Panama's real estate market has been growing during the last 10 years due in part to an increase in the promotion of Panama as a tourism and retirement destination. On any given day, Panama City's skyline is beaming with construction cranes for high rise buildings, comprised of both commercial and residential property. In recent years, the Pacific side beach areas are also being developed and marketed as second homes for residents and investments for overseas investors.

Panama is a country with population of 3.7 million divided into ten provinces, each of which is further divided into districts and corregimientos. Additionally, there are five comarcas, or special indigenous areas, for Panama's aboriginal tribes. The main cities are Panama City, the capital located in the Province of Panama, where most of the commercial activities of the country take place, Colon City located in the Province of Colon, home to the Colon Free Zone, and David, capital city of the Province of Chiriqui, where a significant part of the country's agriculture, cattle and farming activities are carried out.

  • Panama has the second largest and fastest growing economy in Central America, and also boasts the largest per capita consumption in Central America. Revenue from the Panama Canal tolls continues to be a significant portion of Panama's GDP, although commerce, banking, financial services and tourism are major and increasingly growing sectors.
  • The legal system in Panama is based on civil law with some influences from Spanish legal tradition and Roman law.
  • The Supreme Court of Justice is the highest judicial authority in the country.
  • Provinces: Bocas del Toro, Chiriquí, Coclé, Colon, Darien, Herrera, Los Santos, Panama, Western Panama and Veraguas.
  • Regions: Embera, Guna Yala, Ngobe-Bugle Comarca, Kuna de Magugandi y Kuna de Wargandi.

Owning Commercial Property in The Republic of Panama

The two main ways to acquire property rights in the Republic of Panama are: (1) Through the purchase of a title of property, which applies to properties duly recorded and with title in the Public Registry of Panama; or (2) through a process of obtaining title over a right of possession ("derecho posesorio") for property in areas without recorded titles. Panama has one of the most reliable and technologically advanced public registry systems in the region. The Public Registry Office retains records of all titled properties in the Republic of Panama, and information on titled properties is readily accessible through the Public Registry's website and access at their offices.

While most properties may be owned by foreigners or nationals, Panama's constitution forbids foreign ownership of property within ten kilometres on either border of the Republic of Panama. Additionally, it restricts private ownership of islands, save for those titles legitimately acquired prior to the entry into effect of the Constitution, which may lawfully be expropriated by the government through the payment of the corresponding indemnity. With respect to beach-front properties, property within 22 meters from the highest tide line on the Pacific coast and 10 meters on the Atlantic coast may not be titled, nor may permanent improvements be built on them, although concessions for their use may be granted. Property Acquisition The process to acquire a titled property in Panama is generally carried out in the following manner:

Due Diligence of the property - The buyer should complete a title search at the Public Registry, review the property maps in the Land Authority ("Autoridad Nacional de Tierras"), verify tax good standing of the property at the Ministry of Economy and Finance, verify that no late payments are due or accrued on utility bills, as well as verify any recorded limitation of the property, liens, and encumbrances over the property, which should appear registered at the Public Registry.  Promissory Purchase Agreement - This agreement is generally executed to secure the property, through a down payment of approximately 10% to 30% of the total purchase price, in order to have time to execute the due diligence on the property and obtain bank financing for the acquisition. The promissory purchase agreement may be a private document or it may be recorded in the Public Registry in order to affect third parties.

Purchase and Sale Deed - A definitive purchase and sale agreement is executed by way of a public deed before a notary public in the Republic of Panama, where the terms and conditions of the sale are recorded. The seller of the property will be responsible for providing evidence of payment of property transfer taxes, which will be reviewed by the notary public, and providing free and clear certificates for property taxes, utilities and condominium fees (if applicable). The buyer of the property is generally responsible for paying notarial fees and expenses, as well as the registration fees at the Public Registry. A copy of the notarial public deed is then filed for registration at the Public Registry. Upon registration, title to the property will have effectively transferred to the buyer.

Rights of Possession ("Derecho Posesorio") - For land and properties that are not titled, a separate process to obtain title over rights of possession must be conducted in order to hold a valid property title of the land. Rights of possession grant land use privileges which are essentially acknowledged based on the occupation, maintenance and use of the land over a period of time; however, they do not grant their holder title over the property. Rights of possession may be transferred to a third party through a public deed to sell the rights of possession.

The process of obtaining title over rights of possession may be a long and cumbersome process, within which its holder must prove to the Land Authority that he has used and maintained the land for a continued period of time. An inspection of the land is conducted, testimonies of neighbours may be required, amongst other elements to prove the existence of the rights of possession. Upon recognition of the rights of possession, a resolution from the Land Authority to that effect is registered at the Public Registry to constitute title on the property.


Lease agreements for real estate in Panama are governed by the principle of contractual freedom, the Civil Code of the Republic of Panama and by Law 93 of 1973, as amended to date.

The main types of lease agreements are:

  1. Residential Lease Agreements with a monthly rental fee of US$150.00 or less.
  2. Residential Lease Agreements with a monthly rental fee of more than US$150.01.
  3. Commercial Leases.

Lessees of the residential leases with a monthly rental fee of US$150.00 or less, have preferential rights and protection granted by Law 93 of 1973. For example, if there is a buyer for the leased property, if the lessee is in good standing regarding the payment of rental fees, he must accept the Lease Agreement. In addition, the rental fee cannot be increased by the lessor without prior approval of the Ministry of Housing.

For residential leases with a monthly rental fee over US$150.00 and commercial leases, the parties may contract by the principle of contractual freedom and the contract will only need to fulfill the main requirements stipulated on the leasing laws.

