PATTON MORENO & ASVAT

1. REAL ESTATE

The Real Estate business in the Republic of Panama has been significantly increasing during the last ten (10) years due to a global marketing campaign which purpose is to promote Panama as an ideal destiny for tourists, investors and retired persons around the world.

In light of the above, local and international investors have targeted Panama as a potentially increasing tourist market, which in turn has led to the establishment in our country of new resorts, hotels, bed and breakfasts, shopping malls and the financing and construction of home developments and modern apartment buildings in the City of Panama and in other provinces.

In order to purchase real estate in Panama our Lawfirm offers its clients a detailed and complete legal counseling which includes the following:

1. A complete due diligence of the property, this is a complete title search; we also verify if the property has any encumbrances or limitations or any other special characteristic.

2. Incorporation of a Panamanian or offshore company or private interest foundation which will hold the title of the property.

3. Draft a Purchase and Sale Promissory Contract in order to secure the property while our client is obtaining property financing (if applicable) or executing any other transaction regarding the purchase of the property.

4. Draft a Purchase and Sale Agreement which will be subsequently recorded in the Public Registry, so that it affects third parties.

5. We can also serve as escrow agents or refer another company or bank to serve as escrow agents while the title transfer is being executed and al the transfer taxes are being paid by the seller.

6. Process the residence visa and/or work permit required by the client.

7. We offer our clients assistance in their bank mortgage financing, from the selection of the bank and the coordination of any paper work required in the transaction.

1.1. Incorporation of a Panamanian Company

The Republic of Panama is very flexible in terms of the incorporation of a company under its Law and at the same time, it protects the confidentiality of its owners.

Law Number 32 of 1927 (Incorporation of Panamanian Companies) imposes no restrictions upon the ownership of shares of a Panamanian Corporation by foreign citizens or corporations, nor are there any nationality restrictions nor residence requirements imposed upon directors or officers of Panamanian corporations under the said law.

In practice, corporations are formed through nominee incorporators in Panama, who execute the basic instrument for incorporation called “Pacto Social”, or more commonly known in English as the Articles of Incorporation, before a Notary Public of the Republic of Panama, and who obtain its registration at the Public Registry in Panama, at which time corporate existence begins.

The Articles of Incorporation may be executed anywhere, within or outside the Republic of Panama, in any language, and the same may be executed by means of a public instrument, or in any other form, as long as the signatures appearing thereon are certified by a Notary Public, or by any other public officer authorized to certify at the place of execution thereof.

Requirements:

a. The name of the corporation, which shall not be the same nor similar to that of another existing Panamanian corporation.
b. The general purpose or purposes for which the corporation is organized.
c. The proposed capital structure of the corporation, or its authorized capital, including the number and classes of shares, whether with or without par value, whether bearer or nominative shares.
In connection with the above, it should be noted that the amount of the authorized corporate capital and the par value of the shares may be expressed in U.S. dollars which is legal tender in the Republic of Panama, or in legal currency of any country, or in both.
d. The domicile of the corporation, which may be in Panama or elsewhere, as well as the name and domicile of its Resident Agent in Panama, who must be an attorney or an attorney's firm in Panama.
e. The duration of the corporation, this may be perpetual.
f. The full name and address of at least three directors that may be natural persons or corporate entities.
g. Any other lawful clauses which the subscribers may agree. It is usual practice to include the full names of the first officers of the corporation consisting of at least a President, a Secretary and a Treasurer, as this affords a considerable time saving. They can be the same persons as the directors of the company.

1.2. Real Estate Taxes

The Real Estate tax must be paid according to the official assessment value, which is usually the declared value on the sale document. The maximum annual percentage of assessment is 2.10%, which is based on the value of the land and plus the declared value of the improvements built on it.

The taxable base will depend upon the total value of the land plus all improvements. Real estate transactions at prices of more than the appraisal value will automatically increase the value of said properties for tax purposes. Certain properties and improvements thereon are exempt or can obtain exemptions from real estate taxes according to special incentive tax laws.

Those properties with assessed registered values of less than US$30,000.00 are exempt from payment of real estate taxes, as well as those properties that fall under the 20 year exemption.

Real Estate Transfer Tax

Transfer tax must be paid by the seller at the moment of transfer of the property. This tax is approximately 2% of either the sale price stated in the Purchase and Sale Contract or the registered property value, whichever is higher.

New residential properties bought for the purpose of using them as a personal residence are exempt from the payment of the Real Estate Transfer Tax.

1.3. Local Bank Financing

In case the client requires any local financing from a banking institution, we herein mention a series of guidelines regarding the average rates and conditions requested by Panamanian mortgage banks.

