Panama, Casco Viejo
Welcome to our second interview with certified CPA Derick Brown, talking about his wonderful handbook THE REAL ESTATE INVESTOR´S HANDBOOK. If you like any of this content and would love to know more, we are including here links to his books and his bio. This is the first time a full manual has been published in English, covering a wide range of topics. I find that being able to even know what to ask makes a tremendous difference. 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: Ok Derick, here we go… the HOT question in everyone´s mind….
If anyone purchases a property that gets rented (rental income), do they need to pay taxes in Panama? Yes or no ….
Yes…
ARCO: Then the question is how much? Would it change if it is the buyer who owns it vs a corporation?
The income tax will depend on the net taxable profit. So, even though you are obliged to file tax returns, it doesn’t necessarily mean that you will pay income tax.
If the buyer owns the property under his/her personal name, then yes, the income tax amount changes, because personal income tax rates are lower than corporate income tax rates.
ARCO: And , what is ITBMS? Do you need to charge it on your one year lease? What if the one year lease is over $36,000 a year?
ITBMS is Sales Tax or VAT, which is 7%.
If the one year lease is a residential property, then no, even if the one year lease is over $36k, because long-term residential rental is exempt from VAT… If the one year lease is for a commercial property, then yes.
ARCO: Now, a big question: What about Airbnb? Is there any additional tourism tax I should be thinking about?
If you are in Panama City, yes.
This is because there is a law that prohibits short-term rentals (less than 45 days) in the city. So, in order to rent your property through Airbnb (in the city), you will need to get a tourism license.
Artículo 21. Sanciones por arrendamiento. Se prohíbe todo arrendamiento inferior a cuarenta y cinco días, en el distrito de Panamá, a quienes no cuenten con permiso de alojamiento público turístico. Dicho acto será sancionado por la Autoridad de Turismo de Panamá, con multa de cinco mil balboas (B/.5,000.00) a cincuenta mil balboas (B/.50,000.00), considerando la gravedad de la falta y/o la reincidencia en dicho acto, por parte del sujeto arrendador. Serán objeto de estas mismas sanciones las personas que publiciten por cualquier vía, incluyendo la electrónica, estos servicios.
ARCO: Is there a particular moment when these taxes get paid?
Income tax, annually.
ITBMS, monthly or quarterly.
ARCO: What would be your recommendation if the owner is not living in Panama full time? I can´t imagine trying to navigate the system, especially if your original language is not Spanish. I mean, you always have ChatGPT… =)
When you first come to Panama to look at the property or to sign the documents, make sure you set up a meeting with an accountant, so that he/she can take care of your tax and accounting issues while you aren’t in the country.
Thanks to Derick for this incredible episode. Now, keep tuned, because in our next one, we´ll talk about Real Estate Sales taxes! If you liked this episode and would like to know more, do visit the link in our description for Derick´s book. It has all the calculations you need to be knowledgeable and conversant with your lawyers, accountants and even brokers in Panama.