Panama’s thriving real estate market has garnered the attention of investors seeking lucrative opportunities in the Latin American region. For those considering investing in rental properties, understanding property tax regulations and the income potential from rental properties is crucial. In this article, we explore the property tax system in Panama and delve into the potential income opportunities from rental properties in this dynamic and diverse country.
Property Tax in Panama:
Panama’s property tax system is relatively straightforward and investor-friendly. The property tax is known as the “Impuesto de Inmueble” and is levied on both residential and commercial properties. The tax rate is based on a Progressive Combined Tax scale, ranging from 0.5% to 1% of the property’s registered value. However, there is a tax exemption for properties with a registered value of up to $30,000, providing relief to smaller property owners.
One of the key advantages of Panama’s property tax system is that under the current Law 66 from 2017, it is capped at 1% of the registered value. This cap ensures that property owners do not face exorbitant tax burdens, making it an attractive proposition for both local and foreign investors.
Under Law No. 66, properties destined to be the main residence of the owner defined under the Family Code of Panama as “Primary Residence” or “Family Tributary Patrimony”, valued up to $120,000 are exempt from property taxes, encouraging investment in affordable housing initiatives. The owner can be a person or legal entity.
Furthermore, Panama offers generous tax incentives for new construction projects such as up to 20 years of tax exemptions for those projects with a construction permit issued between 2012 and December 31st, 2018. This exemption applies to the portion of the registered value corresponding to the construction and improvements, not the land value.
Properties under the horizontal property regimen in Spanish “Regimen de Propiedad Horizontal (PH)” such as condominiums or gated communities, with tax exemptions for up to 20 years on the value of the construction, must pay 1% of the registered value of the land corresponding to that property while the exemptions last, once the applicable exemptions are over they will continue to pay taxes for the full registered value, land and construction improvement at the current rates.
