Bill 509: 2017 – Panama Property Tax changes

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Bill 509: 2017 – Panama Property Tax changes

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. Last night, 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.

Property Taxes:

primary residence, family home, Bill 509, Panama property taxes, property tax, real estate, property purchase, land tax, tax exemptions, Panama lawyers, Panama real estate lawyersFor 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.

Foreign professionals working in Panama

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Foreign professionals working in Panama

It would seem that drafting and knowing how to write is everything. A better draft or ability to write clearly could have avoided many problems.  At the beginning of September, there was furor among Panamanian professionals. The Ministry of Commerce published a resolution authorizing Multinational companies to hire foreign professionals… or so they said. I read headlines such as: “Opening to foreign professionals will impact the middle class”. The negotiations regarding TiSA (Trade in Services Agreement, a proposed international trade treaty) caused this furor, particularly with Panama’s measures to qualify. Panama participates in the TiSA negotiations with 23 members of the WTO. These negotiations continue in December 2017, after being stalled by the US.

Multinational – requirements for headquarters in Panama

The licensing commission for Multinational Company Headquarters issued a resolution for Multinationals. This resolution indicated the new qualifying requirements. One of the requirements is to have 2,500 professionally qualified employees. However, this resolution indicated that said professionals needed to be qualified in their countries of origin, without needing to be verified by respective professional boards in Panama. Specifically, this resolution indicated that the foreigner would be considered qualified if they had a Bachelor’s Degree, a Master’s Degree or Doctorate, or were duly licensed to practice in their qualifying country.  The reactions from professional guilds were hat this would affect not only the working class, but also the middle class.

This discussion seemed to miss the purpose of the requirements entirely. Multinationals are not required to have 2,500 professionally qualified employees in Panama in order to qualify. They must have 2,500 professionals in their offices, worldwide, in order to qualify. It is therefore obvious that such professionals would be duly qualified in their respective nations, and not Panamanian nationals. The second major requirements is a capitalization of 200 million US dollars.  The new resolution sought to establish that for those multinationals that did not qualify with a consolidated capital of 200 million, they could qualify if they had the 2,500 professionals worldwide. After reviewing the wording of the resolution, Panaman’s Law Society (Colegio Nacional de Abogados) requested that it be redrafted.

Foreign professionals in Panama

Panama is a small market: we have a population of only 3.9 million (depending on which day of the week you count). This means that the professional workforce also has its limitations when there is unexpected growth in some industries. Studies have shown that Panama does need foreign professionals to meet these labor needs. Official sources indicate that Panama lacks some 159,000 specialized professionals for the needs of the country. But there is also resistance to allowing foreign professionals to come work in Panama, with the fear that “they will steal all the good jobs”.

Of course, for the executives and employees of Multinationals who have qualified under the special licensing rules: there are special rules and exceptions. It is possible for a multinational company to hire a professional, duly qualified to do the job internationally, have them working in Panama, and they simply are not allowed to sign off on documents in Panama (i.e. a lawyer could work in-house for a multinational, but would need a Panamanian lawyer to sign off on any legal documents for Panama).

Salaries in Panama

It is important to understand the idiosyncrasies of the Panamanian labor market. Salaries for highly qualified jobs pay less than in North America or Europe. Executives of the multinationals are among the highest paid employees in Panama: these jobs are highly coveted. English and Spanish are essential: for working internationally and locally in Panama. One of the biggest constraints to foreign employment is the 10% and 15% limits established for work permits and immigration: a Panamanian company can only have 10% maximum of its workforce (averaged out over salaries, not just the number of employees) as foreigners. For highly technical staff or experts in a field, this increases to 15%. Additionally, some professions are exclusively reserved for Panamanians: for example, medicine, dentistry, nutrition, pharmacy, accounting, psychology, architecture, journalism, and law.

The minimum wage in Panama is between $500.00 to $700.00 (lower for some areas of the economy, such as domestic help). Normal working hours are 8-hour days (9 hours including lunch hour) and overtime for more than this. Additionally, there are special rules regarding shifts starting or ending before 6.00 a.m. or 6 p.m., and there are not rules regarding flexi-time (which basically ensures that employers avoid it, because the Labor Code specifies that the employee is always right). So, if you had an employee that worked 12 hours Monday and then 4 hours Tuesday and they alleged that 4 hours of the time worked on Monday was overtime, the employer could be liable to pay this. There are companies working with flexi-time, but it is outside of the archaic constructs of the Labor Code.

Real costs versus “salary”:

Additionally, Panama offers 30 days (calendar, not working) holiday pay each year and additionally pays the 13th month. When you calculate the cost of an employee (contingent liabilities plus Social Security costs), you should expect this to cost about 1.41 times the actual declared salary. So an employee earning $600.00 a month, with contingent liabilities calculated, costs about $850.00 a month. An employee earning $700.00 a month costs the company about $1,000.00 a month, with contingent liabilities.  These are rough estimates.

Average salaries:

According to figures released in August 2017, the following are average salaries:

  • $2,435.00 – Multinationals
  • $1,085.00 – Mining companies
  • $1,063.00 – Education (includes universities & private training)
  • $1,029.00 – Doctors, medicine & health
  • $985.00 – Finance (banking sector)
  • $681.00 – Average monthly salary

Of course, as mentioned, these are the averages.

New resolution:

On the 12th of September, the same MICI office that had issued the “problematic” resolution mentioning 2,500 foreign professionals, issued a new resolution. This resolution left the previous one without effect, and presented different requirements for Multinationals wishing to be established in Panama.

These requirements are:

  1. capital of 200 million USD or more
  2. presence in 40 countries or more

There is no mention in the new resolution of the number of foreign professionals working for the multinational.  The new resolution is Resolution No. 20-17 (Sept. 11, 2017).

For more information regarding the requirements to establish Multinational offices in Panama or for foreign professionals to work in Panama, please do not hesitate to contact our office.

 

 

Onsite inspections: AML and Anti-Terrorism enforcement

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Onsite inspections: AML and Anti-Terrorism enforcement

AML rules & enforcement

In July 2017 the Indendance for the Supervision & Regulation of Non-Financial Persons adopted resolution JD-REG-001-17. This resolution sets the procedures for onsite inspections, reviewing procedures and documentation for compliance with Law 23 (2015).

