Acquisition of Real Estate Property
Once the client has identified the land or property he intends to buy, we must determine if such property is titled property or “rights of possession”. Titled property is registered property in the name of the owner before the Property Section of the Public Registry of Panama. Once titled has been legally acquired, no one can dispute ownership.
Rights of possession is a “de facto” occupation of Government land (Mostly in the countryside) by one (1) or more individuals. The possession of such land is subject to a lease from the Government (Administrative Concession granted by The Directorate General of the Surveyor of the Ministry of Economy and Finance), if the client can prove that his activities on the land will be beneficial or positive for the community. Rights of possession exist in most islands and beach front properties, particularly in BOCAS DEL TORO, a popular tourist area, in the Atlantic Ocean, near the border with Costa Rica.
PROMISE TO SELL CONTRACT
If the land or property that the client intends to buy is titled, it is recommended to have a promise contract executed between the seller and the buyer, which is usually authenticated before a notary public and sometimes registered before the Property Section of the Public Registry of Panama. This contract will give both parties certainty to the following:
- That the transaction will be carried out and the final sales contract will be executed.
- That the seller will have enough time to pay the required transfer tax on real estate property (New apartments are exempted from this transfer tax only once, upon the first sale, provided that they are transferred within the first 2 years after the occupancy permit is granted) of approximately 2% of the value of the property and to gather other mandatory documents that he must deliver to the buyer prior to the final closing and which must be included in the notarial deed that will contain the final sales contract.
- If the promise is registered before the Public Registry of Panama, it will prevent the seller from disposing of such property in any way. It will have the effects of a lien or encumbrance over the property.
- It could give some time (usually, 15 to 30 days) to the buyer to make the proper arrangements for the financing of the property.
If the property is, for example, an apartment or a house, which is still in plans, the promise contract is a must, for which the seller will not be able to transfer title until the apartment building or the house is finished and the corresponding permits have been issued by the authorities.
Usually, at the time of execution of the promise, the buyer effects a down payment of 10% to 20% of the purchase price, which can be placed in escrow or be paid in full on behalf of the seller, depending on the circumstances.
Expenses involved with the preparation, notarization and/or registration of the public deed containing the promise contract of real estate property will depend on the circumstances and the purchase price.
SALES CONTRACT AND REGISTRATION OF TITLE
Once the seller has delivered all pertinent documentation needed for the closing, the buyer must notarized and register the title before the Public Registry of Panama. Usually, at the time of execution of the deed containing the final sales contract, the seller should receive from the buyer an irrevocable promise of payment, issued by a local bank, conditioning final payment to the registration of the title in favor of the buyer.
The seller has to pay a transfer tax on real estate property of approximately 2% of the value of the land before the closing, among other things (New apartments are exempted from this transfer tax only once, upon the first sale).
Expenses involved with the preparation, notarization and registration of the public deed containing the purchase contract of real estate property will depend on the circumstances and the purchase price.
REAL ESTATE TAXES
Annual real estate taxes are exempted for twenty (20) years in connection with new constructions, provided that the following two (2) conditions are met:
1. That the construction permit of the project is granted on or before August 31, 2006.
2. That the improvements or building has been declared and registered before the Public Registry of Panama on or before August 31, 2007.
After the twenty (20) year period expires, the first US$ 30,000.00 over the value of the land are exempted and taxes on the remaining difference and the improvements (construction) will be applied progressively, as follows:
1.75% over US$ 30,000.00 up to US$ 50,000.00
1.95% over US$ 50,000.00 up to US$ 75,000.00
2.1% over US$ 75,000.00
However, if the taxpayer presents a new appraisal of his/her/its property before the thirty first (31st) of January of the year 2006, the following tax schedule will be applied:
0.70% over US$ 30,000.00 up to US$ 50,000.00
0.90% over US$ 50,000.00 up to US$ 75,000.00
1.0% over US$ 75,000.00
Any other property will pay annual real estate taxes according to the following rules:
1. The first US$ 30,000.00 over the value of the land are exempted.
2. Improvements (construction) for residential use:
2.1. For the first US$ 100,000.00, the exemption is granted for fifteen (15) years
2.2. In excess of US$ 100,000.00 and up to US$ 250,000.00, the exemption is granted for ten (10) years
2.3. In excess of US$ 250,000.00 the exemption is granted for five (5) years
3. Improvements (construction) for commercial use, whatever the value, the exemption of granted for ten (10) years.
PREFERENTIAL INTEREST RATES
There is an incentive of lower interest rates for the purchase of any new residential unit, if the buyer applies for a mortgage loan, vis a vis the effective interest rate applicable in the country at a given time, based on the following schedule:
1. If the purchase price of the residential unit is up to US$ 16,000.00, there is a reduction of 6.5% off the effective interest rate.
