Law No. 66 of the 17th of December, 2017, Decree No. 362 of the 29th of November, 2018 and Decree No. 363 of the 4th of December 2018 have established new criteria for taxation purposes. Families living in Panama in real estate described as “family patrimony” or every national or foreign person, with or without a spouse or children, who has a home in order to live in it permanently can register it as “main residence” and request their exemption from payment of real estate taxes, an exception or a lower tax rate.
The taxation reform establishes exemption from real estate tax for owners of real estate property with a taxable worth of one hundred and twenty thousand U.S. dollars (U.S.$120,000) considered family patrimony or main residence. In addition, a real estate income tax exemption is granted for a period of three (3) years to real estate with a cadaster value amounting between one hundred and twenty thousand U.S. dollars (U.S.$120,000) and three hundred thousand U.S. dollars (U.S.$300,000) when the real estate is acquired by the individual or the legal entity as the first time a residence is purchased.
The first three (3) years are to be counted as from the date of issuance of the permit to live in the property or the date of its registration in the Public Registry, whichever takes place first. When the first purchase of a home is a second-hand real estate, the three (3) years exemption shall be counted as from the registration of the purchase-and-sale deed is registered in the Public Registry.
In the case of second residence or other real estate with a cadaster value of more than three hundred thousand U.S. dollars (U.S.$300,000), tax rate shall be lower than it has been up to now.
The family patrimony is defined as a “legal institution whereby a reasonable amount of assets are used for home protection and sustenance of the family as a consequence of marriage or a legally recognized non-marital union; and the main residence is defined as “the one for the permanent use of a natural or juridical person, for housing purposes, that is not family patrimony, for tax purposes.”
The law contemplates benefiting the main property in which a family or a person, natural or juridical, who has bought the property for their own use, so none of the members of a couple can maintain more than one residence as family patrimony neither as a main residence, even if the debtor or the owner of the property is only one of them.
The application that must be submitted to the Panamanian Tax Authority (DGI, by its initials in Spanish) must also include an affidavit with full data of the individuals that form the family patrimony in a form established by the ‘DGI’ concerning the use of the home to be family patrimony for taxation purposes, together with the other requirements to be submitted according to each case.
Generally, this legislation covers several important details:
• The fiscal benefit only applies to the real estate to be used for home purposes.
• The fiscal benefit does not apply to any real estate deemed to be a commercial site.
• For submitting the application, the applicant’s and the real estate’s Tax Identity Number (NIT) are required.
• Other real estate not intended for inhabiting shall benefit from lower tax rates.
• The cadater value of the property does not have to be updated and the certificate of no-outstanding-tax doesn’t have to be included.
• Banks, trust companies, financial institutions, co-ops and other institutions may act as tax retention agencies but only for real estate used as second residence.
In its Decision of the 27th of December, 2018, the Third Section of the Supreme Court of Justice ordered a provisional suspension of Articles 8 and 9 of Decree Law No. 362 of the 29th of November, 2018 concerning tax retention by banks, trust companies, financial institutions, co-ops and other institutions acting as real estate tax retention agencies.
• Any real asset benefited by the real estate tax exemption, and applying for this fiscal advantage, must renounce the exemption granted previously.
The fiscal benefit granted to family patrimony or main residence is in force and effect as from the 1st of January, 2019. The General Directorate of Income Tax is now accepting applications to benefit from this fiscal incentive. The applications are to be submitted through the tax information system eTax 2.0.