Background

As explained in a previous post, Law 23 set up the Intendance and regulated the types of businesses and professionals supervised by the Intendance. This included companies in the Free Trade Zones and Panama Pacífico. Likewise, it included real estate developers, realtors, lawyers & accountants.  In particular, Law23 adopts measures to prevent money laundering and financing of terrorism. Article 13 of the Law charges the Intendance with supervising and regulating “non financial persons”.

Artice 13 of Executive Decree 361 (2015), adopted following Law 23 (2015), establishes that as part of supervising, the Intendance will carry out onsite inspections of these non financial persons.  It also provides for off site inspections, where there is simply delivery of documentation and reports to the Intendance’s office.  The intendance requires access to relevant and pertinent information in order to measure the effectiveness of the controls put in place. This is particularly important in higher risk business models, to ensure compliance.  With this in mind, the Intendance established in JD-REG-001-17 the guidelines for requesting information or documents as part of inspections.

Onsite Inspections

In order to undertaken an inspection, whether onsite or offsite, the Intendance must notify in writing. The time frame for the inspection, the scope and the documentation or information being requested are required in the letter. It must also indicate the format to be used (if applicable).

The person or entity under inspection must deliver the information or documentation by the dates required, in the requested format. Originals, copies, electronic format or any other means of delivery must allow the intendance to get a clear and real view of the situation the transactions being supervised.  The intendance may request documents be translated to Spanish.

Late & incomplete compliance

Compliance which is provided late or not at all will be considered to have failed to comply.  If the information or documentation requrest is incomplete, illegible or in a format different to the one requested, sanctions may also apply.

Costs of inspection

At this time, we have no idea of what the actual cost of inspections will be, although it is understood that the Intendance (similar to the Banking Superintendent) charges the entities that are under supervision for doing onsite inspections. They are charged for the manpower required to be in their offices for the time spent there. Other indirect costs are space, internet & phone connections that must be provided, and the staff that need to be assigned to assist and provide the inhouse documentation that is being inspected and reviewed.

Our firm is able to assist with compliance manuals, preparation of policies and procedures and preparation for such inspections.

 

 

Corporate bank account in Panama: opening and operating

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Corporate bank account in Panama: opening and operating

Opening Corporate bank accounts in Panama

Last week, our post dealt with opening personal bank accounts in Panama. This week, we will look at how to open a corporate bank account. It is important to note that there is a difference between locally operating companies and offshore corporations, especially in the banking industry. Some banks in Panama will only open accounts for corporations with an “aviso de operación” – business license. That is a company that operates locally and is subject to local taxes. On the other hand, some banks will only open accounts for offshore companies. It is no longer easy to find banks that are working with both onshore and offshore business.

Among the issues that banks consider are:

  • FATCA compliance
  • Cost of Know Your Client and Due Diligence
  • Profile of the account – will the bank make money?
  • Is this type of business in the normal line of business of the bank?
  • How much money will pass through the account versus how much money will stay in the account?

Requirements: opening a corporate bank account

Many of the requirements for a corporate bank account are similar to those requested for the personal bank account. But in the case of a corporate account, the bank will want all documentation taking it back to the controlling interest or ultimate beneficial owner.

Keep it simple:

Imagine, for a moment, the following structure:

UBO, corporate structure, ultimate beneficial owner, know your client, asset protection, shareholder, directors, officers, account signatory, beneficial owner, beneficiary, controlling interest, controlling person, decision makers

While this may look really “pretty” from the perspective of asset protection or estate planning, it is a nightmare for the compliance officer at the bank. Supposing that you are opening an account for the Panama corporation under the holding company, the bank needs to receive documentation for:

  1. Your Panama corporation – each one of the three directors, the account signatories, and the copies of the corporate documents;
  2. The share register that shows who “owns” the company – a holding company. Now they need the corporate documents for the holding company, with the due diligence and know your client details for each of the directors, shareholders, and officers of this company.
  3. The shareholder of the holding company: a foundation. They need the incorporation documents of the foundation, the details of each member of the Foundation Council, the Protector and possibly even the founder.  And they still haven’t arrived back at the Ultimate Beneficial Owner.
  4. The bank ultimately wants to know:
  • who has the controlling interest?
    • which person is calling the shots?
    • who is the decision, maker?

In conclusion, for the bank: simple is always better. Your asset protection or estate planning needs can be taken into account, but you should be able to explain the structure easily to the customer services representative at the bank.

In a corporate structure with multiple shareholders, you will need to provide know your client details for any shareholder or controlling person holding over 10%. Additionally, if the shareholder or holding company is a publicly traded entity, expect to provide proof of this. Make sure you have the proper authorization for establishing the subsidiary (resolutions) and authorized persons on the account.

Basic account opening requirements:

So, ignoring the complicated structure outlined above, what does the bank require?

  1. Corporate account opening forms (the bank will supply). There may be some 6-10 pages which need to be completed.
  2. Copies of your incorporation documents: articles of incorporation, resolutions.
  3. Copy of the share register
  4. Extract from the public registry – known by many as a Certificate of Good Standing
  5. Business plan – the banks are looking for something that shows what the company will be doing. Who will be the suppliers to the company? Similarly, what customers will the company have?
  6. If the company has been in existence for more than one year: financial statements and/or accounting records.
  7. Source of funds for the initial deposit and trade projections (usually provided in the actual account opening forms)
  8. Documentation (such as that provided for the personal account) for each person associated with the corporation:
    1. directors
    2. account signatories
    3. shareholders / beneficial owners / controlling interests
  9. FATCA forms – W8Ben, W8Ben-E, W9 – depending on the situation

The documents will vary depending on the bank that you choose to open the corporate bank account, but the above list and those indicated on the personal bank account page are pretty comprehensive of what is usually expected.

Factors to consider:

Once again, when choosing the bank there are a number of factors that you should consider:

  • Language(s):
    • at the bank – your customer service representatives
    • in the call center – is there a special number for English?
    • what about their online system?
  • Online banking platform
    • Is it easy to use?
    • Does it have a good security system?
    • Do you need an App on your mobile phone, a token or how are passcodes generated?
  • What are the minimum deposit / minimum balance requirements of the bank?
    • What are your cash flow requirements?

