Casco Viejo, Panama
Many are surprised that Panama is not a Tax Haven. From property taxes to income taxes, yes, there is plenty to choose from! Today, we are joined by Derick Brown, certified CPA and author of the first Real Estate Investor´s Handbook written in English and published in Amazon! So if you are serious about investing in Panama, run to the link in the description and order the book. It is not an affiliate link! We just love sharing great information, so you make the best decision when here. We´ll be releasing the full interview in our Arco Properties Youtube Channel.
If you missed our episodes about Property Taxes in Panama, and Real Estate Income Taxes in Panama, go to our other links and catch up!
This series does not constitute financial advise, and his opinions are his own. If you´d like to know more, please contact your accountant or Derick.
To purchase his book:
If you are in Panama: The Real Estate Investor’s Handbook (Paperback) ($ 25) (cuanto.app)
Or anywhere by Amazon: Amazon.com: The Real Estate Investor’s Handbook: Understanding Panamanian Real Estate Tax & Accounting Rules: 9798857808566: Brown Joseph, Derick Brian: Books
And more about Derick: Bio | Derick Brown | CPA
Video:
ARCO: Here we go!
First burning question in the internet: What are property sales taxes in Panama?
- a) Real Estate Transfer Tax – 2%
- b) Capital Gains Tax – 3% or 10%
ARCO: I guess the easiest tax is the transfer tax: what is it, how does it get calculated?
Transfer Tax applies to the sale of real estate in Panama. The 2% rate is levied on the greater of the following two values:
- a) The sales price outlined in the public deed of transfer.
- b) The cadastral value of the property on the date of the acquisition, plus any increase in value derived from improvements, plus 5% per year computed on the sum of the cadastral value and the improvements.
ARCO: And how much is the capital gain tax? Is it a flat fee or a calculation?
It depends (this is the topic that started this book).
If the buying and selling of real estate is outside the ordinary course of the seller’s business. The capital gains tax will be calculated at 10% of the taxable profit.
The seller will be obligated to pay an amount equivalent to 3% of the total value of the sale or the cadastral value, whichever is higher, as an advance on the capital gains tax.
However, if the 3% advance capital gains tax exceeds the 10% rate on the actual profit from the sale, the taxpayer can provide a sworn statement evidencing the overpayment, and the surplus amount can then be refunded in cash or used as a tax credit towards future taxes, which is transferable to other taxpayers.
Before this regulation in 2021, even if you sold a property at a loss or cost without making any capital gains, the 3% advance capital gains tax was still mandatory. This resulted in the inconvenience of requesting a refund, a process that could take several years.
In April 2021, Law 208 changed this system by allowing sellers not engaged in regular real estate trading to directly pay the 10% capital gains tax on their actual profit, eliminating the necessity of paying a 3% advance capital gains tax.
The seller can choose the lowest amount as the definitive capital gains tax to be paid.
This shift is particularly advantageous if a property is sold without a profit or at a marginal gain, as it removes the need to pay capital gains tax upfront and then request a refund.
Under Law 208, however, sellers (not predominantly involved in buying and selling properties) can pay the 10% capital gains tax directly on the profit as the final tax, which in this example would be $2,500.
This change simplifies the tax process, making it easier for sellers to navigate the real estate market in Panama.
ARCO: When do these taxes get paid?
Here I´ll make a reference to our other video about closings- this is why transactions in Panama close with a letter of payment, as everything gets paid and transferred before cashing.
Before the property is transferred.
ARCO: What other payments would the owner of a property need to pay before transferring a property? Both as a natural person or as a corporation?
- Outstanding property taxes
- Water
- Garbage
- HOA
ARCO: Once the property gets transferred, what would be your recommendation of “next steps” for the new owner? Any post steps he or she need to take to make sure everything is done and updated in the government universe?
Definitely… The first thing would be to update the property’s information in the national land administration authority (ANATI). The information that gets updated is the cadastral value (acquisition cost) and new owner’s information. Why is this important? Because if you don’t do this, then the DGI will continue to calculate your property tax based on a outdated cadastral value, and when you update this in the future, you will have to pay back taxes with surcharges and interests.
The following step is to link your email address to the property in the DGI and create a new password (NIT). This way you can access your property’s tax account.