Property taxes in Panama: Moratorium
For about a year now, Panama has debated decentralized government. It will use property taxes to assist local city councils in this endeavour. Resistance to change has been very vocal, especially as scaremongering occurred: You will lose your homes. If you fail to pay your property taxes, your home will be taken from you. This is just another measure of expropriation. At the end of August, Bill 509 was sent back to first debate for re-drafting after a public outcry. It went through a lengthy second debate. Bill 509 was approved by the legislature in its third debate. It now awaits signing into law by the President, Juan Carlos Varela. We expect it to be sanctioned by the President and published, as there is no pressure for veto or further debate.
Bill 509 – 2017
The principal debate centered on an article removing the tax exemptions enjoyed by Free Trade Zones. “Free Trade Zones” refers to Processing Zones, Baru, Colon FTZ, and Panama Pacifico. Most of the Chambers of Commerce in Panama objected to modifying their tax treatment. They alleged it is important to have legal certainty for foreign investors. Although these changes were forward looking, they modify all of the special laws which had established these Free Zones. A key concern is investment: private investors in infrastructure will be scared away if changes are made. The Free Trade Zones have been hit hard in recent years by other economic factors, some of which have decimated sectors of the business.
For home owners, however, Bill 509 promises a large reduction in property taxes. In some cases, a reduction down to 0%. For most, the reduction will be 75%, and for some of the higher valued properties, only a 50% reduction. As it stands, Bill 509 establishes the following tax rates for primary family residences:
- 0% for homes valued under $120,000.00
- 0.5% for homes valued between $120,000 and $700,000
- 0.7% for homes valued over $700,000.00
These new tax rates apply as of January 1, 2019. This is because before that date, property owners must present to the Tax Department their affidavits regarding this being their “primary residence” or “family home”, to establish it as the residence that receives these new rates.
However, a property owner with more than one property, will be eligible for these new tax rates only on their primary residence. The following rates apply to weekend or holiday homes, investment, rental, commercial or industrial properties:
- 0% – less than $30,000 (this stays the same)
- 0.6% for properties valued between $30,000 to $250,000
- 0.8% fo properties valued between $250,000 to $500,000
- 1.0% for properties valued over $500,000.00
Even for properties in the highest bracket, this is a reduction from the highest existing tax rate on properties of 2.1%.
Bill 509: improved collections
One of the changes that Bill 509 introduces that will assist with collections is that it appoints banks & mortgage financing companies as tax collectors. This does not apply to first time home buyers, but does apply for all other purchasers. Banks will add the property taxes due to the monthly fees, interest and principal calculated and will include the tax in the monthly payments. The bank will then remit the property taxes to the respective tax office.
Bill 509 also establishes that there will be no appraisals carried out on property values until 2024, allowing 5 years at current property values. Nevertheless, I would expect that after 2024, there is a general move by the tax department to get updated appraisals on all properties for the purpose of collections.
Good news: Moratorium
For anyone that owes property taxes, the good news is that there is a moratorium until December 31, 2017 to get up to date. This moratorium ensures that you only pay the actual taxes that you owe – they are writing off the interest and penalties if you pay all of the property taxes that are owed. For some property owners, this will be thousands of dollars in savings.
Gray & Co. will provide an update once the law has been sanctioned & published. We are also available to assist clients in getting up to date with the payment of their property taxes, taking full advantage of the moratorium that is being offered.
In 2018, our office will be available to assist clients in registering their primary residence under this new law in order to take advantage of the new tax rates.