Our office is happy to assist you with your corporate bank account needs in Panama. We are also able to offer banking options in other jurisdictions. In some cases, banks in other jurisdictions are easier to work with and offer a wider range of currencies and opportunities.  Beth Gray is experienced with local and international business companies, especially the aspects of tax compliance and reporting. Betsy Moran is experienced with compliance issues, especially the AML guidelines. Joan Villanueva can assist with any relocation inquiries that you may have. Do not hesitate to contact us for more information regarding your corporate or business needs.

Personal bank account in Panama: opening requirements

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Personal bank account in Panama: opening requirements

While you don’t need a personal bank account in Panama to live here, it may lower transaction prices and make paying bills easier.

Reasons to set up a personal bank account

Many expats have differing views on whether or not you need to open a personal bank account. If you have an account in USD, it may make little difference in the bank charges. In other currencies, the bank charges could be high and might be reason enough to set up your account here.

Another reason for setting up a personal bank account in Panama is to apply for the friendly nations visa. One requirement is that you have a personal account with no less than a mid-four figure balance. You should deposit at least USD$5,000 in the account, then.  The friendly nations visa will provide you with permanent residency, It also provides a work permit (depending on which application you make). And it allows you to eventually naturalize as a Panamanian (if having a second passport is your goal).

Paying bills online: many of the banks will allow you to pay bills online, although this is not for all utilities companies. Some still requirement payment at their office or through an approved intermediary. You can also pay your personal taxes online through some banks (such as income tax or property taxes).

Requirements: personal bank account

The requirements vary slightly from bank to bank. Nonetheless, the general requirements are the same:

  • Complete the bank account application forms, all of them
  • Your passport (the bank will make its own copy)
  • 2nd ID – such as driver’s license
  • Professional reference letter – such as from a lawyer / accountant / company you have done work with
  • Banking reference – they are looking for proof of a banking relationship of more than 2-3 years
    • If you don’t have a “bank account” but have a credit union account, this will usually work
    • They may accept an investment account letter instead of a “bank”
  • Minimum opening deposit: $1,000.00 (some banks do require less)
  • Minimum balance:
    • checking: usually somewhere between $250.00 to $1,000.00
    • savings: usually somewhere between $500.00 to $1,000.00

The forms ask for proof of source of funds: the bank is interested in knowing how you support yourself financially and where they should expect to receive income from.

If you are applying for your friendly nations visa through our office, we would be happy to accompany you to the bank for your initial interview.

Choosing a bank:

Consider the following when choosing where to apply for your personal bank account:

  1. Where you live and branches that you have close by
  2. Online banking – which ones have their website in English
  3. What online banking services do they offer?
  4. Do you / your friend / the company you work for already have a relationship with the bank?
  5. Expat opinions regarding customer service – you will be able to find complaints against every bank, but some are worse than others
  6. What is their online security platform? Will you need a widget in order to pay bills and make transfers?
  7. Number of ATM machines available in your area of town if you like to get cash out

For more information, do not hesitate to contact our office for assistance.

 

 

Non Profit supervision in Panama: AML standards

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Non Profit supervision in Panama: AML standards

Non Profit supervision: fighting money laundering

The OECD insisted, in reports on Panama’s financial center, that Panama tighten the Non Profit regulations and oversight. As a result, Executive Decree 62 (2017) regulates the creation and supervision of Non Profit organisations.  We previously dealt with setting up a Non Profit, so here I will outline the provisions regarding Non Profit supervision.

Who supervises?

The Executive Decree establishes a special deparment in the Ministry of Government. At this time,  “Department of OSFL Supervision, Follow Up & Evaluation” is part of the Legal Matters and Applications Department .  We will refer to this department as the OSFL-SFE Department.

OSFL = Organizaciones Sin Fines de Lucro = Non Profit Organizations

What are their powers?

The OSFL-SFE has 2 principal powers and objectives:

  1. Permanant risk analysis of all OSFLs legally recognised by the Ministry of Government
  2. Control mechanisms to minimise risk and follow up on the OSFL, to ensure compliance with all applicable laws

What are they supposed to do?

Consequently, the OSFL-SFE:

  • Maintains risk reports regarding OSFL’s in Panama
  • Requires reports on the funding of Non Profit entities and verify the information provided to them
  • Checks on the funding received, generated or transferred by Non Profits
  • They may report any suspicious activity to the Unidad de Analisis Financiera (the Financial Analysis Unit).

The OSFL-SFE has the following powers:

  1. Require whatever documentation they consider will allow them to supervise, follow up and evaluate OSFLs
  2. Inspect the books, records and documents of the administration, financial management and financing of the Non Profits under their supervision
  3. Request that the legal representative of any Non Profit present documents as needed for these 2 purposes

Additionally, the OSFL-SFE may visit the premises or offices of a Non Profit organization.

What should your Non Profit do?

You must keep accurate accounts, books and records of all donations received, funds raised and donations made from your Non Profit to another. At the end of each year, you report to the Tax Department 2 things:

  • Expenses: this allows the tax department to verify this information against the income tax returns of service providers and cross-check the information
  • Donations received and details of the donors – this is cross-checked against those who are claiming tax deductible donations

Consequently, your Non Profit organisation must keep update records:

  • File any change of Board of Directors at the Public Registry;
  • Update your membership records each year with any changes;
  • If your bylaws are out-dated, then you need to assign a committee to review them and bring them into compliance with new regulations and laws. Once reviewed, present the proposed changes to your General Assembly to modify your Statutes or Bylaws as appropriate. These changes must then be approved by the Ministry of Government, before they can be filed at the Public Registry.

Although it is published in Spanish, the full regulation on Non Profit supervision and organisations can be found in Gazette #28249-A.

For more information and assistance in establishing or managing your Non Profit organization please contact Betsy Moran.

