If you’ve ever been interested in owning a home or property in Panama you’ve probably heard of Panama’s attractive property tax exemption laws. The property tax exemption, or tax exoneration as it’s known in Panama, has been around for over 20 years and was designed as a way to provide incentives for new home construction (which, obviously, creates jobs). Over the years the law has changed and today the length of the exoneration is based on the value of the home being built.
The table below shows the number of years of the tax exoneration based on the value of the home or improvement:
Value of the Improvements (Home)
$120,000 or less (# of Years of Tax Exoneration: 20)
More than $120,000 but less than $300,000 (# of Years of Tax Exoneration: 10)
More than $300,000 (# of Years of Tax Exoneration: 05)
The property tax exoneration, once granted, follows the ownership of the property. If a property is sold prior to the expiration of the tax exoneration, the remaining years left on the exoneration apply to the new owner.
If you’re buying an existing home, the seller should have a copy of the tax exoneration certificate which will show the date of issue and the date of expiration.
A Few Words Concerning the Concept of Value
When a new residential home is completed an application for the tax exoneration is filed. It’s very important to understand that the tax exoneration is not automatically granted. The owner of the new home must apply for the tax exoneration and the exoneration is effective from the date that the certificate of occupancy is issued. Usually, an attorney representing the owner of the property files the tax exoneration request.
Since the number of years of tax exoneration is based on the value of the construction, how is that value calculated? For tax exoneration purposes, the value of the construction is based on the value specified on the construction permit or stated on the certificate of occupancy, whichever is higher.
What about the Value of the Land?
Since the tax exoneration was created to stimulate new construction, the improvement is exempt from property taxes but the land the improvement is built on is not. Under Panama property law, the first $30,000 in land value is exempt from property taxes forever. Land valued under $30,000 is not taxed in Panama. However, land valued over $30,000 is subject to property tax and is not exempt under the tax exoneration.
Condo Owners are Special
If you own a condominium in Panama the $30,000 land exemption does not apply. You will always have property tax due on the pro rata value of land held in common by the condo association. The value of the land in a condominium building will be stated in the property deed and the condo owner is responsible for paying property tax on his/her share of the land value.
My Property Tax Exoneration has Expired, Now What?
All good things come to an end and this applies to Panama’s property tax exoneration. So, once the tax exoneration expires, what is the effective property tax rate?
Property taxes are assessed based on a sliding scale of value and increase as the value is greater. Below is a table showing the effective property tax rates:
Property Value – Tax Rate
$30,000 or below* – (Tax rate: 0%)
$30,000 to $50,000 – (Tax rate: 1.75%)
$50,000 to $75,000 – (Tax rate: 1.95%)
$75,000 and above – (Tax rate: 2.1%)
*The $30,000 exemption does not apply to condominiums and the tax rate starts at 1.75%.
Let’s say you have a property with a total recorded value (land plus improvements) of $250,000, how do you calculate the property taxes you owe?
Property Value (recorded land and improvements) – $ 250,000
Tax on first $30,000 of value – $0
Tax on $30,000 to $50,000 of value – $ 350.00
Tax on $50,000 to $75,000 of value – $ 487.50
Tax on remaining value ($175,000) – $ 3,675.00
Total Annual Property Tax Due – $ 4,512.50
Since Panama doesn’t currently have tax assessors, the basis for your property tax is the value of the land that is declared in the property deed plus the value of the declared improvements. If you’re not sure what these values are, I suggest that you contact your attorney so you can clearly understand your future property tax liabilities.
If you have any questions, feel free to contact me on my cell phone (+507-6480-5370) or you can reach me by email at firstname.lastname@example.org.