First and foremost, the Panamanian constitution and Panamanian law allows for both nationalsand foreigners to purchase titled property in Panama.

There are different ways to obtain property in the Republic of Panama. In this article, we will consider the two (2) most common alternatives found by foreigners looking to invest in land in
the Republic of Panama. First, we will review the purchase of a titled property, which is applicable to land duly recorded and titled in the Public Registry. In a separate article, we will examine the purchase of a “Right of Possession” and the implications of the same. This last acquisition method is common to land located in historically protected areas, such as the tropical paradises of “Bocas del Toro” in the northernmost province of Bocas del Toro and “Portobelo” located in the Province of Colon, in the Atlantic side of the Isthmus as well as other parts of Panama.

Titled Properties

Panama is blessed with one of the most reliable Public Registry systems in the region. The Public Registry Office keeps record of all titled properties in all nine (9) provinces of the Republic of Panama. Information regarding titled properties is readily available through the Public Registry and thus it is fairly simple to undertake a preliminary due diligence on a lot or property.

Buyer must consider:

• How best to structure the sale. Should they receive the property in their own name, foundation, or corporation.
• If they are going to pay cash or finance any amount of the total cost.
• Legal fees and registration expenses (Buyer pays the fee to transfer title).
• Registration and Notary fees.

Seller must consider:

• 3% capital gains tax based on the sales price or cadastral value, whichever is higher.
• 2% transfer tax based on the sales price or cadastral value, whichever is higher.
• 5% capital gains which is retained by the buyer, in the event that shares of a corporation
  are transferred.
• Real Estate Commission which is generally 5% plus ITBMS
• Certificates of good standing (Paz y Salvo):
  • • Water services,
    • Maintenance fees,
    • Property Tax and Corporate tax (if property held in Corporation).

Persons interested in acquiring titled property must follow these steps in order to successfully undertake and minimize the risk of their transaction.

1. Perform a complete due diligence of the property: This procedure includes a complete title search, review of cadastral maps, verification of tax good standing of the land, verification of good standing in utility bills (water and sewage, electricity, telephone, etc.), as well as verification of any other special characteristic, limitation of the property, liens or encumbrances over the property. A professional surveyor should perform a physical inspection with the approved blueprints to verify the map points, measurements and boundaries to avoid future land conflicts.
2. Prepare a Promise to Purchase Agreement: This agreement is to secure the property, through a down payment is 10% to 30%, of the total purchase price, generally in order to have enough time to properly execute the due diligence regarding the property, obtain financing and arrange details to complete the transaction. Parties agree on a purchase price, term of the agreement and penalties if one of the parties does not comply with the contract. This agreement shall be duly recorded in the Public Registry in order to affect third parties and to ensure the property is not sold to another person.
3. Prepare a Purchase and Sale Agreement: When the term of the contract is due and the final balance is paid to the seller, it is time to prepare the final sale contract. The seller shall process the Property Transfer Tax and the Capital Gaining Tax, obtain a good standing property certificate as well as a good standing water and sewage certificate. The buyer will pay for notaries and registration expenses of this agreement. It is important to include an indemnification clause in the event of hidden defects of the property.
4. Ownership of the real estate property: Once the public deed containing such an annotation is duly registered, title transfer has been completed. Generally, payment is not delivered to owner until the proper transfer of ownership is undertaken, while in others, the parties agree to appointing an escrow agent (lawyer or banker) who receives the funds under an escrow agreement which states that payment will be made immediately upon presentation of the deed of transfer of ownership of the property, duly recorded at the Public Registry Office.

Other details regarding the purchase agreement –

• The property has been prepared for sale, including:
  • • Payment of transfer and or capital gains taxes have been made.
    • Necessary documents of good standing (paz y salvos) have been obtained.
    • The funds needed for payment of balance due on the property have been obtained in an irrevocable form.
• The deed must be signed before a public notary.
  • • Notary and inscription (Public Registry) fees are generally responsibility of the buyer.
• If either party does not speak Spanish then a certified translator must be present at signing in order to translate the deed.

Other Alternatives for Purchasing Property in Panama

Purchase of a property by means of the acquisition of a Panamanian corporation or Foundation which already owns the land is an alternative that may be considered by investors interested in purchasing land, provided that a full due diligence is made on the corporation and the seller makes substantial representations assuming full responsibility for the corporation’s previous activities.

If you decide to procure a corporation or foundation that owns a property as its only asset, according to Law No. 18 of June 2006, the buyer must retain 5% from the total share sale price and report this to the General Income Directorate as an advance of capital gains tax. Other methods for the transfer of property are donations or legacies, which follow a completely different procedure, and most likely will not be an alternative for foreign investors looking to invest and/or retire in Panama.

Conclusions

It is important that before purchasing any kind of property in the Republic of Panama, any investor makes sure to follow these simple steps:

1. Perform a complete due diligence of the property, including a complete title search, review of cadastral surveys, verification of good standing tax of the land, verification of good standing on utility bills (water and sewage, electricity, telephone, etc.), as well as verification of any other special characteristic of the property.
2. Enter into a Promise to Purchase Agreement in order to have enough time to properly execute the due diligence regarding the property and corporation. For titled properties, this agreement shall be duly recorded in the Public Registry in order to affect third parties.
3. Enter into a Purchase and Sale Agreement. It is important to include an indemnification clause in the event of hidden defects of the property. Payment should not be made to owner/seller until the proper transfer of ownership is undertaken or when title property is duly transferred into buyer’s name, for this matter we recommend using a letter of promise of payment through a local bank.