Overview
In Panama, investors must bear the following costs when buying property:

Transaction costs and taxes

Realtor commissions typically range from 3.5 to 5% of the selling price, and are paid by the seller. The buyer must pay the expenses regarding Title at the Public Registry. The amount to be paid is estimated according to article 314 of the Fiscal Code. This scale is rather cumbersome, but as a general guide, closing costs typically amount to around 1% to 2% (including notary fees).

Transfer taxes are paid by the seller, and are 2% of either the updated registered value of the property or the sale price - whichever is higher. The updated value is calculated at the registered value plus 5% per annum of ownership. If the property is bought by a corporation, it is customary for the shares of the company to be sold (instead of the property), thus eliminating the need to pay transfer tax.

Capital gains on the sale of a property should be declared in your tax return, and are treated as part of your normal income. If you receive rental return on your property, you will be liable for Income Tax, up to a maximum of 30% (on returns greater than $200,000).

However, if you invest in one of the special Tourism Zones, you may be exempt from Income Tax for 15 years. You will find more details on Tourism Laws and Zones, on the website of Pardini & Associates (an international law firm based in Panama): http://www.padela.com/practice/tourism.asp.

Property taxes

Properties with a registered value of $20,000 or lower do not pay property tax. For properties of a higher value they pay as follows: 1.75% from $20,000 to $50,000; 1.95% from $50,000 to $75,000; and 2.10% over any property value above $75,000.

This is a combined scale. A property valued at $100,000 would pay the following annual tax:

• From $20,000 to $50,000: $ 525.00.
• From $50,000 to $75,000: $ 487.50.
• From $75,000 to $100,000: $ 525.00
• TOTAL $ 1,537.50

If you buy or build a residential property in Panama, you may be exempt from property tax for up to 20 years. However, this provision is being phased out gradually. The 20-year exemption applies to cases where the construction permit is issued before 1^st January 2004 and the completed construction registered before 31^st December 2004. Houses or apartments where construction permit is issued after 1^st January 2004, will have the following exemption on property tax:

• Value up to $100,000 15 years exemption.
• Value from $100,000 to $250,000 10 years exemption.
• Value over $250,000 5 years exemption

The exemption is transferable during the exemption period to any new buyer. The land itself is not exempted and would continue to pay property tax if its value is above $20,000. The exemption is included in the deed recorded at the public registry, at an additional cost of $500.