Property taxes – Panama Real Estate

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Property taxes – Panama Real Estate

Property Taxes: Types

When you are thinking about retiring, the last thing you want to deal with are the details. But the devil is in the details, and one of the details you need to clearly understand is property taxes in Panama.  There are a number of property taxes in Panama, but the principal ones that you need to be aware of are:

  • Annual property tax
    • land tax
    • improvements tax – or tax exemptions
  • Transfer Tax (2%)
  • Capital Gains Tax

Annual Property Taxes – Land Tax & Improvements

Whether you own an apartment or a house, you need to know what taxes are going to be charged by the Panamanian DGI (Dirección General de Ingresos) each year. We recommend that before you buy, you ask the sellers for the tax statements so that you can see the history of what they have paid each year. You should also ask what is tax exempt and when the tax exemption runs out. As I said above, the annual property tax has two parts:

  1. land tax
  2. improvements tax or tax exemption

The land tax

There is a difference between owning a condo and owning a house. The property taxes are the following:

  • Condominium: you will pay 1% of your proportional value of the land under the building.  Say the land is worth $1,000,000 and there are 84 apartments in the building: you are responsible for $11,904.76 in land value. Your 1% per annum is: $119.05.  Whatever the value of your assigned piece of the land, your tax rate will always be 1%.
  • House – land taxes: This is a little more complicated! The first $30,000.00 in value is exempt from taxes. Then the following rates apply:
    • 1.75% = $30,000 < and up to $50,000.00
    • 1,95% = $50,000 < and up to $75,000.00
    • 2.1% anything over $75,000.00
    • So, if the land value of your property is $85,000.00 you will pay: $0.00 on the value between $0.00 to $30,000.00; 1.75% on $20,000.00; 1.95% on $25,000 and 2.1% on $10,000.00. Which is about $1,050.00 per annum in property taxes.

What you need to look out for is cases, which I have seen, where the previous owner, in order to get a reduction in 2005 or so on their capital gains tax, did a property appraisal and pushed the value of the land up over $250,000.00, and at these rates, the property taxes each year are about $4,500.00! This means that you will pay in April, August & December about $1,500.00 in property taxes.

Improvements Tax or Tax Exemptions

The other part of the equation in calculating your property taxes is the tax on the improvements. There are many properties that have a 20-year tax exemption on the improvements, and so for now you only have to pay the land taxes. But the questions to consider are:

  • Are the improvements exempt?
  • If so, when the tax exemption expire?
  • What is the tax rate after the exemption expires?

So, if you purchased an apartment in a building that was built in 1996, the 20-year tax exemption would already have ended and you would need to pay property taxes on the land and the apartment itself. That is why you find so many people prefer the new buildings, even though the older buildings are much more spacious and possibly better construction (depending on the building and the year of construction).

Sale of a Property: taxes due

When you go to sell a property, there are 2 taxes which need to be paid:

  1. Land transfer tax
  2. Capital Gainst tax

Land Transfer Tax:

The land transfer tax is based on 2% of the higher of the two values:

  • the tax basis value in the DGI system
  • the sale price value

The Tax Department always wins – they will collect on the higher value!

Capital Gains Tax:

The 2nd tax payable at the time of the sale is the Capital Gains Tax:  10% of the value of the gain.

BUT… and as everyone says, when you see the word “but” just ignore everything you heard before the word: the tax department requires you to prepay an estimated 3% tax on the value of the sale to cover your capital gains tax.

  • Your purchase price: $270,000.00
  • Your sale price: $320,000.00
  • Your gain: $50,000.00
  • 10% of the gain: $5,000.00
  • 3% value of the sale: $9,600.00

At the time of the sale, you will pay the tax department $9,600.00 in Capital Gains Tax.  As you look at this, you might think “that’s unfair!”, but your only option is to ensure that your lawyer does the paperwork right and requests a refund of the overpayment of the capital gains tax! This process is some 3-4 years long – and some clients simply walk away.  The Tax Department pockets the difference.

On the other hand, if you made a large gain, there is a box that you can tick, stating that this is your “final return” on the transaction, and that is the complete amount of capital gains tax that you owe. You should review these numbers carefully with your realtor or the lawyer that is handling the closing for you.

For more information regarding your property purchase or sale in Panama, please contact Joan Villanueva in our office.

Other Property Tax issues:

There are more issues to consider regarding property taxes, such as filing your Declaration of Improvements (if you just finished building a house on a lot), presenting a request for a tax exemption (if the builder did not request the exemption from the tax department), and other similar issues, but we will deal with them in another article.

Panama maid: General guide and FAQ

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Panama maid: General guide and FAQ

Panama Maid: a guide  & FAQ

So, I have a maid / nanny / housekeeper (yes all-in-one)  and I’ve been living back in Panama for a little over 20 years now.  I get lots of questions about do’s and don’ts: since most of our maids, nannies and housekeepers are not from Panama. They are from Nicaragua, Colombia, Jamaica, Dominican Republic and some even from Venezuela. Some of the things that I am going to mention will not apply to your Panama maid, although most of them will. I have tried to organize this as a guide from the start of the relationship to ending it. I hope that works for you! Throughout, I have used the term “maid” to cover nanny/ housekeeper / cleaning lady, since it’s the shortest word.

And one more thing – I’m telling you the legally compliant way. Do as I say, not as I do (well, your Panamanian neighbor does)! They mean well, but they won’t get caught.

hiring process – live-in versus travelling – referrals & agencies – contracts – social security – immigration status – labor law – trial period – remuneration – working hours – holidays – décimo – healthcare – maternity – termination – firing

Hiring process:

The process for finding a maid in Panama can be daunting, especially if you have young children and will be leaving them to be cared for. With older children, at least you know they can talk to you and tell you what is going on: but with young ones it is somewhat scary.

Your needs:

The first step is to work out “what do I need?”. Take into account what your kids’ needs are (if applicable), what you want the maid to take care of, and your working hours:

  • Do you want her to cook? Oh, and when you ask if she can cook – make sure you ask what kind of cooking she does? You may not want just rice and beans!
  • Will she clean?
  • Does she need to do the heavy cleaning, like spring cleaning? Windows?
  • Is child care involved?
  • What time does your child need to be ready for school or the bus?
  • Are you able to get home from work at the same time every day?
  • What about your social life? Do you need a baby-sitter on weeknights?
  • Working late?
  • Does she iron? If she does, what are her conditions? Some maids iron as part of the job, some charge “per shirt” or a weekly additional amount for ironing.
  • Does she understand the symbols on the clothes tags, for washing the clothes? (Yes – because if she doesn’t, you need to teach her!)
  • Will she walk the dog?
  • Do you have a cat or dog? I had a maid that was allergic to cats – she was awesome, but we had to part ways. Lesson learned: always ask about allergies!
What to look for:

My experiences have varied over the years: my cleaning lady has been with me almost 20 years. She is not awesome at cleaning, but she is reliable and trustworthy. That is priceless. When I got more staff for my home, she only stayed cleaning my office: but she has keys to the place.

