"No property tax for 20 years!"
The Panamanian Government announced on Friday 21st December 2007, the reinstatement of the 20 year Tax exoneration on all properties whose construction permits are issued by December 31st, 2009, giving an additional boost to an already robust real estate market. Needless to say, this is great news for buyers. Note: As of March 1, 2008, the extension to the Tax Exoneration has not yet been signed in to law. Stay tuned for updates.
However, it is extremely important that I explain that the property tax exoneration is applicable to the value of the improvements construction only and
not applicable to the value of land. Meaning, if you buy a newly built, single-family home, you will be paying real estate taxes on the value of the land from Year 1, but will not pay property tax on the actual home for 20 years.
What are the Tax Rates on Land?
The tax rate is based on a sliding scale as follows:
|
Value |
Tax Rate % |
$$ |
|
$0.00 - $30,000 |
0.00% |
$0.00 |
|
$30,000 - $50,000 |
1.75% |
$350.00 |
|
$50,000 - $75,000 |
1.95% |
$487.50 |
|
$75,000 - up |
2.10% |
|
Some Examples:
Example 1: $500,000 Single-family Home
If you were to purchase a brand new single family home worth $500,000 [$150,000 land + $350,000 house], you would get a tax exoneration on the house for 20 years, but you would need to pay the property taxes on the land from day one. Based on the aforementioned tax rates, the tax amount on the land would be $2,412.50 per year.
How did I get to this number?
If you refer to the Tax Rate table above, you will see that there are different tax rates for different values. Therefore, based on a land vale of $150,000 [as per the example above] you would need to calculate as follows:
-
The First $30,000 of the land value is exempt from tax.
-
The next $20,000 is taxed at a rate of 1.75%, which works out to $350.00
-
The next $25,000 is taxed at a rate of 1.95%, which works out to $487.50
-
The balance $150,000 - $75,000 = $75,000 is taxed at a rate of 2.10%, which works out to $1,575.00
-
Now you have to add up the dollar amounts above: $350.00 + $487.50 + $1,575.00 giving you a total of
$2,412.50 per year in property [land] taxes for the first 20 years.
After your 20 years are over, you would use the same formula and rates as above based on the total vale of the house and land together, or, as in this example, $500,000. In example 2 below, we show what the property taxes would be for a $250,000 condo after the 20 year exoneration expires. The formula used to calculate the taxes is the same as the example above.
Example 2: $250,000 Condo
|
Year |
Land |
Building |
Total |
% of Total Value |
|
1-20 |
n/a |
$0.00 |
$0.00 |
0.00% |
|
20 + |
n/a |
$4,512.50 |
$4,512.50 |
1.80% |
Is the tax exoneration transferrable if I sell my property after a few years?
The tax exoneration is provided to the property and not to the owner, therefore if you were to sell your property after, say, 5 years, then the new owner would have the remainder of the tax exoneration or, in this case, 15 years.
If you are still confused about how much property taxes you have to pay and when - don`t worry as you are not alone. Before you buy any property in Panama contact
info@thinkpanama.com for your
Free Property Tax Evaluation.
For All your Panama Real Estate, Panama Investment and Panama Lifestyle needs, contact
Douglas M. Choy at
ThinkPanama.com. He will be happy to provide any guidance and information you may need.
