Panama: Taxes and Costs

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Taxes are moderate in Panama

INDIVIDUAL TAXATION

The territorial concept of income is a cornerstone of Panamá tax law. Under this concept, only income from Panamá nian sources is subject to income tax.

Income Tax (Impuesto sobre la renta a Personals Naturales)

Rental income earned by individuals is taxed at progressive rates, withheld by the tenant.

Value Added Tax (Impuesto a la transferencia de bienes corporales muebles con crédito fiscal)

Leasing immovable property in Panamá is subject to VAT. But entities with an average monthly income less than US$3,000 are exempted from VAT. This tax is imposed at a flat rate of 5% on the gross rent exceeding US$3,000.

CAPITAL GAINS TAX

Capital gains resulting from sales of real estate located in Panamá are taxed under a special regime. Under this regime, the taxpayer can opt to be taxed in two ways:

1. 5% of the sum of the following:

1. The property’s cadastral value
2. Improvement costs
3. 10% of the property’s cadastral value for each year of owning the property

This method of taxation consolidates the transfer tax and the capital gains tax, meaning the taxpayer choosing this option is not liable for the 2% transfer tax. Taxpayers choosing the first option are not subject to any more tax on capital gains arising from the sale.

2. 2% of the higher value between:

• The sales price, and
• The sum of the property’s cadastral value at the time of acquisition, improvement costs effected at the time of ownership, and 5% of the cadastral value of the property (including the improvement costs) for each year the property was held

Taxpayers choosing the second option are subject to a further tax on the capital gains. The taxable gain is the selling or transfer price less the following: the acquisition cost or the cadastral value, transfer costs, and 10% of the acquisition cost for each year the property was held. The gain is then divided by the number of years the property was owned by the seller. The resulting amount is then taxed at the standard income tax rates.

In the second option, the 2% initial tax on the selling price can be credited as real estate transfer tax. In computing the capital gains tax liability for the same property, this tax can therefore be deducted from the selling price as a cost of transferring ownership.

PROPERTY TAX

Property Tax (Impuesto de Inmuebles)

Real estate located in Panamá , whether urban or rural, is subject to property taxes. The tax base depends on the total value of the land, plus all improvements, as appraised by Land Commission (Oficina de Catastro). Real estate transactions at prices above the appraisal value automatically increase their value for tax purposes. Properties with a registered value of US$30,000 or below do not pay Property Tax. The property tax is imposed at progressive rates.

Exemptions

Various exemptions are available, including for non-profit-making organizations or government entities. Houses or apartments that begin construction before July 2009 will be exempt from paying property taxes for 20 years. This exemption is transferable to any new buyer. The land itself is not exempt, and is subject to Property Tax if its value is above US$20,000.

Panama - more data and information

• Guide to buying houses and registering property sales in Panama

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