I had a fabulous housekeeper for years that was more of a PA than a housekeeper, but then her husband fell ill. I lost my wife that day! I loved having a wife!  She took care of the dry-cleaning (dropping it off and picking it up), she organised painters, plumbers, air-conditioning maintenance. she watched the cooking channel and then bought groceries according to what she was going to try cooking. Irreplaceable!  Of course, I didn’t know I had a wife until I no longer had her as my housekeeper. I now know: I need a wife, not a housekeeper!

Live-in versus Travelling

A Panamanian maid will probably not want to live in, as her family is “close” and she wants to live with them. But remember the traffic and commute times when you consider live-in versus someone travelling. For them to arrive at 7.00 a.m. each morning, what time will they have to leave home? What time will they leave to get home every afternoon or evening?

It is easier to get a young foreign girl (by young I mean 22 – 29) to live in, but this also has possible setbacks. My experience with younger maids has been great at the beginning (1-2 years), but then they get a boyfriend and want to settle down. Then they no longer want to live-in. And I need a live-in at this moment of my life. When I was single, and even when I was married without a child, having a maid that arrived in the morning and then left mid-afternoon was fine (say 7 am to 3 pm).

With a child, all of that changes. I am a working mom. Sometimes I work till 7.00, or other times I get home early and I take my work home with me: I am there, but I’m not “there”. I am studying part time. I volunteer many hours at Church and some fundraisers for charities. So now I have a 40-something year old live-in maid. She doesn’t run as fast as a younger girl (and so if little miss almost-4 takes off running, I have to run!). On the other hand, she cooks well, she is happy to live in, and she is loving and sweet. Okay, I admit it! She coddles my little girl!

The Práctica: Professional Services or Employee?

Many consider that the práctica (the new-born nurse that you might get for your first month, 3 months or 6 months) is professional services, rather than an employee. As professional services, she is not entitled to receive: holiday pay, décimo, or liquidation at the end of the period that she was hired for. As an employee for a contract for a specified period of time, she is entitled to all those things. Personally, I view the práctica as an employee on a short-term contract. I know that many disagree with me on this, as it increases the cost (by about 40% if you did social security, etc.).  If she has her own Social Security and she is paying in as an “independiente” that changes the picture – and I would agree that she is professional services. But the 2-pronged rule in employment law is:

  1. is she economically dependent? Yes – she is only working for you those months
  2. is she subject to your instructions and telling her how you want the job done? I believe so – I doubt she’s looking after your newborn without you “supervising” how you want it done. It may be true that she knows more than you and is providing you with an education while she is at it, but I view the fact that she has to work X hours and be at your home and do it “your way” as meaning that you are in charge, rather than her.

The cleaning lady:

There was a time I just had someone come in twice a week for cleaning! She wasn’t considered to be an “employee”, but rather providing professional services. You will pay a little more for this, but then most of the things that I mention in the article – you can ignore! If she’s working 2 days a week, she is not an employee. The fine line is whether she works 3 days a week: if you provide at least half of her income, she is considered to be economically dependent upon you! Is she working 4 days a week for someone else? If she loses that job, then you are her primary source of income and she has “economic dependence”.

Referrals & Agencies:

My first choice is always referrals: from a friend, a family member of another maid that I know, or from other mothers.  All of my maids have come referred from a friend or their maid. But there are other sources: Facebook groups – I like Panama Mamas. Expats in Panama is another one, but it caters to more general questions. There are also placement agencies, such as Agencia domestica Panama and Maids & Nannies.

Contracting:

contract, Panama lawyers, Panama maid, hiring process, written contract, obligationsOnce you have identified your needs and the right person, it’s time to discuss contracts for your Panama maid. Even if she’s not Panamanian, still write a contract! If you don’t have a written contract: you have a verbal contract. Panama Labor Law does not leave a vacuum – there was a contract, it was not in writing. And the worst part is: the employee’s word has more weight than the employers! What was agreed? How was it agreed? Put it in writing. And yes, it should be in Spanish.  And yes, ideally, prepared or reviewed by someone (a lawyer or labor law expert) that actually knows labor contracts. I know – your neighbor has a model contract! You can probably also ask for one at the Ministerio de Trabajo.

Basic contract requirements:

The very basic requirements of the contract are:

  • Parties: name, nationality, age, male/female, civil status, domicile and cédula or passport number
  • Worker’s dependents: name of those that live and depend on the worker
  • Type of service offered
  • Place where the worker is to show up for work
  • Length of the contract: definite (period of time) or indefinite
  • Working hours and the type of “shifts” – if applicable
  • Salary – how it will be paid, on what date and where it will be paid
  • Place and date of signing the contract
  • Signatures of the parties

Register your contract with the Ministry of Labor.

Other tasks:

Social Security:

As well as the contract, consider registering her at Social Security. For that, you (the employer) must register. You can do this without a lawyer, but you might want a translator or a good taxi driver for this. I had a great guy for this until about 3 years ago, when he passed away unexpectedly. I’ve never actually found someone to replace him. He was awesome – knew where all the government offices were, had a basic idea of the forms, and could take you through it without it costing you an arm and a leg! But, you could always ask your lawyer or law firm to help you with this. Which branch to go to? The one that is easiest for you to get to in rush hour when you forgot the paperwork was due “today” – there’s going to be a day that happens!

Pros:

The benefit of registering your Panama maid at CSS (Caja de Seguro Social) is that you get rid of a couple of risks:

  1. healthcare – you are no longer responsible for her healthcare – she can go to CSS;
  2. pregnant? You are not responsible for her maternity leave, check ups or if it’s a high-risk pregnancy;
  3. if she has an accident at work – CSS covers it completely (the medical and the time she’s off work after the first 18 days. You cover the first 18 days of sick leave in a year.)

And as an added benefit: she will (if it is still around when she reaches retirement age) get a pension.  Even if your maid is an illegal immigrant, and they do not have their work permit, it is still possible to register them at Social Security and put them into that system.

Cons:

On the down-side: you have to go in and register yourself and you have to register your maid. You have to calculate and pay the SS deductions each month – employer and employee contributions, which you withhold from the salary and you pay in (there is  contribution from you and one from her), and each month you have to make the payment, complete the online forms in the system, and present. You also have to pick up her “paz y salvo” each month from CSS (so pick the most convenient office to where you live and/or work).  It’s not the most user-friendly system I have encountered – and I admit I have my office book-keeper take care of it for me, because I didn’t want to invest my time working it out!

