Panama Real Estate FAQ

Q. Are foreigners and foreign-controlled entities allowed to own real estate directly, or are there specific licensing requirements or restrictions that must be met for a noncitizen to own real estate? Are there restrictions on ownership of beachfront or coastal land, or land near the beach?
A. Foreigners are allowed to own real estate in Panama directly or through a legal entity. The only limitation is established in article 291 of the National Constitution, which establishes that foreign natural or legal persons with foreign capital may not acquire real estate located within 10 kilometers of the national borders.

In the case of beachfront properties, neither nationals nor foreigners may title properties located within 22 meters of the highest tide line on the Pacific coast and 10 meters on the Atlantic coast. Concessions may be granted for its use; however, no permanent improvements can be made.

Q: Is it legal for foreigners to buy property in Panama?
A: Yes, it is legal for foreigners to own property titled in Panama in their personal name, although we typically recommend that clients own all property in the name of a Panamanian corporation or foundation for tax and asset protection reasons.

Q. Can a property be owned by a Panamanian corporation in addition to an individual?
A. Yes.

Q. Can a Panamanian Corporation sell its shares?
A. Yes.

Q: Is it safe to buy shares of a Panamanian corporation that has ownership title in Panama?
A: As long as a due diligence investigation is performed on the corporation and a proper title search is performed on the property owned by the corporation, it is generally safe to purchase property this way in Panama. It is important to hire qualified attorneys to handle due diligence and put the appropriate clauses in the corporation's Share Purchase/Sale Agreement, such as; (1) a clause that guarantees to the buyer that the corporation has no outstanding debt or liability other than that set forth in the contract and indemnifies the buyer from such liability, (2) a clause that makes the seller responsible for any liability for previous actions of the company and/or its directors, and (3) a clause that guarantees the buyer that the purchase is for 100% of the shares of the company as well as for 100% of property title number xxx (with the description of property), which is duly owned by the corporation, whose shares are owned by (the seller).

Please note that we work in partnership with Pardini & Associates , a Panamanian law firm with 40 years of experience.

Q: Is it legal to buy options on properties in Panama?
A: Yes, it is legal to buy options on properties in Panama; However, it is an uncommon practice in Panama and most sellers do not understand the concept.

Q: Are there options available on properties in Panama?
A: Yes, you can buy options on properties in Panama. However, most sellers in Panama do not understand the concept of property options, therefore, it is necessary that you educate the seller on this concept so that they agree to offer you an option to purchase their property.

Q: Do sellers offer owner financing or leases to own in Panama?
A: Yes, leases with purchase options are common in Panama, although most sellers are interested in simply selling, not lease options. However, please note that rental or lease contracts must be registered with the MIVI (Ministry of Housing), which is the “Ministry of Housing”; so that the lease is legal in Panama.

Q: Who typically pays closing costs for real estate transactions in Panama?
buyer or seller?
A: Generally, each party pays their own closing costs. For example, the seller pays his or her attorney to review the purchase/sale contract, and the buyer pays his or her attorney to draft the purchase/sale agreement, perform the title search, title transfer, and security services. custody. However, in some cases, buyers and sellers negotiate special terms whereby the buyer or seller pays all closing costs, so it really depends on the particular negotiation between the buyer and seller.

Q. Which party typically pays taxes and fees in connection with a purchase/sale of Real estate: the buyer or the seller? What is the assignment of responsibility? between a buyer and a seller of all taxes and duties payable to consummate a transfer of real estate?
A. As mentioned above, buyers are usually responsible for paying all registration costs. Sellers are responsible for paying capital gains tax and transfer tax. In addition, it is common for the seller to cover intermediation costs.

Q. Is it relatively safe and easy to obtain an unencumbered title?
A. In Panama, all property titles are registered in the “Public Registry”; (Public Registry) through a bureaucratic but simple process, but we highly recommend title insurance.

Q: If I decide to buy a property, what should I know before buying?
A: Before buying a property in Panama, it is important that you take into account at least the following:

1. 1. Whether the property has title or possession rights.
   2. If the property has restrictions, liens, encumbrances, easements, mortgages, etc.
   3. What is the registered value of the property?
   4. Do the boundaries and measurements of the physical property match those recorded at the Land Office?
   5. If the property includes improvements, how many years of tax exemption remain.
   6. What will the property tax be? The maximum property tax is 2.1% annually, based on (a) the registered value of the land, plus (2) the declared value of the improvements built.
   7. Will the property serve my purposes? For example, if you want to develop a tourism project, it is located in a tourist area as established by the Ministry of Tourism.
   8. Who pays the property transfer tax? According to Panama law, the property transfer tax must be paid by the Seller.

You can verify the information provided above through due diligence, which should be carried out by a team of experts, including at least a surveyor and a lawyer.

