Long live the 20-year property tax exemption
Panama’s President signed the Law to extend the 20-year tax break on April 15, 2008. Not only was April 15th a good day for taxpayers, but one for real estate investors in Panama. However, this new extension is only good for a short time. In addition, you must comply with two strict deadlines. Residential and commercial building projects must obtain their building permit before July 1, 2009 and occupancy permit (or improvements registration) by December 30, 2011 to qualify for a 20-year property tax exemption. ( This information was confirmed with a law firm in July 2010, however always verify any information before proceeding. )
Sounds simple, but meeting these strict requirements could be tricky. Obtaining your building permit prior to July 1, 2009, means having all of your architect plans, application and supporting documents submitted to the government offices with enough time to be reviewed and accepted by the end of June 2009. Miss this deadline and your home or project will not qualify for the exemption.
Prior to December 30, 2011, you must either have and Occupancy Permit issued or register your improvements with the Public Registry office. Since documents may be sitting in the Public Registry office for up to a week before recording, you should file these improvements well in advance of this deadline.
Now you have met the two deadlines and think the 20-year property tax exemption automatically applies. Wrong! You must know apply for the exemption or you will not be entitled to it.
Building projects developers apply for it on behalf of all the units, so if you purchase a condo in a new building, you do not have to worry about it. However, if you build your own home you must apply for the exemption. Here is how to apply: Go to Direccion General de Ingresos (DGI) office to get the forms to apply for the twenty-year property tax exemption. You must file a copy of the escritura publica (public deed) along with a copy of your occupancy permit and a copy of the building permit along with your complete application form.
The exemption begins either on the day the Occupancy Permit is issued or the day the improvements are registered by public deed with the Public Registry office (whichever comes first).
If you miss one of these deadlines all is not lost. While you lose out on the twenty-year exemption, there are still other exemptions available to you based on the property improvements.
Residential use construction valued up to $100,000 will qualify for a fifteen-year property tax exemption. From $100,000 to $250,000 qualifies for a ten year exemption. Over $250,000 qualifies for a five year exemption. Non-residential improvements have a ten- year exemption.
Improvements and constructions of “residential purpose” properties include apartments, condominiums, single-family homes, duplexes, and any other type of property providing a means of living. Commercial or business properties do not qualify.
Do not wait if you plan to purchase raw land and build your own home. It takes time to locate real estate in Panama. It takes additional time waiting for the escrow process to complete before you can take title to the property. Now that you are the titleholder, you must hire and architect to design the home. Once the architect designs are prepared, you can apply for a building permit. You will need to get quotes for reputable builders and select the contractor. Construction takes time in Panama. The current real estate boom makes the availability of equipment, materials and good laborers difficult at times. Finally, once the home is built you can apply for your occupancy permit. Some experts predict this entire process could take as much as 26 to 30 month.
Take advantage of Panama’s gift of twenty-year property tax exemption while it lasts. Plan ahead and hire competent professionals who can quickly prepare contracts, do a title search, complete the escrow process, prepare architect plans, file permit applications, build the home or building, register the improvements or obtain the occupancy permit and apply for the property tax exemption before these deadlines expire. Then you can enjoy twenty years of property tax savings.
Article from Panama Real Estate Magazine