2. If the purchase price of the residential unit is between US$ 16,001.00 and up to US$ 25,000.00, there is a reduction of 5% off the effective interest rate.
3. If the purchase price of the residential unit is between US$ 25,001.00 and up to US$ 62,500.00, there is a reduction of 4% off the effective interest rate.
The effective interest rate currently in force in the Republic of Panama is seven percent (7%).
PURCHASE AGREEMENT OF RIGHTS OF POSSESSION
“Rights of possession” is, a “de facto” occupation of the land, which is often the case in the countryside, most islands and beach front properties.
There are two (2) kinds of rights of possession:
1. Those located in national land, which include beaches, beach front land, marine bottom and islands, up to two hundred (200) meters from the high tide mark towards inland, which are in the custody of the Nation, and which are subject to the jurisdiction of the Directorate General of the Surveyor of the Ministry of Economy and Finance.
This kind of rights of possession, located in national land, can be further divided into those subject to title and those subject to an administrative concession (lease). As we will later explain, those rights of possession subject to an administrative concession are all beaches, beach front land, marine bottom and islands.
2. Those located in agricultural land, which have been allocated and transferred to the Department of the Agrarian Reform of the Ministry of Agriculture for the specific purposes to grant titles for agricultural use, outside the two hundred (200) meters from the high tide mark towards inland, and which are subject to the jurisdiction of the Department of the Agrarian Reform of the Ministry of Agriculture.
Therefore, in order to have lawful occupation of the land, one must either seek a title or file an Administrative Concession, which is a long term lease from the Government.
If the rights of possession that the client intends to buy are subject to title, a petition must be filed before the Directorate General of the Surveyor of the Ministry of Economy and Finance or before the Department of the Agrarian Reform of the Ministry of Agriculture of Panama. Expenses and fees in connection with this process amount to US$ 3,500.00 to US$ 5,000.00, approximately and it usually takes between one (1) or two (2) years, depending on the complexity of the case and location of the land.
On the other hand, following is a description of the process that must be accomplished in order to apply for a concession of land in Panama, if the land you intend to purchase is not subject to title, but subject to an Administrative Concession or a long term lease from the Government (Rights of Possession), which is the case of most beaches, beach front land, marine bottom and islands.
A concession is a long term lease contract from the Government, which is granted for at least, ten (10) to twenty (20) years. The Government will establish the lease price that the client will have to pay every year, based on the area and the value of the land. Just to have an idea, in some cases the Government has charged US$ 250.00 per year for ONE THOUSAND SQUARE METERS (1,000.00 Square Meters). So, if the land has TEN THOUSAND SQUARE METERS (10,000.00 Square Meters), the applicant to the concession would have to pay a lease of US$ 2,500.00 per year. This is just an example of the past. The laws are currently under revision and will change.
In order to determine the course of action, we must first identify the land that you intend to purchase. Then we need to determine if such land is located in national land under the jurisdiction of the Department of Catastro (Surveyor) of the Ministry of Economy and Finance or in land allocated to the Department of the Agrarian Reform of the Ministry of Agriculture. We must also determine if such land is titled and owned by an individual or corporation or if on the other hand, such individual or corporation has only rights of possession over the land, because he/she or it has been occupying it for a number of years.
Initial due diligence investigations to determine the legal status of the land you intend to purchase will cause expenses and fees in the amount of US$ 500.00 to US$ 1,000.00, approximately, and will depend on the location of the land. This effort will be coordinated with our local contacts (lawyers and surveyors).
Once the land has been identified and investigated, the client must secure a survey of the land. Expenses and fees in connection with this survey will depend on the location and area of the land (In standard situations, it could range between US$ 300.00 to US$ 1,500.00).
Expenses and fees in connection with the preparation and execution of a purchase agreement of rights of possession in standard situations range from US$ 1,500.00 to US$ 3,000.00, depending on the circumstances: if there is a promise contract or corporations involved, among other things.
LEGAL STATUS IN CONNECTION WITH THE OCCUPATION AND USE OF BEACHES, BEACH FRONT LAND, MARINE BOTTOM AND ISLANDS
Article 255 of the National Constitution considers beaches, beach front land, marine bottom and territorial waters as property of public use or public domain and cannot be subject to title or private ownership.
The law defines beaches: as the strip of land between the low tide water mark and a parallel line to the high tide water mark; beach front land: as the strip of land between the high tide water mark and a parallel line at ten (10) meters towards main land; and, marine bottom: as the part of the national territory covered by the territorial waters up to the low tide water mark.