Q: How long does it typically take, from start to finish, to purchase a property in Panama?
A: The turnaround time from start to finish is usually around 6 weeks. However, it really depends on a variety of factors that are initially subject to the buyer and the seller, to the negotiation between buyer and seller, and subsequently depend on the lawyers and the Public Registry. Generally, real estate transactions have the following procedures:

1. 1. The buyer and seller must agree on the price and terms (the term may vary depending on the negotiation),
   2. The seller provides our attorneys with all title due diligence documentation so we can conduct the title search (time frame depends on the seller).
   3. Our attorneys perform the initial title search and draft the Promise to Purchase/Sale Agreement (timeframe is approximately 2 days, assuming we have all required information from the buyer and seller).
   4.  The buyer and seller review the promise of purchase/sale contract and agree to set a date to sign (the deadline varies by buyer and seller),
   5. The buyer transfers money for the down payment to the seller and legal fees to us (the deadline depends on the method of sending the funds and the time it takes the bank to make them available).
   6. The buyer and seller sign a purchase/sale contract commitment and the initial payment is paid to the seller.
   7. The final title search is completed (the deadline is approximately 5 days),
   8. The buyer sends the final payment (the deadline depends on the method of sending the funds).
   9. The lawyers draft the final purchase/sale contract (the deadline is 3 days),
   10. The closing takes place and the buyer/seller signs the final purchase/sale contract (the deadline is 1 day).
   11. The contract is registered in the Public Registry to begin the title transfer process (the period varies from 2 to 30 days, depending on the volume of the Public Registry),
   12. The lawyers receive the deed from the Public Registry and prepare the final documents to send to the buyer (the deadline is approximately 3 business days).

Q. Are there specific tax incentives related to the purchase or development of real estate? state?
A. The main incentives for the development of real estate projects in special tourism zones are contained in Law 80 of November 8, 2012. Additionally, periodically, the government enables a real estate tax exemption incentive for up to 20 years for new constructions, but to confirm if it is currently available, please contact inquiries@businesspanama.com.

Q. How is real estate transferred: by deed or other conveyance instrument? That What is the procedural process to complete a transfer? Is there a registry or
Recording process?
A. Real estate is transferred by transcribing the sales contract into a public deed. The buyer and seller sign a contract before a notary. The seller must present the corresponding certificates of good standing for the property and evidence that all related taxes (transfer tax and capital gains tax) have been paid. The notary public then transcribes the text of the sales contract and the text of the documents listed above, signs the public deed, and then a tax stamp is placed on each page. The buyer is usually then responsible for submitting such public instruments to the Public Registry and paying the registration costs. Once submitted, a registration number is provided and the process begins. The document is reviewed by a Public Registry staff member who determines whether all information is accurate and whether all required formalities have been met. This process typically takes approximately seven to ten business days, if no corrections or modifications are required. The parties may opt for accelerated registration by paying an additional fee to the Public Registry.

Q. Briefly describe the land registration system in force in your country, its name, its basis of authority and how it is maintained.
A. The property registration system was inherited from Spain. Historically, the unified land registration system in Mexico was implemented in 1528 as the Oficio de Hipoteca (Mortgage Registration Office) through a decree of the Court of Madrid as a global initiative to implement a unified land registration system throughout the Spanish empire that would facilitate mortgage operations. Today, the registry is a centralized Public Record Office charged with identifying and making known to the general public, through its records, all assets and rights in real property with respect to an identified parcel of land (including property, mortgages, easements, priorities and certain types of leases).

Q. How does the land registration system work? Who are the players?
A.  There is a national cadastral office called “Cadastro” (a registry of all land in the country) and from which all properties are indexed. The actors in the property registration system are the Registrar of the Public Registry and the notary. In a real estate purchase and sale transaction, the actors also include the buyer and the seller. The notary, although normally paid by the buyer, does not act as an attorney for either party to the transaction. His role is simply to ensure that the transaction is carried out according to the law. The purchase and sale operation involves extensive research by the lawyer representing the buyer in the Public Records of the chain of title (which refers to that sequence of registered documents capable of giving notice of subsequent purchases of the property), as well as from of any lien placed on the property. Once the purchase and sale transaction is closed and the public deed has been signed by the notary, the lawyer acting on behalf of the buyer has the responsibility of registering the public deed in the Public Registry.

Q. Once title to real property is recorded, what is the effect of that title? registration (i) about the person in whose name the interest is registered, and (ii) about third parties parties?
A. Under Panamanian law, the right with respect to a real estate interest exists between the parties at the time of registration of the transaction in the Public Registry. The registration of rights in the Public Registry also makes these rights known to third parties, thus being able to enforce the rights against said third parties. As Panama's system is a race system for registration, registration also affects the priority of liens placed on real estate interests, regardless of the closing date.

Q. What would be the effect on interest in real property if

• • • • has been obtained through forgery or identity theft, or through fraud or coercion.

