Buying property in Panama is safe and easy - foreigners enjoy the same property rights as Panamanians. There are over a dozen laws in the country that have been enacted to specifically protect foreign investors. Panama's constitution also protects private property and its owners. Every year, thousands of property transactions are conducted without problems.
Quite often, English-speaking purchasers become concerned that their contract will be in Spanish and they will miss something vital in the contract. However, Panamanian law does not require a real estate purchase contract to be in Spanish to be legally enforceable.
If a legal dispute does arise over the contract, however, it must be translated into Spanish by a licensed translator. Many law firms draft the original contract in Spanish and deliver a translated version at closing so that English clients feel more comfortable.
The first step to buying a property in Panama is for the buyer to enter into a preliminary contract called the Promise to Buy and Sell (Promesa de Compra y Venta). Both the seller and the buyer must sign the contract. Generally speaking, the buyer will be required to pay a deposit or down payment (arras) of about 10% of the purchase value at the point the contract is signed.
Signing of the preliminary contract makes the agreement legally binding and if the buyer fails to honour the contract, other than exemptions specified within the contract, his or her deposit will be forfeited. On the other hand, if the seller fails to abide by the contract he or she will have to pay back double the amount of the deposit/down payment.
Once the preliminary contract has been signed, the next step is to obtain a Non-Encumbrance Certificate and a certificate of good standing (paz y salvos) from the general Cadastral office (Catastro). The certificate of good standing proves that all the taxes and service bills have been paid up to date.
After the procurement of above two certificates, the vendor’s lawyer prepares the sale agreement (minuta). This agreement needs to be stamped by a lawyer in Panama before the agreement can be executed as a public deed.
The next step is to pay the transfer tax, if not exempted under law, at the Ministry of Economics and Finance (Ministerio de Economia y Finanzas).
The notary (notario) then notarizes the sale agreement and prepares the public deed (escritura). It is mandatory that all transfers of property are notarized and signed by both the seller and the buyer in the presence of the notary. The Public Deed is then filed and recorded at the Public Registry Office in the name of the buyer. A copy of the recorded deed is filed at the Cadastral Office to record the new owner for tax purposes.
You should seek the advice of a qualified attorney in Panama to manage the title search on the property and gather all the necessary documents.
Your solicitor should then prepare a contract to lock in the sale of the property and terms as agreed upon by you and the seller. Depending on the seller's terms this may also be the point where you give your deposit to the seller.
What are the costs involved in buying a property?
The total costs of the transaction are likely to be at least 3% of the purchase price and may be as high as 8% if the property is cheap or the work involved in identifying the ownership of the title to the property is especially onerous. This estimate of costs includes fees, taxes and the usual ancillary costs.
The Panamanian government charges a 2% tax for the transfer of a property's title. That amount is based on the value of the property as recorded in the deed of sale. As with any real estate transaction, in Panama, you'll most likely pay other fees for notary publics as well as the public registry. These fees will be in the region of $200 to $300 for the sale of real estate in Panama.
It is customary for the seller to pay the property's transfer tax, however this can be negotiated and, on occasion, the seller may insist the buyer pay that fee.
Usually, each party pays their own closing costs. However, in some cases the seller and buyer negotiate terms whereby one or the other pays all the costs.
While it is legal for foreigners to own property in Panama using their name, it is advisable that those about to purchase property do so in the name of a Panamanian corporation for protection of assets and income tax reasons.
Possession rights (different than a title) should always be held in the name of a Panamanian corporation, and the foreign person/purchaser should be listed as the shareholder of the corporation. An attorney can assist with the process.
Closing costs can vary greatly from transaction to transaction. In general closing costs in Panama include:
• A legal property transaction fee in the amount of $1,200 USD.
• $250 - $350 for the public registry title transfer fee.
• 0.5% to 1% of the transaction fee set aside in escrow.
• A $1,000 incorporation fee (plus tax) to set up a Panama corporation
If the property is already owned by a Panamanian corporation, then point 4 above is not necessary.
