Panama: Overview

RENTAL YIELDS

Last Updated: Nov 02, 2009

Panama homes slightly weaker, but good yields

Both rents and prices have softened in Panama since last year, according to our research. Nevertheless gross rental yields are healthy, and Panama remains an attractive property investment.

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TAXES AND COSTS

Last Updated: Feb 18, 2009

Taxes are quite high in Panama

Rental Income: Net rental income is taxed at progressive rates.

Rental income is also subject to VAT at 5%.

Capital Gains: Capital gains realized from transactions not related to business activities are taxed at a special flat rate of 10%. Otherwise, capital gains are taxed at the standard progressive income tax rates.

Inheritance: Inheritance tax was abolished on 26 December 2002.

Residents: Resident individuals are taxed on their Panamian-sourced income at progressive rates.

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BUYING GUIDE

Last Updated: Nov 30, -0001

Total transaction costs are low in Panama

The total roundtrip transaction costs for buying and selling properties are around 7% to 9%, including the agent’s fee at 3% to 5%. The seven procedures needed for the registration process can be completed in about 44 days.

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LANDLORD AND TENANT

Last Updated: Jun 14, 2006

Panama's tenancy laws are pro-landlord

Panama’s rental market is generally pro-landlord.

Rents: Rents can be freely agreed between landlord and tenant. In general, lease agreements can freely incorporate increases in the rent every certain amount of years, as agreed between the parties.

Tenant Security: In general terms, the court systems works, although the caseload is substantial and it may take several months to finalize the evictions, says Patton, Moreno & Asvat, a Panamanian law firm.

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ECONOMIC GROWTH

Last Updated: May 30, 2008

Canal expansion, projects, projects

Panama has a dollar-based economy, sustained by the canal and by the Colon Free Trade Zone, the largest in the Western Hemisphere, and by its position as a growing international financial and banking center with good communications and first world amenities. Panama still faces the challenge of shaking off its reputation as a major transshipment point for US-bound drugs and illegal immigrants, and as a haven for money laundering.

In 2004, Martin Torrijos defeated ex-president Guillermo Endara, pledging to modernize the Panama Canal, to tackle corruption, and to investigate violations of human rights under the rule of his father, former military leader Omar Torrijos. Torrijos’ referendum to expand the Panama Canal was massively supported in October 2006. The canal project will cost around US$5 billion to $7.5 billion and is expected to be completed in seven years. The expansion will provide 10,000 construction jobs.

Several other mega-projects are in the wings:

• Panama has signed an agreement with Qatar for the construction of a US$7 billion oil refinery in Puerto Amuelles
• A consortium led by Hong Kong’s Hutchison Whampoa, plans to turn Balboa into the largest port in Latin America.
• China's government-owned shipping operator, COSCO, in alliance with Ports America Group, is to build a second megaport on the Pacific coast at Farfan —even though Panama recognizes Taiwan.
• Copa, a local airline, aspires to turn Panama into an alternative regional airline hub.

Finally, a trade Promotion Agreement between the United States and Panama was signed in 2007, giving specially good access to the US market, but neither country has yet approved the Agreement, due to the election of Pedro Miguel González Pinzón as president (speaker) of Panama’s National Assembly. Pinzón was indicted by a U.S. federal court in October 1992 for the killing of an American serviceman and the serious wounding of another.

Unemployment has declined in the past few years to 8.6%. Nevertheless, a large proportion of the population lives below the poverty line, and inequality is also one of the highest in the region and the world.

Panama’s strategic position between the North and South American continents, and its canal, have made it a target for intervention by the US, which in 1989 invaded to depose Dictator Manuel Noriega. But this intervention also resulted in a remarkably stable democracy (with a growing economy).

The political system is a money-corrupted democracy, with power passing between two right-wing parties, the ruling Partido Revolucionario Democratica (PRD) and the Partido Panameñista (PP). Torrijos’ PRD is selecting a candidate for the 2009 pesidential election, which it is well-positioned to win.