Important Tips for Investing in Properties in Panama

First, the Panamanian constitution and Panamanian laws allow both nationals and foreigners to purchase titled properties in Panama.

There are different ways to obtain properties in the Republic of Panama. In this article, we will consider the two (2) most common alternatives found by foreigners looking to invest in land in
the Republic of Panama. First, we will review the purchase of a titled property, which is applicable to land duly registered and titled in the Public Registry. In a separate article, we will examine the purchase of a “Right of Possession” and the implications thereof. This last acquisition method is common to land located in historically protected areas, such as the tropical paradises of “Bocas del Toro” in the northernmost province of Bocas del Toro and “Portobelo” located in the Province of Colón, on the Atlantic side of the Isthmus as well as other parts of Panama.

Titled Properties

Panama has one of the most reliable Public Registry systems in the region. The Public Registry Office maintains records of all titled properties in the nine (9) provinces of the Republic of Panama. Information on titled properties is available through the Public Registry and therefore it is quite simple to perform preliminary due diligence on a lot or property.

The buyer must consider:

• The best way to structure the sale. If they receive the property in their own name, foundation or corporation.
• If they are going to pay cash or finance any amount of the total cost.
• Legal fees and registration fees (buyer pays fee to transfer title).
• Registration and notary fees.

The seller must consider:

• Capital gains tax of 3% on the sales price or the assessed value, whichever is greater.
• Transfer tax of 2% on the sale price or the cadastral value, whichever is greater.
• 5% of capital gain that the buyer retains, in the event that shares of a company are sold
  are transferred.
• Real Estate Commission which is generally 5% plus ITBMS
• Certificates of good standing (Peace and Safe):
  • • water services,
    • maintenance fees,
    • Property tax and corporate tax (if property is held in the corporation).

People interested in acquiring a titled property must follow these steps to be able to undertake it successfully and minimize the risk of their transaction.

1. Carry out a complete due diligence of the property: This procedure includes a complete title search, review of cadastral maps, verification of the fiscal solvency of the land, verification of the solvency of public service bills (water and sewage, electricity, telephone, etc.), as well as verification of any other special procedure. characteristic, limitation of ownership, encumbrances or encumbrances on property. A professional surveyor must perform a physical inspection with the approved plans to verify the points, measurements and boundaries of the map to avoid future land conflicts.
2. Prepare a promise to purchase agreement: This agreement is to secure the property, through a down payment of 10% to 30%, of the total purchase price, generally to allow sufficient time to properly perform due diligence regarding the property, obtain financing, and arrange the details. to complete the transaction. The parties agree on the purchase price, the duration of the agreement, and the penalties if one of the parties does not comply with the contract. This agreement must be duly registered in the Public Registry in order to affect third parties and prevent the property from being sold to another person.
3. Prepare a purchase and sale agreement: When the contract term expires and the final balance is paid to the seller, it is time to prepare the final sales contract. The seller must process the Property Transfer Tax and the Capital Gains Tax, obtain a certificate of good property situation as well as a certificate of good water and sewage situation. The buyer will bear the notary and registration costs of this agreement. It is important to include a compensation clause in case of hidden defects in the property.
4. Property ownership: Once the public deed containing said annotation is duly registered, the transfer of title will have occurred. Generally, payment is not released to the owner until proper transfer of ownership is made, while in others, the parties agree to appoint an escrow agent (attorney or banker) who receives the funds under an escrow agreement. which states that payment will be made immediately. upon presentation of the deed of transfer of ownership of the property, duly registered in the Public Registry.

Other details about the purchase agreement –

• The property has been prepared for sale, including:
  • • Payment of transfer taxes and/or capital gains has been made.
    • The necessary peace and safe documents have been obtained.
    • The funds necessary to pay the balance owed on the property have been irrevocably obtained.
• The deed must be signed before a notary public.
  • • Notary and registration (Public Registry) fees are generally the responsibility of the buyer.
• If either party does not speak Spanish, then a certified translator must be present at the time of signing to be able to translate the deed.

Other alternatives to buy properties in Panama

Purchasing a property through the acquisition of a Panamanian corporation or foundation that already owns the land is an alternative that investors interested in purchasing land can consider, provided that complete due diligence is performed on the corporation and the seller does so. substantial contributions. representations assuming full responsibility for the previous activities of the company.

If you decide to acquire a corporation or foundation that has a property as its only asset, according to Law No. 18 of June 2006, the buyer must retain 5% of the total sale price of the share and report it to the General Directorate of Revenue. as an advance payment of capital gains tax. Other methods for transferring property are gifts or legacies, which follow a completely different procedure and most likely will not be an alternative for foreign investors looking to invest and/or retire in Panama.

Conclusions

It is important that before acquiring any type of property in the Republic of Panama, any investor makes sure to follow these simple steps:

1. Perform a complete due diligence of the property, including a complete title search, review of cadastral surveys, verification of the good tax status of the land, verification of good standing on utility bills (water and sewer, electricity, telephone, etc.), as well as verification of any other special characteristics of the property.
2. Enter into a Promise to Purchase Agreement to allow sufficient time to properly perform due diligence regarding the property and the corporation. In the case of titled properties, this agreement must be duly registered in the Public Registry to affect third parties.
3. Enter into a purchase and sale agreement. It is important to include a compensation clause in case of hidden defects in the property. Payment should not be made to the owner/seller until proper transfer of ownership is made or title is properly transferred into the buyer's name; For this matter we recommend using a letter of promise to pay through a local bank.