Panama offers very low taxation rates

The below article describes the most common tax issues in Panama. As usual tax law is complicated, so exceptions to the below information may apply. We recommend in most cases to consult a specialized tax lawyer to optimize your personal finances.

So how do you estimate your property tax, personal income tax, rental income tax, inheritance tax, real estate transaction tax and corporate tax? In this article we will explain the most common taxations in detail including some calculation examples.

Property tax rate

First, you will have to declare and register the legal status of your real estate property in order to determine the property tax rate.

There are four different legal situations: PFT, VP, Non-primary residency, Commercial Property.

Patrimonio Familiar Tributario (PFT)

Tributary Family Patrimony, or in Spanish “Patrimonio Familiar Tributario” (PFT) which basically means that your property at Coco Beach is destined for permanent habitation family use by the owner or owners, in accordance with article 476 of the Family Code.

The legal definition of a PFT is: Tributary Family Patrimony, or in Spanish, “Patrimonio Familiar Tributario” (PFT) is a property that is destined for permanent habitation family use by its owner or its owners, while taking the provisions of article 476 of the Family Code into account.

Vivienda Principal (VP)

Primary Residence, in Spanish “Vivienda Principal” (VP) which applies if your property at Coco Beach is destined for permanent habitation residential family use by the owner or owners which means it is declared as your “primary residence” by you. Also the the property does not qualify as a PFT.

The legal definition of VP is: Primary Residence, or in Spanish, “Vivienda Principal” (VP) is a property that is destined for permanent residential habitation use by its owner. The owner can be a natural person or a legal entity in this case. Also, the property does not meet the requirements of the definition of a Tributary Family Patrimony PFT.

Non-primary residence

No primary residency which means that your property does not qualify as a PFT or VP and is also not a commercial property.

Commercial/Industrial

Commercial property, this means that your property is mainly used for commercial purposes

Determine property tax rate for primary residence

The below example gives you an excellent indication of the property tax rates which you will pay if you are using your villa for primary residence purposes (PFT or VP, see the above).

Tax bracket applicable (Value of property)Applicable tax %Notes
0$-120000 $0,0 %No tax payable if value is lower or equal to 120000 $
120001 $ – 700000 $0,5 %Tax payable basis excess value above 120000 $
700001 $ and higher0,7 %Tax payable basis excess value above 700000 $

A property tax calculation example for a primary residence:

Value of property525000$Tax calculation for a villa of 525000 $
0$-120000 $0,0 %120000 * 0,0 %= 0 $
120001 $ – 700000 $0,5 %(525000-120000)* 0,5%= 2025 $
Total taxes paid 2025 $ or 0,386 % per year

Determine property tax rate for secondary residence

Tax bracket applicableApplicable tax %Notes
0$-30000 $0,0 %No tax payable if value is lower or equal to 30000 $
30001 $ – 250000 $0,6 %Tax payable basis excess value above 30000 $
250001 $ – 500000 $0,8 %Tax payable basis excess value above 250000 $
500001 $ and higher1,0 %Tax payable basis excess value above 500000 $

A property tax calculation example for a non-primary residence, this means all residences that have not been declared as Tributary Family Patrimony, or in Spanish “Patrimonio Familiar Tributario” (PFT) or Primary Residence, in Spanish “Vivienda Principal” (VP).

Value of house525000$Tax calculation for a villa of 525000 $ non-residential
0$-30000 $0,0 %30000 * 0,0 %= 0 $
30001 $ – 250000 $0,6 %(250000-30000)* 0,6%= 1320 $
250001 $ – 500000 $0,8 %(500000-250000) * 0,8%= 2000 $
500001 $ and higher1,0 %(525000-500000) * 1,0%= 250 $
Total taxes paid 3570 $ or 0,68 % per year

The above calculations for primary residences apply since December 4th, 2018, when the government of Panama issued an Executive Decree # 363. The new property tax law of October 17th 2017 and article 766 of the tax Code apply.

Determine property tax rate for all other non-residential property

(Lots, commercial real estate, industrial real estate)

Tax bracket applicableApplicable tax %Notes
0$-30000 $0,0 %No tax payable if value is lower or equal to 30000 $
30001 $ – 250000 $0,6 %Tax payable basis excess value above 30000 $
250001 $ – 500000 $0,8 %Tax payable basis excess value above 250000 $
500001 $ and higher1,0 %Tax payable basis excess value above 500000 $

As usual many restrictions and exemptions apply, please check your individual tax situation with your tax expert.

Property tax exemptions

  • If you buy a newly constructed house from a developer or private person or builder there are no propery taxes if the villa has a value <= 119000 if the villa qualifies for PFT or PV
  • If you buy a newly constructed house from a developer or private person or builder there are no property taxes for 3 years if the villa has a value between 120000 and 300000 $ if your house qualifies as an PFT or PV
  • The value of the land might not be exempted from taxation
  • The exemptions can be transferred to any new buyer

Investment tax exemptions

  • If you invest in the interior of Panama certain tax deductions apply such as:
  • No import taxes on materials, furniture, equipment, vehicles, if they are related to your business ventures
  • No real estate taxes for all assets of the enterprise for 20 years
  • Accelerated depreciation for real estate assets of 10% per year
  • Exemption: the price of the land might not be included in the tax deduction in metropolitan areas and a minimum investment of 300000$ might apply, ask your tax consultant for details

Personal income tax rate

  • Personal income tax rates vary between 7% and 27% of annual income
  • The maximum rate is 27% if your income is > 25000$
  • Only income sourced in Panama is taxed
  • No taxes on income sourced outside of Panama, for instance if you have foreign wages/salaries/business profits/pensions/bonuses/income from stock sales/bonds or royalties or securities, these will not be taxed if they originate abroad
  • An extremely wide range of deductibles applies to lower your taxation base. Examples of deductibles are: certain medical expenses, donations, interest paid on home mortgages, education and loans for home improvement

Rental income tax rate

  • Income tax applies up to a maximum of 27%, depending on your income taxes bracket,
    but could be as low as 7%
  • However, in certain designated “tourism zones” an exemption of up to 15 years of rental income taxes may apply.

Buying and selling real estate in Panama- taxes

  • Real estate taxes are paid by the seller of the property and are the highest of 2% of the updated registered value of the property or the contract price
  • The “updated registered value” in this case is the registered value plus an average increase of 5% per year of ownership

Inheritance taxes

  • There is no inheritance taxation in Panama
  • However, the inheritance may quality as a “gift” in Panama if it concerns properties within Panama, in which case the tax rate will depend on the degree of relationship between the donor and the donee

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