Financial Leasing of Real Estate in Panama

Law 179 of 16th November 2020 regulates a new form of financial leasing of real estate with the option to purchase the property in the future, which has been designed as a new financing structure to reactivate a sector of the economy that has sustained the consequences of the Covid-19 Pandemic, particularly in the construction of houses and buildings as living quarters or offices.

The Minister of Housing indicated that this new alternative for acquiring living quarters is designed particularly for young adults who “are not buying homes to grow roots”, since it is an important new option to purchase real estate without having to pay the initial deposit required by banks and other financial institutions, which is usually between 5% and 10% of the value or the property, and is a considerable obstacle for many young couples in Panama.

The most important provisions of the new legislation on real estate leasing are:

(i)      An individual may lease real estate by means of a purchase and sale contract without having to pay the initial instalment of a mortgage loan but the amounts paid as rental subsequently are applied to the price of the property when the actual purchase is carried out.

(ii)    The fiscal advantages include the exemption from real estate tax in the purchase and sale transaction, the exemption from ITBMS (Panama’s VAT) and from the Special Fund of Compensation for Interests (FECI) in certain transactions. (iii)   The sums paid by the lessee as interests are deductible from income tax.