In accordance with Paragraph 3 of Article 116 of the Fiscal Code, flooded lowlands by high tides, including mangroves, are considered of public use or public domain.
Article 286 of the National Constitution designates insular land as conditionally transferable for specific developmental purposes of the country:
- When it is not considered strategic area or reserved for governmental programs.
- When it is declared area of special development and special legislation has been approved for its exploitation, as long as national security is guaranteed.
On the other hand, Article 121 of the Fiscal Code states that “a foreign natural or juridical person or a national juridical person, which all or part of its capital stock is foreign, cannot acquire property located less than ten (10) kilometers from the borders or in islands under the jurisdiction of the Republic of Panama.”
Thus, taking into consideration the restrictions and exceptions previously mentioned, national land may be acquired in title by particulars and be subject to lease or barter thru the Directorate General of the Surveyor of the Ministry of Economy and Finance, as stated by Article 99 of Law No. 56 of 1995.
In the same context, Paragraph G of Article 2 of Law No. 63 of 1973 reaffirms that the Directorate General of the Ministry of Economy and Finance has competence over the administration, sale and lease of national land, with the exception of specific land destined for agricultural purposes or agrarian reform, which competence corresponds to the Department of Agrarian Reform of the Ministry of Agriculture.
Now, within the agrarian subject, Articles 26 and 27 of the Agrarian Code stipulate that “all flooded land by the high tides, including mangroves, as well as all land between the coast and two hundred (200) meters towards main land”, are not subject to title thru the Department of the Agrarian Reform of the Ministry of Agriculture.
Nevertheless, and in spite of the fact that all land of public domain, including beaches, beach front land and marine bottom, are not subject to title, the Directorate General of the Surveyor of the Ministry of Economy and Finance may grant administrative concessions over such land, for its temporary use and exploitation.
Notwithstanding all of the above, there are some titles or property rights recognized to particulars over beaches and beach front land, which have been constituted prior to the National Constitution of 1941. All titles or property rights over beaches and beach front land granted prior to the National Constitution of 1941, are still registered in the name of their proprietors and constitute acquired rights that cannot be disregarded.
The occupation and use of beaches, beach front land, marine bottom or territorial waters and islands without proper authorization from the Ministry of Economy and Finance or the Maritime Authority, as it may correspond, constitutes a clear violation of specific constitutional and legal dispositions and will cause severe monetary sanctions to perpetrators and the demolition of any constructions made.
The police authorities have the duty to comply and enforce the law and should prevent the illegal occupation and appropriation of beaches, beach front land, marine bottom and islands.
In many parts of the country there is a conflict with which the local governments (Municipalities) consider to be its property and what really is property of the Nation. Some Municipalities claim as theirs, certain land that is national land. Some others have sold such national land or have granted concessions over it, in clear violation of the law.
ADMINISTRATIVE CONCESSION ON RIGHTS OF POSSESSION
Provided that the land is not titled and not subject to a title, and before we can file a petition for a concession, an environmental impact study must be done and approved by the Natural Conservation Authority of Panama (ANAM), if the land under concession is ONE HECTARE (10,000.00 Square Meters) or more. In other words, if the land is under ONE HECTARE (10,000.00 Square Meters), no environmental report is needed, except when the land is going to be used for activities for which the law requires such report (For example: a restaurant or a hotel business). This report has to be prepared by an authorized or certified biologist in the Republic of Panama.
In standard situations, payment of US$ 375.00 in taxes to ANAM (Environmental Authority) for a Category I report is required. Higher categories have more requirements and therefore are more expensive and pay more taxes.
The requisites that are needed in order to get a concession approved, are the following:
1. Power of Attorney in favor of BUFETE BERROCAL.
2. Resolution of the Board of Directors of the applicant corporation authorizing the President of the corporation to file for a concession.
3. Good standing certificate of the applicant corporation, issued by the Public Registry of Panama.
4. Topographical survey or survey plan with the UTM coordinates.
5. Topographical description of the solicited area.
6. Certification issued by ANAM (Environmental Authority) whereby it is certified that the project is NOT a thread to the environment.
7. Certification from the municipal/police (Corregidor) authorities endorsing the occupation and application of the concession.
8. Certification from the Municipal Council endorsing the occupation and application of the concession.
9. Six (6) photos of the area or land from different angles.
10. Copy of the passport of the President of the applicant corporation.
Expenses and fees in connection with the filing of any concession and all related documentation vary from one case to another, depending on the extension of the land, purchase price, location of the property, among other things.
