Following on the announcement back in October, President Varela has now signed into effect the single biggest reform to Panama’s Property Tax laws in 40 years.
The new law kicks in on January 1, 2019 and modifies the tax rate levied on properties throughout the country, promising serious savings for homeowners — regardless of citizenship.
As we wrote in our analysis back then, other aspects of the new law are already in effect, including a moratorium on penalties and interest through the end of 2017 on any outstanding property taxes owed — we hope you took advantage of that already last year!
Here’s the lowdown on the Panama property tax rates — primary and secondary residences, exemptions and more
The law increased the 100% exemption to properties valued at $120,000 (up from $30,000) for primary residence, meaning properties under that threshold will be fully exempt starting January 1, 2019. The rates step-up from there as follows:
Primary residences:
$0 – $120,000 = exempt from taxes
$120,001 – $700,000 = 0.5% tax rate
$700,000+ = 0.7% tax rate
Meaning… if your home is valued at $350,000, you’d pay 0.5% on $350,000 minus $120,000. That’s $1,150 in property taxes a year.
Secondary residences and commercial and industrial properties:
$0 – $30,000 = exempt from taxes
$30,001 – $250,000 = 0.6% tax rate
$250,001 – $500,000 = 0.8% tax rate
$500,000+ = 1.0% tax rate
The Why for President Varela
As we stipulated in our previous analysis, President Varela has made it his mission to formalize the titling of properties across the country — meaning land that has hitherto been untitled and simply held under laws of possession, but also: untaxed. Since a vast majority of landholdings in Panama fall under the $120,000 threshold, the move should help correct this “informal” system and pave the way toward a more modern and formal landholding — and accounting — regime, including better protections for owners with titled land.
Panama has also been getting pressure from the World Bank and other lending institutions to step up their game on collecting the millions of dollars of unpaid property taxes that owners usually just sit on until they need to sell.
Come 2019, the tax-notification system will most likely be connected with the banks in the case of a mortgage on a property. It remains to be seen how property owners with no mortgages will be notified of their tax bills.