1. Financing rate: Between 60% - 70% of the purchase price or appraised market value, whichever is the lowest.
2. Interest rate: From 5.5% to 6.5%, plus an additional rate (FECI) of 1% per year, except for primary residences.
3. Duration of amortization: The maximum amortization is 20 years divided into five (5) years renewable at the Bank’s option for three (3) additional terms of five (5) years each.
4. Life Insurance Requirement: Local banks generally require that the borrower(s) contract a life insurance policy and a fire insurance policy; both insurance policies must be for the amount of the loan and must be endorsed to the Bank. The insurance must be underwritten in Panama.
5. Bank’s Commission: The bank’s commission will be approximately 1% of the payable amount of the loan.

1.4. Immigration Program

In its constant search for flexible and diverse immigration programs that would promote Panama as an ideal place to invest and/or live, the Immigration and Naturalization Office has issued a series of visas under which a foreigner and his/her family may establish themselves in our country.

All these visas have common requirements that must be fulfilled; therefore, we have only mentioned the specific characteristic or main requirement for each type of visa.

a. Retiree Visa

This visa requires the retiree to establish a Long Term Deposit account in Banco Nacional de Panama, with duration of at least five (5) years, for an amount that would generate a monthly interest of at least US$750.00, amount that would be considered the retirees monthly income.

Benefits:

ndefinite residence after 15 years of applying for the provisional residence permit.
A Special Passport (this document does not offer Panamanian citizenship).
Multiple tax exemptions and discounts in diverse services offered in Panama.

b. Pensioned Tourist Visa

The applicant must be pensioned or retired by a foreign government, international entity or private company. The person must receive a monthly rent or pension of at least US$500.00 and an additional US$100.00 for each dependant.

Benefits:

Automatic indefinite residence once the person applies.
Multiple tax exemptions and discounts in diverse services offered in Panama.

c. Self Economic Solvency Visa

The applicant must choose one of three (3) ways to obtain the Self Economic Solvency Visa. These options are:

1. To establish a Long Term Deposit account in a local Bank, with a duration of at least two (2) years, for minimum amount of US$200,000.00.
2. To acquire real estate in the Republic of Panama, under its name, for a minimum value of US$200,000.00 and submit proof of economic solvency to cover its daily and general needs.
3. To acquire real estate in the Republic of Panama, under its name, for a minimum value of US$80,000.00 and to establish a Long Term Deposit account in a local Bank, with a duration of at least two (2) years, for minimum amount of US$120,000.00.

Benefits:

Permanent residence after 1 year of applying for the provisional residence permit.
Right to a Panamanian identification card.
Option of applying for the Panamanian Nationality after five (5) years of having the permanent residency.

d. Small Business Investor Visa

This type of visa requires an investment of a minimum amount of US$40,000.00 and a maximum of US$150,000.00.

Benefits:

Permanent residence after 4 years of applying for the provisional residence permit.
Right to a Panamanian identification card.
Option of applying for the Panamanian Nationality after five (5) years of having the permanent residency.

All documents issued outside the Republic of Panama must be apostilled or certified before a Panamanian Consulate at the place of issuance.

1.5. Possessory Rights

It is important to mention that not all properties in the Republic of Panama are of private domain or have been registered at the Public Registry Office.

Most beach front properties, islands and real estate in special tourism zones are owned and managed by the National Government through their local municipal governments, therefore, these properties can only be granted “possession rights”, for a determined period of time.

Possession rights grant land use privileges which are essentially acknowledged based on the occupation, maintenance and use of the land, over a period of time.

We consider it mandatory to draw attention to the fact that Possessory rights DO NOT GIVE YOU OWNERSHIP TITLE over the property. Once a foreign or local investor decides to purchase this type of land rights, they assume the risk of having to “hand over” the property upon the request of the National Government.

I addition, the process under which possession rights are recognized can be very lengthy since it depends on external factors such as the date of recognition of the possession rights, the inspection that must be done by the granting entity, and the actual transfer of the rights.

Island Property

As it is established in article 291 of our National Constitution and confirmed by article 121 of our Tax Code, no foreign corporation or person, as well as no Panamanian corporation with foreign capital can acquire the ownership of national or private properties that are located less than 10 kilometers from the Panamanian frontier or of islands under its jurisdiction.

Although our National Constitution respects all legitimately acquired rights before its enforcement, the majority of the islands in the Republic of Panama belong to the Panamanian Government, so they can only be given in concession for a period of time, except in those areas where the Government has established special tourism regimes, in which case, the properties under that special regime will be subject to purchase by third parties.