The system is called SIPE: http://www.css.gob.pa/sipe/. This is where you sign up as an employer: http://www.css.gob.pa/sipe/afiliacion.html – and, of course, it’s ALL in Spanish!  And this is where you advise that you have a new employee starting: http://www.css.gob.pa/sipe/avisodeentrada.html.  They have a whole section on “e-learning” –  not me! I gave this to my book-keeper and told her to let me know what personal details she needed from me!

Immigration Status:

immigration, work permit, Panama lawyers, application, visa, Panama maid, visa for maid, social security, work contractIf you didn’t hire a Panama maid, what is the legal status of your maid? If she already has a visa, what kind of visa does she have? The two most common visas you will find are:

  1. doméstica (the actual visa for maids)
  2. Crisol de Razas

Unfortunately, the Crisol de Razas program appears to no longer be available, unless they got in before the 31st of May 2017 with this first application. If they are already in the system, they will be allowed to continue, but the Immigration Office is not accepting any new applications for those not already registered. Some people with Crizol de Razas were able to get a 10-year visa under the program, upon renewal. That is no longer available to new applicants, but you may still find someone that has that status. Most people have a 2-year visa, but they are able to renew.

Visa de Doméstica:

If they need to apply for the doméstica visa, then YOU the employer, will need to provide some documents to the immigration department.  The maid will need to complete the form from the Panama Tramita site. The basic requirements of this visa are published in Gaceta 26104.

  • This visa requires a $500.00 bond, plus a $250.00 fee to the Immigration Department.
  • The return ticket to their home country must be presented.
  • A utility bill for your home must be included.
  • The employer must provide their paz y salvo, which is certificate of Good Standing from the DGI (Dirección General de Ingresos) – Tax Department – showing that you are in good standing.
  • Proof that you have already registered with the CSS (Social Security).
  • An employment letter from you to her, offering her the employment.

This visa is only valid for 2 years; then she must renew it. She needs a lawyer for this visa.

Working conditions

Once you have your Panama maid, then these basic “rules” apply as to what you can and cannot expect.

Labor Code:

The Labor Code applies to all maids, irrespective of their legal status (illegally in the country or not). Even if they are an illegal immigrant, they can go to the Ministry of Labor to report you. So, comply with minimum wage, holiday pay, décimo pay, and the payment of public holidays, etc. That said, a special section of the Labor Code is dedicated specifically to “domésticas”. The important section is Article 231.

Trial period:

The Code considers that the first two weeks are a trial period. This differs from normal labour contracts, which consider that there is a 3-month trial period. If you terminate after this first 2-week trial period (and it’s not a justified termination), you will give 30-days notice (or pay out the 30-day notice).

I typically spend the first week at home with her, and then the second week I show up at any time unexpectedly during the day to check on her.  And I still do that months and years later!

Remuneration:

Minimum salary for a maid in Panama City is $250.00/month.  Good luck finding anyone willing to work for that! The typical monthly salaries that I hear are above $375.00, and go as high as $700.00/month. You will probably get what you pay for (but choose well).

The Labor Code explicitly states that “unless otherwise agreed” it is presumed that the remuneration package includes (in addition to the payment of money): food and board. The food must be healthy, abundant and nutritious; the room must be comfortable and hygienic.

I know some people that offer their maids: $XXX in salary plus $20.00/week for food (the maid then buys what she wants). Others buy the food that the maid will eat, but it is not what the family eats. I have always had the custom that the maid eats what she cooks for us (because she will sit and eat with my daughter if I am not home), unless she really wants “something from home”, in which case she may cook something separate for herself. I usually ask what types of coffee, bread, beans and rice she likes, and buy those for her (because they usually are different from what I like).

Loans or Advances:

Panama’s Labor Law prohibits that you deduct any money loaned to an employee from their liquidation pay. So, if you are going to loan them money: how and when are you going to get repaid?

  • One option: don’t loan them money.
  • Second option: don’t loan them money, but give them an advance on their next month’s salary (and document that this is an advance). Or advance them their décimo.
  • Or ask them to come and work extra for you on the weekends and spring-clean your house.

Working Hours:

According to the Labor Code, the Panama maid receives a “rest period” from 9.00 p.m. to 6.00 a.m. I realise, if you have a newborn, everyone in the house may wake up with the baby and colic! But you should not require her to serve and cater a party till 2.00 a.m., and then be up at 6.00 to get breakfast on the table for the kids.

She also receives her “weekly break” and “annual holidays” which are to be paid. She is entitled to paid day-off on public holidays or national days of mourning (such as when an ex-President dies). Nevertheless, you can ask her to work this public holiday, as long as you pay a surcharge of 100% on a normal day’s pay.

Every week she is entitled to one day off – “rest day” or “weekly break”. The law describes this as “descanso semanal“. Usually, this would be Sunday, but you could agree with her any day of the week off. It is supposed to be the same day each week. Customarily, however, they get a day and a half off each week: leaving Saturday afternoon (1pm, 3pm, 4pm – whatever you have agreed upon), and returning Monday morning (7am). I had one maid that never seemed to make it at 7am Monday morning, and so I changed her day off, so that she left on Friday afternoon and came back Sunday morning. Problem solved! It no longer mattered if she was an hour late.

Holiday Pay:

In Panama, you should consider the public holidays. Here is an example of the 2017 public holidays: http://www.cuandoenelmundo.com/calendario/panama/2017. Those dates marked in red are actual public holidays. those in blue are days that people usually don’t work (banking holidays or employees work the hours beforehand in order to take them off). A Panama maid is going to expect to have off the days in red, or be paid overtime (extra 100%) for that day.

Additionally, your maid is entitled to one month’s holiday per year. This is one month to go home to her family (probably in the interior or possibly overseas). You may choose to break this up into two 2-week holidays: giving her time off after the first 5.5 months, and then another 2-week holiday at the end of her work year. Note: It doesn’t have to be exactly at the end of the year. It could be at 11 months, 12 months or 13 months. But she has to get it!

holiday pay, employee rights, employment law, Labor Code, Panama lawyers, labor law, labour law, public holidays, PanamaWe’re going  away on holiday:

What if you go away on holiday? Then what? You have a couple of choices:

  1. take her with you
  2. leave her at home to look after the dog
  3. send her on holiday

If you choose option #2, you still have to pay her the complete salary she is due, as if she was doing everything (unless you can reach an agreement of some sort with her that she will do some side jobs while you are away for a friend of yours, and they will pay her). But the reality is, she’s still your employee while you are away on holiday.

