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Panama Legal Assistance
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. Title policy costs
are minimal and the peace of mind is definitely worth the
cost.
Panama Legal Consultants
- Panama Law Firm -
For more information please contact us:
info@panamalegalconsultants.com
Tel: (507) 6714-9326
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