Panama: Due Diligence In Real Estate Transactions In Panama

Last Updated: 24 January 2017
Article by Ricardo Cambra La Duke

The economic bonanza of recent years has put Panama on the map once more, but this time as a destination for investors in the real estate market. Individuals and companies are all looking to purchase a piece of this tiny nation in order to develop it or just retire in it or have a second home. The global crisis may have slowed investments in the real estate market in Panama, but have not stopped it. In this sense, we keep receiving investors from other countries, like for example Venezuela and Mexico, thus it is only important to be prepared to provide the best advice possible to them.

As advisors in a real estate transaction, whether it is a deal in the thousands or in the multi- million dollar figure, we need to follow several measures before considering advising the client to sign a promise to purchase agreement or a final purchase agreement.

I. Legitimacy to Sell.

It is important to verify at the Public Registry that the seller, whether it is an individual, group of individuals or legal entities, is/are the legitimate owners of the property.

Where an individual or individuals are the owners of a property it is important to verify that their details are correct and that they have legal capacity to enter into obligations.

Where a company or other form of legal entity is the owner of the property, it is important not only to verify that the details are correct, but also that the company is in good standing, in existence and that the individual representing the company complies with the legal capacity refer to above.

II. Object of the Transaction.

Once the ownership of the property is verified, the transaction can continue is course and further due diligence must be made on the property itself when an individual or group of individuals owns the same. We will discuss this part further ahead in this section.

However, when the property is owned by a legal entity it is important to discuss with the seller the object of the transaction, whether it is the shares of the company or the underlying property.


Should the object of the sale be the shares of the company, it is important to review the corporate documents of the company as our experience indicates that in many cases errors and absence of important documents delay the closing of the transaction. The most common are the following:

  1. In many occasions the subscribers of the articles of incorporation are confused as shareholders and such is a mistake that must be corrected from the start. The subscribers normally transfer their right to acquire one or more shares of the company back to the company. The company later issues all the shares and allocates them to one or more shareholders.
  2. The shares are not issued following the correct procedures set forth in the Law. In this case, the board of directors must issue a resolution whereby it is agreed to issue the shares and proceed to their allocation.
  3. Meetings of the Shareholders are recorded on company public records without the existence of Shareholders.
  4. Absence of the corporate books (Minutes records and share registers).
  5. Absence of letters of resignation from directors and officers.

Further to the above, it is very important to have the seller agree to warrant the following by means of a Sworn Declaration or by entering a clause within the Promise to Purchase Agreement that would be only applicable to him:

  • That the company does not have any pending judicial proceedings.
  • That the company has not entered into any contract that would limit selling the property.
  • That the shares of the company have not been pledged.
  • That the seller is the legitimate owner of the shares where the shares have been issued to the bearer. In this case, having a certification of the custodian of the bearer shares is required.
  • That the share certificate (s) is/are the only one (s) in existence.
  • That the shares have been totally paid and liberated.
  • That the company does not have any debts or obligations of any nature.
  • That the sole asset of the company is the underlying property.
  • That the company is in good standing.


Whether the transaction involves the direct purchase of a property or like above, the purchase of the shares of the company that actually owns the property, it is of utmost importance to ascertain the following:

  1. Quite important is to ascertain that the property does not have any liens or encumbrances.
  2. That the property is actually on the location indicated on the maps and blueprints provided by both the seller and the records of the Cadastral Registry;
  3. That the details about the property that are publicly recorded, such as measurements, surface and others correspond to those on maps and blueprints provided by the seller. These details must also match those recorded at the Cadastral Registry.

Clients and many attorneys, I must say, overlook this part, however, we have seen many cases where a property physically appears not to have any problems, but when checking the data on maps at the Cadastral Registry against the data on a Property Survey conducted on the property, we ascertain that the property overlaps to the property next door or it is either smaller or bigger, which most definitely affects the selling price of the property.

  1. That the property itself is in good standing as it relates to taxes and utilities.

III. Taxes.

When a property is sold in Panama it immediately triggers a tax called the Property Transfer Tax, which is of 2% and payable over the updated Cadastral Value of the property, which is no more than the value that the government has recorded. Such tax must be paid prior to closing and signing the final purchase agreement that will be afterwards recorded at the registry for the purpose of transferring the ownership.

With the amendments to our tax system in 2005, a new tax was created. This would be an advance payment on income tax, which is of 3%. The seller may consider this tax as final and can further request a refund should this tax exceed the amount of tax that would have been paid if one applies a 10% tax to the capital gains.

The above taxes are payable by the seller.

The property must also be in good standing regarding the property taxes. If any are owed the government will not issue a certificate of good standing and the transfer will not be able to be recorded.

In the case of the sale of the shares the only tax that would be triggered would be the 10% income tax over the profits that result from the sale of stock of a company. In this case the buyer has the obligation to withhold 5% of the selling price and report it to the government within the next 10 days of the transaction. This 5% is discounted from the price to be paid to the seller who can in turn discount it by way of a credit to the 10% tax mentioned above.

Once the above measures are finalized everything should be in place to sign the final purchase agreement, however, make sure the parties finally comply with the following:


  • Submit the good standing certificate of the property.
  • Submit the good standing certificate from the water service.
  • Submit the good standing certificate from the homeowners association should it be a property subject to the Horizontal Property Regime.
  • Submit the good standing of the company should it be the case of the purchase of shares.
  • Payment receipt of the 2% Transfer Tax and 3% Income tax and the corresponding forms.
  • Should the owner of the property is a company then the seller must also submit a Resolution of the Board of Shareholders of the company that authorizes entering into the transaction and selling the asset.


  • Provide the necessary documents to identify him/her or the legal entity should it be a corporate buyer.
  • Pay the price agreed with the Seller following the parameters set forth on the Promise to Purchase and Sale Agreement.
  • Should the buyer of the property is a company then the buyer must also submit a Resolution of the Board of Shareholders of the company that authorizes entering into the transaction and purchasing the asset.

By taking the above measures one is making sure that the transaction will reach a happy ending and for sure you will have a satisfied client that will most likely return to your office for more advice and aid in future transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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