Five things foreigners need to know about investing in Panama

When thinking to move to a new country several questions and doubts pop in your head. Normally these questions are related mainly to the different legal requirements needed in order to obtain residency, purchase real estate, local bank financing and the country's tax regime, among others.

We understand and relate to these concerns; therefore, we have performed a summary of the five (5) things a foreigner needs to know about investing in real estate, in the Republic of Panama.

1. Incorporating a Panamanian company. Normally, Panamanian corporations are used to purchase real estate since they limit liability and maintain the confidentiality of their owner; they are also flexible devices with no nationality restriction.

2. Local Bank Financing. The standard local financing parameters are the following:

a. Financing rate: Up to 70% of the purchase price or the appraised price, whichever is less.

b. Interest rate: Between 5.5% and 6.5%, plus an additional 1% interest rate per year referred to as FECI.

c. Mortgage period: Up to thirty (30) years.

d. Life insurance requirement: The mortgagee is required to obtain life insurance for the amount of the loan in order to secure payment.

3. Real Estate Purchase Procedure. The real estate purchase procedure starts with a complete due diligence of the property and the owner. Then we draft a promissory purchase and sale agreement and finally a real estate purchase and sale agreement which will be drafted in a public deed and then recorded at the Public Registry Office.

4. Immigration Program. The most common visas for foreigners are the following:

a. Retired Tourist Visa. The applicant must establish a long term deposit account at the National Bank of Panama for a period of five (5) years and for an amount that generates a monthly interest of at least US$750.00.

b. Pensioned Tourist Visa. The applicant must be pensioned by a foreign government, an international entity or private company and he/she must receive a monthly rent or pension of at least US$500.00.

c. Self Economic Solvency Visa. The applicant has three options:

c.1 To open a long term deposit account in a local bank for two years, for an amount of US$200,000.00.

c.2 To purchase real estate for a minimum value of US$200,000.00.

c.3 To purchase real estate for a minimum value of US$80,000.00 and open a long term deposit account in a local bank for two years for an amount of US$120,000.00.

d. Small Investor Visa. Requires an investment of a minimum amount of US$40,000.00 and a maximum of US$150,000.00.

5. Real Estate Taxes. Real estate taxes in Panama are approximately 2.10% per year of the recorded value of the property and its improvements and the real estate transfer tax is approximately 2% of the purchase price. Our country has granted up to twenty (20) years of real estate tax exoneration for new properties.

In the last twelve years Panama has implemented several tourism and real estate incentives that along with more flexible legal requirements and benefits complement our country's policy to welcome foreign investment and families.

By: Lorena Velasquez Martinez

Patton, Moreno & Asvat