Navigating property taxes in Panama can be a confusing task, with conflicting information available. In this article, we aim to provide clear and factual details about Panama’s property tax system. Read on to learn about the 3 most common property tax exemptions available for titled property in Panama, the latest 2019 tax reform, agricultural land exemptions, new construction exemptions, property value assessments, and more.
Property Tax Exemptions: Property taxes in Panama apply only to titled land, and there are three key exemptions to be aware of:
Property Valued Under Specific Dollar Thresholds
Under the new tax law implemented since January 1, 2019, Panama offers full property tax exemption based on the value of your property. Specifically:
- The first $120,000 of your primary house’s value is fully exempt from property taxes.
- The first $30,000 of your second home, commercial property, or industrial property’s value is fully exempt from property taxes.
For instance, if your primary property’s total value (including land and improvements) is below $120,000, you are exempt from property taxes. The tax rate for the remaining taxable value is 0.5%.
Agricultural Land: An exemption applies to farmland meeting the following criteria
- The land is exclusively used for farming purposes.
- The land is valued at under $150,000.
If you reside on your farm, it is advisable to consider subdividing the land so that your home is on a separate lot from the farm. This arrangement allows the farm to qualify for the agricultural land exemption. Additionally, it may be necessary to reapply for the agricultural exemption every five years.
5-20 Year Exemptions for New Construction
This exemption applies exclusively to new construction, not to the land itself. The duration of the exemption depends on the property’s value:
- 15-year exemption: For properties valued at $100,000 or less.
- 10-year exemption: For properties valued between $100,000 and $250,000.
- 5-year exemption: For properties valued at $250,000 or more.
To benefit from this exemption, the property must be registered with the Exonerations Department at the Ministry of Economy.
20-Year Exemption for New Construction:
Between 1990 and 2009, Panama offered a popular 20-year property tax exemption for new construction of houses and condos. If you purchase a home within the 20-year exemption timeframe, you can still benefit from this exemption. However, any increase in the property’s value since its registration for the exemption is subject to property taxes. The re-registration process is necessary to update the exemption to cover the new, higher value, and it typically takes at least six months. It is advisable to consult a lawyer for assistance with the re-registration process.
Transfer of Exemption:
It is essential to note that the new construction tax exemption belongs to the property, not the owner. Consequently, the exemption transfers to subsequent buyers during the exemption period.
Property Value Assessment:
The Panamanian government does not employ assessors to determine the value of properties for tax purposes. Instead, it is assumed that the sales price represents the property’s value. Consequently, the sales price also determines the tax amount payable. In some cases, the sales price stated in the purchase contract may be lower than the actual sales price to reduce tax obligations for various real estate taxes, including property taxes, capital gains taxes, and