Law 66 (2017): Property Taxes – part 1

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Law 66 (2017): Property Taxes – part 1

Law 66 (2017) was finally published on October 17, even though it had been approved by the Legislature almost a full month beforehand.  This law introduces two impactful changes to property taxes, as well as giving property owners a moratorium until December 31, 2017.  I will deal first with the Moratorium, and then will get into the details of the changes introduced by Law 66.

Moratorium (in effect already):

Effective immediately, Law 66 (2017) brought into effect a moratorium on penalties and interest due on property taxes. Property in Panama is taxed yearly, payable in 3 equal parts (April 30, August 31 and December 31 each year). Failure to pay on time automatically incurs in a 9% interest per annum, plus penalties. Many property owners opt to simply allow the tax  and interest to accrue until they are ready to sell the properties, as the Tax Department has not been effective in collections. We are seeing this change with the modernisation and computarization of the Tax Department.

Also note:
if you pay your property taxes each year (a single annual payment, rather than in 3 parts) before the end of February, you can receive a 10% discount on the total amount of tax due.

Apply for Moratorium:

This moratorium is easy to apply for (it must be applied for, it is not “automatic”) through the Tax Department’s online system: eTax2. Basically, you log into the property with it’s tax ID number and NIT (password or code) and then simply press the button that appears for (Moratorium).  This will provide you with the total amount which is due, excluding the penalties and interest, so that you can proceed with the payment.  This has to be done for EACH property individually through the system, it cannot be done through the owner’s tax ID.  If you do not know your property’s tax ID or NIT, then you need to get this through the online system or set it up so that you have access to this before you can apply.

It is imperative that payment of the taxes be made before the end of the year if you want to take advantage of the cancelling/exemption from the penalties and interest which may be due.

This moratorium ends December 31, 2017.

Law 66 (2017) – the principal changes introduced:

The principal changes which are introduced by Law 66 are a reduction in property tax rates. Until this Law, Panama’s property tax was as high as 2.1% – which means that a property worth $500,000.00 could pay as much as $10,500.00 in property tax each year (almost $1,000.00 a month). Obviously, a $2,000,000 property would pay $42,000.00 a year. Under the new law, coming into effect on January 1, 2019, the maximum rate, even for commercial or industrial property is 1%, less than half the previous rate.

Primary Residence / Family Home

Until now, any home or property valued at least than $30,000.00 paid 0% property tax in Panama, and then above that taxes were due on a sliding scale, starting at 0.7%. This 0.7% is now the highest rate for a family home or primary residence (starting January 1, 2019). The $30,000.00 exemption is still recognised on all properties (as long as the total value of the property – land + improvements – remains under $30,000.00.  However, over the $30,000.00, where the property (land and improvements) is worth less than $120,000.00 and is your family home (as defined by the Family Code) or primary residence (for a single person or others who don’t qualify as “family”), then you are entitled to the 0% property tax rate.

If your property is worth MORE than $120,000.00, then there are 2 brackets:

  1. over $120,000 but less than $700,000; and
  2. over $700,000.00

Law 66 (2017), property taxes, tax rates, tax exemption, primary residence, ,family home, homestead, moratorium, exemption, property tax

For a property (land and improvements) valued at less than $700,000.00 the applicable tax rate will be O.5%.  Over $700,000.00 the applicable tax rate will be 0.7%.  These, however, are sliding scales, which means that from $0.00 to $120,000.00 you apply the 0%, then from $120,000 to $700,000 you apply the 0.5% rate, and then whatever the value is over $700,000, you apply the 0.7% rate.  See the following example:

Law 66 (2017), property tax payable, property value, tax rate, calculate tax payable

It will be necessary to present documentation to the Tax Department certifying that this property is your family home or primary residence for this special tax rate to apply under Law 66 (2017). It will not be automatic and it will not be retroactive (if you forget to apply and then apply later).

Second residence, holiday homes, commercial & industrial properties

For those properties that do not qualify as a family home or primary residence, the tax rates are also reduced as of January 1, 2019.  The applicable rates are the following:

  • 0.0% – up to $30,000.00
  • 0.6% – from $30,000.00 to $250,000.00
  • 0.8% – from $250,000.00 to $500,000.00
  • 1.0% – over $500,000.000

As explained for primary residences, this is sliding scale, so calculation is necessary for each range of values.

What about my Tax Exemption that I already have?

Law 66 (2017) also contemplates those cases (primarily new condos and homes) where they have an existing property exemption on the improvements (such as the 20-year exemption). In these cases, the properties are grandfathered into those exemptions until they expire.  So, if you property exemption on the improvements is in place until 2025, the new tax rate will come into effect for you in 2025, rather than on January 1, 2019. The land (in the cases of such condos) will continue to pay the 1% rate that is applicable until such exemption expires.

Final notes: first home buyers & mortgage holders

Two more interesting notes:

  1. First home buyers: for the first 3 years will have an exemption on the property value up to $300,000.00 (not just $120,000.00) on their primary residency / family home. At the end of the 3 years, the usual rates will apply.
  2. Mortgage holders (banks, mortgage companies, trust companies)  will be responsible for charging the home owner (as part of their monthly payments) their property taxes due and paying these in directly to the tax department on behalf of the property owner.

We originally wrote about this topic as Bill 509, before it had come into effect or was published.