We suggest that any business, purchase of real estate property or concession be requested under the name of a corporation (Please see literature in connection with the operation of Panamanian Corporation in this web page). This will make it easier for future sale of the land and all purpose business activities, plus it limits the beneficial owners’ liability.
In order to proceed with the incorporation, you must provide us with the following information:
- Possible names of the corporation, which must include the words “S.A.”, “INC.”, “CORPORATION”, “A.G.”, etc., in any language and in order of preference, which will be subject to confirmation (availability at the Public Registry of Panama). Any name can be combined with any of the following complimentary words: INVESTMENTS/INVERSIONES; HOLDINGS; INTERNATIONAL/INTERNACIONAL; FINANCE/FINANZAS; OVERSEAS/ULTRAMAR; ENTERPRISES/EMPRESAS; DEVELOPMENT/DESARROLLO; TRADING/COMERCIALIZADORA; REALTY/BIENES RAICES; CONSULTING/CONSULTORES; MANAGEMENT/ADMINISTRACION; BUSINESS; VENTURES; CAPITAL. For example: BLACK INVESTMENTS, INC.
- Name and address of each director of the corporation, which must be a minimum of three (3) natural or juridical persons, or a combination of both. It is not necessary that the directors be Panamanians. They could be of any nationality and have separate domiciles in different countries.
If the client requires any other additional documentation, such as a power of attorney or “good standing certificate” of the corporation (Example: For the opening of a bank account), it will be billed separately.
Every Panamanian Corporation must pay an annual franchise tax [As of February 3, 2005, new legislation in the Republic of Panama (Law No. 6 of February 2, 2005) increased the annual franchise tax to US$ 250.00 for the first year and to US$ 300.00 for each consecutive year and regulated its payment] of US$ 250.00 for the first year at the moment of its incorporation and of US$ 300.00 for each consecutive year thereafter: a) before July 15th of every year, if incorporated between January 1st and June 30th; and b) before January 15th, if incorporated between July 1st and December 31st, to maintain the full effectiveness of the corporation. For all legal purposes, full effectiveness of a corporation shall be deemed to be it’s valid registration at the Public Registry of Panama.
Default on the payment of this tax will cause a fine of US$ 50.00 per year or fraction thereof, and will stop the registration and/or issuance at the Public Registry of Panama of any documents, certifications and/or resolutions related to the corporation. If tax plus fine (US$300.00 + US$50.00) are not paid before the corresponding due dates of the following year, it will cause an additional fine of US$ 300.00 per year or fraction thereof. If all taxes plus fines are not paid for ten (10) consecutive periods / years, the corporation will be automatically stricken from the record (Public Registry of Panama) and it will be considered legally dissolved and non-existent.
A commercial license type “A” will serve to develop whole sale commerce and any type of services inside the national territory of the Republic of Panama, including hotel services. That is, if the corporation is going to received income from sources inside Panama. If the corporation will only receive income from sources outside Panama, even if it is managed from/inside the Republic of Panama, no taxes will have to be paid and no license is required. Retail commerce has been exclusively reserved to Panamanians by Constitutional mandate. Other than that, foreigners can engage in any type of commercial licit activities inside the Republic of Panama.
Please be advised that retail commerce is reserved to Panamanian Nationals by Constitutional mandate. But on the other hand, some liberal professions such as medicine, law and architecture, among others, are also expressly reserved to Panamanian Nationals by law. However, any foreigner that has acquired Panamanian Nationality and that has complied with local regulations to practice a specific profession, may do so. Panamanian Nationality may be acquired after five (5) consecutive years of presence in the Republic of Panama with the status of an immigrant visa.
After the license is approved, any tourist related activities are entitled to important fiscal incentives. In order to benefit from those incentives, the applicant must file a petition before the PANAMANIAN BUREAU OF TOURISM. Details, expenses and fees can be provided upon request.
 Previously, by administrative disposition (Resolution No. 86-90 of December 28, 1990, issued by the Ministry of Housing) a public servitude of twelve (12) meters was established, in addition to the ten (10) meters between the high tide water mark towards main land previously described, for the construction of a public access or road to the beaches. However, this servitude of twelve (12) meters was eliminated by Resolution No. 148-2005 of April 26, 2005, issued by the Ministry of Housing. Now, the Ministry of Housing has reinstalled the servitude of the twelve (12) meters thru a new resolution (Resolution No. 234-2005 of August 16, 2005), but the full extent of such resolution is not clear yet. We are still analyzing the twelve (12) meters issue, among other things regulated in such resolution.
 Previously, this article considered of public domain and therefore, not subject to title, not only the flooded land by high tides, including mangroves, but also all land between the coast and two hundred (200) meters towards main land.