With respect to registration requirements, lease contracts may be private and registered with the Ministry of Housing, which provides a pre-printed lease form and allow the security deposit to be deposited with the ministry; or they may be registered at the Public Registry of Panama.

Lease agreements with a term of 6 years or more must be executed in a public deed before a Notary Public in the Republic of Panama and recorded at the Public Registry. Registration of the lease at the Public Registry is carried out to give notice of the existence of the lease to third parties.

Lease payments for commercial lease agreements are subject to a 7% service tax known as "Impuesto de Transferencia de Bienes Muebles y Servicios", or by its acronym ITBMS, payable by the tenant and reported to the tax authorities by the landlord.

Permits and Approvals In Panama, development and construction upon properties requires a series of permits, which will vary depending on the nature, scope and type of the project. The following permits are the principal authorisations to take into consideration before starting a project:

Environmental Impact Study (EIS) - Obtained before the Ministry of Environment, this study is required in order to obtain a construction permit from the Municipality where the property is located. The process of completing an EIS may take from 15 to 30 days or more and the study may vary depending on the type of project that is going to be developed. The EIS must be prepared by an independent environmental consultant duly certified or registered with the Ministry of Environment and submitted for approval of the said Ministry.

Construction Permit from the Municipality - Obtaining a construction permit is required prior to beginning any work on the property. The application is generally filed by the licensed architect of the project and reviewed by the Work and Construction Department, who must be provided with, amongst other items, the evidence of ownership of the property, evidence of existence and good standing of the companies who will develop the project, land use certification, approvals issued by the Fire Department Safety office, two copies of the blueprints of the project, approval of the Ministry of Public Works, and Ministry of the Environment, proof of registration of the applicant with the Technical Board and the municipal good standing certificate. The cost of the permit is usually 1% of the project value.

Occupancy Permit - Upon the completion of the project, an occupancy permit is required prior to use of the property or registration of any special property regimes. The Fire Department Safety Office conducts routine inspections during construction and must issue a final approval before the occupancy permit is granted by the Municipality, who will also inspect the construction. Once all the permits are issued, the owner of the property must register the improvements in the Public Registry, and apply for any special property regimes.

Special Property Regimes - Commercial and residential buildings in Panama are generally subject to the Horizontal Property Regime, where each individual apartment is granted a property number and each owner is part owner of the common assets of the buildings, such as the land in which the building is located and common areas. Application for this special regime is made before the Ministry of Housing and the resolution of approval of the regime must be recorded at the Public Registry.

Taxes Taxes in Panama are collected and managed by the General Direction of Income of the Ministry of Economy and Finance. Panama has made paying taxes easier for companies, allowing for payments of property taxes and transfer of property taxes to be made at the National Bank of Panama and other banks with a banking license.

When purchasing property in Panama there are several taxes to take into consideration, namely:

Property Transfer Tax - Transfer tax must be paid by the seller at the moment of transfer of the property. This tax is approx 2% of either the sale price stated in the purchase and sale contract or the registered property value, whichever is higher.

Capital Gains Tax - Capital gains tax is payable on the profits made by the sale of property at the rate of 10%. The seller of the property has the obligation to pay 3% on the sale price or the registered property value, whichever is higher, as an advance on the income tax payable on seller's capital gains. The seller has the option to consider the 3% tax payment as the definitive income tax to pay for the capital gains. If the sum withheld exceeds the amount resulting from the application of the 10% rate to the gain obtained from the sale, the seller may file a special tax return to credit the sum retained and claim the excess resulting as a credit in his favour.

Real Estate Taxes ("Impuesto de Inmueble") - All land located within Panamanian territory as well as improvements to them are subject to this tax, save the following properties intended for:

  • The State, municipalities or association of municipalities.
  • Autonomous or semi-autonomous entities, subject to its own regulations.
  • State-sanctioned worship or churches.
  • Public or social welfare programs.
  • Family Homesteads.
  • Treaty exemptions or State contracts.
  • Labour unions, provided the real estate is not used for profitable activities.
  • Those with taxable base (including improvements) not exceeding US$30,000.00.
  • Agriculture or cattle farming, if the registered value (valor catastral) does not exceed US$150,000.00.

Private educational institutions undertaking to offer scholarships to needy students and private hospitals undertaking to assist needy patients may deduct these sums from the tax amount to be paid.

The progressive combined tax rate and base for calculation is the following:

  • 1.75% of the excess of US$30,000 of taxable base, up to US$50,000.00.
  • 1.95% of the excess of US$50,000 of taxable base, up to US$75,000.00.
  • 2.10% of the excess of US$75,000 of taxable base.

The alternative tax rate and base for calculation of this tax, applicable to properties that have requested an appraisal for this purpose, is the following:

  • Up to US$100,000.00 in land and improvement 0.75%
  • Over US$100,000.00 1.0%

Real Estate tax must be paid according to the official assessment value, which is usually the declared value on the sale document. The maximum annual percentage of assessment is 2.10%, which is based on the value of the land and plus the declared value of the improvements built on it.

The taxable base will depend upon the total value of the land plus all improvements. Real estate transactions at prices of more than the appraisal value will automatically increase the value of the said properties for tax purposes. Certain properties and improvements to them are exempt or can obtain exemptions from real estate taxes according to special incentive tax laws.

Newly built properties may further benefit from exemption of payment of real estate tax over improvements (but not land).

This article was first published in the ADVOC – A Guide to International Real Estate Investment (February 2016). Read the complete guide here (Click)

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.