Décimo (décimotercer mes):

This is a particularity of Panamanian and Central American law that I struggled for a long time to understand and get my head around. Basically: you pay employees a monthly wage, which covers 12 months. But if you look at the year as weeks, and periods of 4 weeks, there are 13 months in the year. And so the crazy (sorry, I meant to say difficult to understand) system here in Panama is that throughout the year (April 15, August 15 & December 15) you pay that “missing” month in 3 quotas. Often, the April 15 payment is made earlier in the year (after Carnavales, before the start of the school year). You are not required to pay this early, but in my office we do, because of the many employees with children starting school.

Healthcare:

It is your responsibility to sign up and sign your Panama maid up for Social Security coverage. This will cover her healthcare needs. If you don’t sign her up for CSS, then you are responsible for her healthcare, and if she has an accident at work, you are responsible for the hospital bills and well as paying her throughout the recovery time!

You are not required to provide her with private health insurance, dental coverage (also provided at CSS) or private healthcare.

Her mobile phone:

Oh, this one is difficult: ask any office manager! I connected my maid’s phone to my house wifi (setting up a Guest user), so that I can control my bandwidth usage. She listens to music all morning while cleaning. I have asked her NOT to use the headset when my daughter is home, as I want her paying attention to my daughter, not on the phone. And with this maid, I have not had any problems. But I have had problems in the past with maids and their mobile phones! Sometimes, there is nothing to do, but let them go – some things just will not be corrected!

Maternity:

One protection offered by Panama’s Labor Code is the “fuero de maternidad“: Articles 105-116 of the Labor Code. This means that for the entire 9 months of the pregnancy and for 1 year after giving birth, you can only terminate the relationship through a justified firing (with cause), and it has to be approved by the Ministry of Labor. Buy her contraceptives! You can’t force her to take them, but you can make them available to her.

Termination

fired, termination, terminated, labor law, labour law, contract, agreement, Panama lawyers, employment, justified, with cause, mutuo acuerdo, mutual accordThere are a number of scenarios that can result in termination: resignation, firing (justified) or simply unjustified termination.

Resignation

If she resigns, she is still entitled to:

  • salary for days worked this fortnight
  • holiday pay outstanding
  • décimo outstanding
  • prima de antigüedad

Firing (with cause)

If you fire her, with cause (i.e. you caught her red-handed stealing or one of the causes indicated in Article 213, then you are required to give her only the 4 payments indicated above:

  • salary for days worked this fortnight
  • holiday pay outstanding
  • décimo outstanding
  • prima de antigüedad

You do not need to pay any notice or indemnification.

Termination (without cause)

If you don’t have documented (and well documented – written amonestations), then the best way to terminate the relationship is just to pay your Panama maid her dues, and let her go!

You will have to pay:

Other causes of termination:

The Labor Code also provides another ground for termination, in article 231 that is NOT available for normal workers: sickness for more than 4 weeks which makes them unable to go to work. You are only required to pay the 1 month of incapacity (sick leave), and then the indemnity mentioned in subsection 7 of Article 231.

Mutual Accord:

My favorite form of termination is “Mutuo Acuerdo” – a written agreement between the parties to terminate the employment relationship.  This gets rid of any “he said – she said” arguments or whether or not it is justified or not. Even with this agreement, you still have to pay the first 4 items listed above:

  • salary for days worked this fortnight
  • holiday pay outstanding
  • décimo outstanding
  • prima de antigüedad

But, depending on why you are letting the person go, you can then decide what you are going to offer regarding the 30-day notice and indemnification for termination.

In the case of any doubt, ask for a lawyer.

 

Relocation Questions – July 2017 – Immigration Update

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Panama City - relocation questions

Panama – Casco Antiguo

Common Relocation Questions: Panama

We often hear relocation questions from clients who are moving to Panama for the first time and getting settled in to their new homes.  I share a couple of them here to help you get an idea of what is easy and what is hard when you are relocating.

Bank account – Driver’s License – Utilities

Relocation Questions: Opening a bank account

I went to a local Panamanian Bank the other day, having just arrived in Panama. They would not allow me to open anything because I didn’t have a banking reference letter or a letter from an employer here in Panama.  Can I open a bank account without a banking reference?

Panamanian banks, even before the Panama Papers, made it difficult for foreigners to open bank accounts here. Ideally, you want to be introduced to the bank by someone (your lawyer, your employer, a business associate). If you are applying for residency, let the bank know: this will make it easier to open the account. If you already have residency, make sure you take your immigration card or cédula with you.

Know Your Client: KYC

Banks here are required to complete their “Know Your Client” procedures, and all banks have a compliance officer that reviews and approves accounts. This is not the customer service representative that you meet. You will not meet the compliance person (that would hinder the purpose of having compliance). So, you need to have all the papers that they need to tick the boxes. Those papers include:

  1. Your passport
  2. 2nd ID of some kind
  3. Utility bill – that shows you have a place in Panama
  4. Professional reference – preferrably two – from lawyers, accountants, insurance brokers, realtors. No more than 3 months old.
  5. Banking references – no more than 3 months old; a relationship longer than 2 years (ideally)

And then you need patience: sit down and complete all the bank forms. Follow up on the account opening. Patience.

Can you open an account without a banking reference? Yes, if

  • You are 18 years old or just recently became an adult
  • Your employer refers you to the bank to open your payroll account
  • A business associate or family member introduces you to the bank as a first time account holder. This one will only work in a couple of banks and in limited cases.

Relocation Questions: Driver’s License

I heard that my driver’s license is only valid for 90 days after I arrive in Panama, but my tourist visa is valid for 180 days? What can I do?

That is right: your foreign driver’s license is only valid for 90 days, but your tourist visa for 180 days. If you are living here on the tourist visa, and driving, then you either leave every 90 days or apply for residency.  Panama does not offer a driver’s license to non-residents.

I am applying for my residency and would like to get my Panamanian driver’s license, what do I need to do?

