New rules for property tax and tax homesteads
Contributed by Lombardi Aguilar Group
20 December, 2018
The Panamanian tax authority enacted new rules for the withholding of #propertytax on second homes in Panama of property owners. Banks which provide mortgages for said properties will act as withholding agents effective January 1, 2019.
Law 66 of 2017 excludes from property tax the first $120,000 in registered value of the main residence of property owners since 2019, as well as the first $30,000 of all other properties. Under the new Article 764-A of the Tax Code, the first $120,000 which is the main residence of property owners may be deemed the tax homestead (in Spanish patrimonio familiar tributario). In order to have the benefits of the tax homestead, the owner must file an affidavit thorugh the online etax2 website confirming the use to be given to the main residence.
When the tax homestead is owned by a corporation, an affidavit by a certified public accountant stating that 100% of the shareholders are members of the same family in the residence. When owned by a foundation, the founders or beneficiaries must file a similar statement.
However, Article 764-A obliges the law to review every 5 years the exempt threshhold of $120,000 based on an undefined "Contributory Capability Principle" and inflationary effects in order to maintain the exemption. Tax homesteads are not subject to ex officio value increases, unless the taxpayers waives the benefit of the Article. Property owners currently enjoying 20-year property tax holidays may also file for tax homestead benefits.
Tax homesteads still will have to pay 0.5% on the value exceeding $120,000, and 0.7% on the value above $700,000. Tax homesteads which are the first home purchased will have a 3-year exemption on their value up to $300,000. Horizontal property condos will continue paying a 1% property taxon their share of land value during the duration of their improvement exemption, at the end of which their owners may choose to file for the tax homestead benefit.
The general tax rate for all other properties not qualifying for incentives are: - 0.6% of the value between $30,000 and $250,000, - 0.8% of the value between $250,000 and $500,000, - 1% of the value above $500,000, and of land values of horizontal property condos under exemption laws.
An additional paragraph turns banks and mortgage entities into withholding agents of the property tax for properties which are not declared as tax homesteads. Article 7 of the Executive Decree 362 of 2018 demands mortgagors to forward to the tax authorities the amounts due by mortgagees on second homes, despite the prohibition of Article 48 of the Constitution which conditions taking of property by the State to compensation and special procedures.
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