Panama
Real Estate Transactions
 Foreigners,
whether residents or non-residents, enjoy the same rights and privileges
when purchasing and selling real property as do Panamanian citizens.
Article 764 of the Panamanian Tax Code indicates which properties
are exempt from property tax. These properties include:
Properties registered at a value of 30,000 USD
or less including improvements to the land, i.e. construction.
Land used exclusively for farming and registered with the Ministry
of Agriculture and Development at less than 155,000 USD.
A new law (No. 58 of December 28, 2006) has been recently signed
offering incentives for investors wishing to build, furnish or remodel
lodging facilities outside the Panama’s Special Tourism Zones.
The
new law establishes attractive tax exemptions for a minimum investment
of US$3 million in the Metropolitan area, including exemptions on
the import of material and equipment, the import of vehicles for
tourism development, and a 20-year exemption of property taxes.
Outside
of the Metropolitan area, the minimum investment is US$50,000.
Although
there have been 10 Special Tourism Zones declared
in Panama, there are other areas with great investment potential
such as mountain regions and islands, among others.
The
new law is expected to draw more foreign investors to Panama as
the country becomes more popular among expats from Europe and North
America.
Panama has three different types of property:
Titled Property
Panama has a very sophisticated Public Registry with a cadastral
department that oversees the registration of titled properties in
all nine provinces of the country. Titled property is very similar
to that of "fee-simple" titles in the USA. Panama Titled
property is the most preferred type since it is easily verifiable
in the Public Registry system, as well as provides the most security
from an investment standpoint, since private property is guaranteed
by the constitution of the Republic of Panama. Generally, banks
will issue mortgage loans on titled properties, registering liens
against the title as collateral on the loan. Titled properties also
generally incur annual property taxes when the registered value
is over US$30,000.
Titled Property procedures:
Title Search: you should hire a competent lawyer
to do a title investigation consisting of;
a) verification at the public registry that the title is in fact
in the name of the seller, and it is free and clear of encumbrances,
liens, or other issues that could affect the free disposition or
transfer of the title;
b) the catastral survey map should be reviewed, and in some cases
it is recommended to have a professional surveyor physically verify
the maps points on the property, to avoid future boundary conflicts;
c) verification of utility debts (water and sewage, power, telephone,
etc.).
Promise
to Purchase Contract: Generally a small down payment is
made at the signing of the promise to purchase contract, and its'
purpose is to secure the property and provide enough time for the
title search, as well as to coordinate payment arrangements for
the closing and the setup of a corporate property holding structure
(if applicable). This contract must be registered at the Public
Registry to guarantee that the property cannot be sold to any third
parties in the interim prior to the final closing.
Buy-Sell Contract: This contract is registered at the Public
Registry and the final balance is paid to the seller, or in some
cases, if an escrow agent is used, payment is made once the title
is transferred to the buyers' name.
Title
Transfer: The property ownership is officially transferred
to the buyer once the property title is transferred to buyers' name,
which is done immediately after the buy-sell contract is signed
by each party and registered at the Public Registry. In some cases,
if the title is in a corporations' name, and the seller agrees to
sell the corporations' shares, then there is no transfer of title,
only a transfer of shares of the corporation
Possession
Rights Property
Possession rights are generally granted to the "possessors"
through very simple certification documents issued by either municipal
mayors, sheriffs, or other government organizations such as the
Agricultural Reform Department (Reforma Agraria). Possession rights
do not incur property taxes, although registered improvements over
possession rights property may incur taxes at a municipal and/or
national level. The most Possession Rights properties can become
titled through a procedure of purchasing the land from the government,
however, the law prohibits titling of possession rights properties
in some areas such as certain coastal areas, national parks, or
islands. In these cases, as an alternative, the "possessor"
of the property can apply for an administrative concession over
the land to guarantee the pacific use of it.
To acquire the possession rights over a property, it is
important to follow these steps:
Promise to Purchase Contract: Generally a small
down payment is made at the signing of the promise to purchase contract,
and its' purpose is to secure the property and provide enough time
for the due diligence, as well as to coordinate payment arrangements
for the closing. Contracts relating with the purchase of rights
of possession cannot be registered at the public registry, therefore,
they should simply be authenticated by a public notary.
Due Diligence: Unlike titled property that is easily
verifiable through the public registry, the due diligence procedures
on possession rights property is more complex since there is no
central database of information on possession rights properties.
Therefore, buyers of possession rights should take extra precaution
during the due diligence process. Generally, the extent of the due
diligence investigation that one can realize on possession right
property is the following:
A.
Verification of Certification of Rights of Possession:
The certification of possession rights should be validly issued
from a competent government authority, and should contain the possessors'
name, correct description of the property in terms of location,
size (area), limits, boundaries and neighbors (to the north, south,
east, and west).
B.
Verification of Survey: The survey should be stamped and
signed by a professional licensed surveyor engineer, identifying
the possessors' name, location and reflecting the same information
in accordance with the certification of possession rights.
C.
Inspection: The main elements to verify are physical occupation,
no opposition by third persons, and good faith. A physical inspection
should be realized by your surveyor to identify and mark the points
of the property as well as confirm these points with the neighbors
to ensure that there are no future boundary conflicts. In addition,
the property should be maintained and fenced to clearly delineate
the boundaries.
D.
Permitting Verification: In some cases, if the buyers'
intentions are to build a certain type of structure or project on
the possession rights property (for example, a marina, port, hotel,
airstrip, etc.), it is necessary to verify if there are any national
or municipal regulations that may prohibit those activities in the
area.
Buy-Sell Contract: The final balance is paid at the signing
of the final buy-sell contract, or in some cases, if an escrow agent
is used, once the possession right certification is actually transferred
or changed to the buyers' name. Contracts relating with the purchase
of rights of possession cannot be registered at the Public Registry,
therefore, they should simply be authenticated by a public notary.
Possession Rights Certification Transfer: The possession
right over the property is officially transferred to the buyer once
the possession right certification is transferred to buyers' name,
which is done immediately after the buy-sell contract is signed
by each party. In some cases, if the possession rights are in a
corporations' name, and the seller agrees to sell the corporations'
shares, then there is no transfer of possession rights certification,
only a transfer of shares of the corporation.
Concession
Property
Concession property is similar to that of a land lease arrangement,
as is common in Mexico or Hawaii, for example. It is government
owned property, where the government has granted a concession to
an individual or organization for a specific purpose, such as a
real estate development, hotel, marina, or other purposes. Concession
property is guaranteed by the government through a specific contractual
agreement, so there is very little risk to the investor, and title
insurance companies will generally offer title policies or guarantees
to investors for peace of mind. Concessions in Panama are generally
granted for a maximum of 20 year (renewable) periods, however, some
concessions are granted for up to 40 years (renewable) in specially
designated areas such as the Amador Causeway where there are commercial
and condominium developments currently being sold (Naos Harbor,
for example). Concession Property is normally in special coastal
or other governmentally protected areas where titles are not permitted
by law. In many cases, real estate developments over concession
property offer investors time-share or fractional ownership arrangements,
which are very common in Mexico and other resort-type coastal areas
around the world. Unlike Possession Rights property,
Title
Insurance
Even though Panamanian laws are setup to protect foreign investors,
you should always take precautionary measures to insure your investment.
Title insurance is recommended for all property transactions, and
is readily available in Panama through major international title
insurers, such as Land America Lawyers Title and First American
Title Insurance, etc. Title policy costs are minimal and
the peace of mind is definitely worth the cost.
Contact us: info@panamalegalconsultants.com
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