Once you have your residency approved, you may apply for your driver’s license.  You will need to have your foreign license (copy) certified by your Consulate. The Panamanian Ministry of Foreign Affairs then needs to stamp this copy, to make it valid for use here in Panama. The documents you need to take to Sertracen are:

  • Your driver’s license + photocopy
  • The copy stamped by the Consulate and Foreign Affairs
  • Immigration Card – original + copy
  • Passport – original + copy
  • Blood test – blood type – laboratory approved by ATTT (if this is already printed on your driver’s license, not required)
  • Do sight and hearing tests at Sertracen (wear your glasses and/or hearing aids, if applicable)
  • Pay $40.00 at Sertracen – includes sight and hearing test

Be in good standing with ATTT –  i.e. not have any tickets.

Utilities

Another one of the relocation questions that we get is regarding utilities:

How hard is it to get your home connected to utilities: water, electricity, phone & internet?

This depends on where you are going to live in Panama:

Water:

Most water in Panama is provided by IDAAN, the national water institute. This applies to most small towns and urban areas.  However, you need to check with people who live in the area how often the water gets cut off. You might want to buy a water tank to have a back-up system for your home. It is quite common in the rural areas, during the dry season, to only have water a couple of hours each day. Water is rationed, and you will want to have your personal tank for water storage.

In some remote areas, you will need to have your own well and filter system.

Electricity:

Most of the country of Panama is on an electrical grid and has electricity available, without having to go to solar power or diesel generators.  However, I know of a couple of areas (Bocas del Toro, for example) that do not have electricity and where hotels or hostals rely on their own generators or solor power systems for their electricity.

You definitely need UPS batteries on all electronic equipment in Panama becuase of the electricity spikes.  While theoretically the electric company is meant to replace electronics that get blown because of these spikes, the reality is that we don’t see this happening. Get prevention!

Phone & Internet:

There is phone and internet coverage in most of the country, although quality may be dodgy. I had clients in Bocas that struggled with phone coverage, because a hill blocked the cellphone tower.  I have also been in parts of Chiriqui where you need to walk to the top of “that” hill in order to be able to make a phone call. But both of these locations where quite “off the grid”. You have a choice in Panama of Cable & Wireless (MasMóvil), Claro, Movistar and Digicel.  Depending on which part of Panama (country) you are in, one provider may have better coverage than another.

For internet connection, there is limited fiber optics in some parts of Panama City. If you require high speed internet, you definitely want to check out availability. Speak with other expats regarding their experiences before deciding on a location.  But if you are only looking for internet for personal use or limited office use, coverage is reliable in most areas.  Please note: when there is a thunder storm we often have to restart our modem.

Panama City:

If you live in Panama City, and you are moving into an apartment, it should already have water connected.  If it is a rental, it may already have the electricity connected, you need to check with the realtor. In Panama City you have numerous options for internet and phone, but you should check regarding the quality in your area. As I mentioned above, in some parts of Panama City, you will have fiber optics available.

Coronado & Beaches:

In Coronado, most of the apartment buildings have emergency water tanks, but you should check before you rent or buy. The electricity in Coronado has a wide coverage, but you may want a generator if you want 24-hour air-conditioning.

Pedasi & Las Tablas

You will want to make sure you have water storage tanks, as this area of Panama is known as the “dry belt”. There is water, but it will get rationed in the dry season.  Internet: I am not sure of the quality, so you should ask expats that live in the area.

Boquete

Boquete has a great supply of water, so this never seems to be a problem. You may suffer power outages due to rain storms, so if having electricity 24-hours a day is important to you, you will want to have a backup system.  You should ask neighbours which internet provider is the best.

Please contact Joan Villanueva for more information regarding relocating to Panama.

Easements and Community Protection

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Defining Easements & “Right-of-Way”

Image result for easements

Right-of-Way over private property to “land locked” property

A “Right-of-Way” is the legal right, established by usage or grant, to pass through the property of another.  Typically, this is restricted to a specific route and area, and fenced off from the rest of the property.  A right-of-way is “servidumbre” in Spanish. The word “servidumbre” includes rights-of-wayeasements.  Easements allow access to land for things like natural resources, development and pipelines, or construction and maintenance. An example of an easement would be sewage pipes passing underground.  A right-of-way, on the other hand, allows the person to travel through the property.  Public right-of-way typically includes the street, the curb, alleys, sidewalks, planting strips, all the way up to the fence.

When someone owns land hemmed in on all sides by other private land, a court will grant that person a right-of-way through neighbouring land, if this has not already been granted by use, custom or grant.  For example, when someone buys a lot from a larger land owner who has road access, the seller must ensure that the buyer has road access through the principal property. This seller may establish a right-of-way  through a tranch of their land.

Regulation of right-of-way & easements in Panama

The Civil Code of Panama (1917) regulates rights-of-way and easements (Servidumbres) in Title X.  This Title of the Code covers definitions, general rules, how to acquire rights, rights and duties of the parties, and how to extinguish rights.  The Code goes so far as to cover grazing rights, water rights, and the such.  The Mining Code and Administrative Code also govern some easements for specific purposes.  The Environmental Authority of Panama establishes special rules regarding water rights. The Ministry of Housing and City Council establish special regulations and approvals regarding new development projects. Our office advises on Ley 6 (2006), one of the many laws regarding real estate development in Panama.

Problematic right-of-way & easements

Our firm deals with right-of-way problems, especially where these affect communities.  A recent case involves a community that wished to protect themselves from becoming a thorough-fare.  A developer built a gated community, and then “opened” a gate from her new development into the neighbouring community to provide another exit to the main roads.  In this case, the gate violated building permits issued by the City Council.  The affected community shut the right-of-way, and the developer asked the local Sheriff to enforce the right-of-way, in spite of having planning permits rejected by the City Engineers.  The Sheriff ordered the right-of-way be opened, ignoring the City Council’s rejection of the permit.

In this case, our firm appealed to the Mayor’s office, as the Mayor is the next instance for appeals.  We presented the Mayor’s office with the City Council’s order (Secretaría Técnica Judicial de Edificaciones y Construcciones), rejecting the gate and right-of-way.  They overturned the Sheriff’s decision to order the right-of-way through this community for a number of reasons.

Firstly, the Administrative Code of Panama establishes in Article 1325 that the appropriate authorities in case of dispute of rights-of-way or easements are the courts.  The Sheriff’s office must enforce the judgement by the court, but they do not have jurisdiction to hear the complaint.  Hearing the complaint violated the rights of the community to be heard in an appropriate forum. Secondly, the developer ignored the City Council’s order, violating urban development rulings.

Please contact Betsy Moran for more information regarding Community Protection.