A. Forgery or identity theft is highly unlikely because, in all real estate transactions, the notary must ensure and verify the identity of the parties. However, if such a case were to occur, the transfer would be considered null and void, and the registration would be invalidated. The relevant documents would need to be modified accordingly. Regarding a transaction carried out under fraud or duress, it should be noted that a key element of a sales contract is consent. In the absence of consent, which would result if duress or fraud were involved, the transaction can be revoked (if it is deemed null and void) by a court declaration.

• • • • the person who transferred an interest in a property was incompetent.

A. Same as above. The notary must be aware of the competence of the person appearing before him at the time of the transaction. If the notary was aware of the incompetence, he could be held liable.

• • • • the title document used in the transaction was invalid.

A. Although the original copy of the “document” (which is essentially the public deed by which the seller originally obtained title) must be presented at closing, and therefore one might speculate at that time that the document has certain irregularities, research in the Public Registry of the title chain would uncover such irregularities (e.g., errors regarding the owner's identity, price, description, and the like). If another document were invalid, for example, a power of attorney, then the transaction could be considered void and annulled.

• • • • the description of the real estate interest was incomplete or inaccurate.

A. When registering a public deed, the Registrar verifies not only the form of the transaction but also that the measurements and areas affected or transferred match those established in the Public Registry. If the application contains inaccuracies or irregularities, registration is denied, and the Registrar informs the buyer of the reasons for the rejection. Regarding legal recourse in cases of incomplete or inaccurate measurements, the buyer has the right to demand a reduction in the purchase price if the actual size is less than agreed upon. Conversely, if the size is greater than agreed upon, the buyer is obligated to make up the original price. Since these obligations generally have to be enforced through legal proceedings, it is customary in cases where the property has irregular measurements to have the property inspected and the actual measurements determined.

Q. Who pays the owner of the real estate interest for the loss or damage suffered by the property? holder due to error or defect in a record?
A. In this case the general principles of civil liability apply. The person responsible for the error or defect will be responsible for compensating any loss. If the notary is responsible for the error, then the notary will be responsible. If the error was made by the Registrar, the final responsibility lies with him. However, this will only be the case if the error was the result of negligent technical verification of the information presented.

Q: When an interest in real property is recorded, is any value shown in full or Market value or some lesser amount?
A. The law requires that the full market value be shown at the time the transaction takes place in order to calculate certain property taxes, including a transfer tax.

Q. Are there laws that allow or provide for condominiums or otherwise subdividing properties, or creating multiple existing properties on one land or building?
A. Yes, Panamanian law recognizes horizontal property, which is similar to condominium property. Horizontal Property is a special type of property that creates real estate units, where the individual ownership of the units coexists with the co-ownership of communal property.

The Horizontal Property is registered in the Public Registry under the title Horizontal Property Regime Section and, as such, all owners must comply with the regulations for co-owners.

Q. Is a lender for a real estate project in your jurisdiction required to be registered or licensed in that jurisdiction?
A. A private lender for a real estate project does not need to be registered or licensed, which means the lender does not have to be a banking or financial institution. Loan contracts are governed by the Financial Code. However, if the lender is a banking or financial institution, it must be authorized by the Banking Superintendence and must comply with all current financial regulations.

It is prohibited for any person, in or from the Republic of Panama, to raise funds from the general public, directly or indirectly, in the form of time deposits or in any other form, unless said person has a license or authorization for this purpose. activity. issued by a competent legal authority or regulatory entity, or such person is engaged in fundraising activities expressly exempt by law from any licensing, regulation or authorization requirements.

Q. What determines the priority of a mortgage, lien, or security trust? The loan date, the date of execution of the mortgage, lien, or security trust, the date the mortgage or lien is actually recorded or registered, or some other factor?

A. The date on which said mortgage or guarantee trust is registered or recorded before the Public Registry of Panama is the date on which the mortgage or guarantee trust is in force with respect to the rights of third parties, since they are considered third parties upon having knowledge of the encumbrance on the property.

Q. Is there a standard schedule of legal fees for real estate transactions? If so, what is it? Is it based on a percentage of the transaction value or some other methodology?

A. The National Bar Association has established minimum fees for certain real estate matters. Matters not covered by the scheduled fee schedule may be billed at a mutually agreed-upon rate.

The drafting of purchase and sale contracts, leases and other works of a similar nature have fees that will depend on the value of the respective operations, according to the following schedule:

From 0.01 USD to 3,000 USD – 200 USD

From 3,001 USD to 5,000 USD – 250 USD

From 5,001 USD to 10,000 USD – 275 USD

From 10,001 USD to 30,000.00 USD – 400 USD

From 30,001 USD to 50,000 USD – 500 USD

From 50,001 USD to 100,000 USD – 800 USD

From US$100,001 to US$150,000 – US$1,500

From 150,001 USD to 200,000 USD – 1,550 USD

From 200,001 USD to 250,000 USD – 1,575 USD

From US$250,001 to US$2,000,000: 3.5 percent

Fees for transactions exceeding two million dollars (US$2 million) will be invoiced according to a mutually agreed upon fee schedule.

For documents containing several operations, fees will normally be calculated based on the cost of each operation.

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