owned by the seller. The resulting amount is then taxed at the standard income tax rates.
In the second option, the 2% initial tax on the selling price can be credited as real estate transfer tax. In computing the capital gains tax liability for the same property, this tax can therefore be deducted from the selling price as a cost of transferring ownership.

Panama, make your dream investment come true.