Property Tax Exonerations/Incentives for New Construction

There are various tax incentives for new construction which grant property tax exonerations on the improvements made to the property. These property tax incentives/exonerations include the following:

1. Properties with building permits granted before August 31, 2005 and certificates of occupation granted before August 21, 2006 are exempt from property taxes on the improvements for 20 years from the date that the certificate of Occupancy is issued.

• The tax exemptions only go towards improvements or new construction made to the property. If the property itself is valued at more than 30,000 USD property taxes must still be paid on the portion above 30,000 USD.

2. Properties with building permits granted after September 1, 2005 or certificates of occupation granted after September 1, 2006 are exempt from property taxes on the improvements for 10 years from the date that the certificate of occupancy is issued. The following exceptions are applicable:

• If the new construction is valued at less than 100,000 USD you are entitled to receive a 15 year property tax exoneration, from the date that the certificate of occupancy is granted.

• If the new construction is a commercial building, then the tax incentive can only be applied for a period of 10 years, irrespective of the value of the improvements.

3. The land and improvements of restored buildings located within the areas Santa Ana, Salsipuedes, and sections of Terraplén within the historical district of Casco Viejo which is declared a historical patrimony will be exempt from paying the Real Estate Tax for a period of 30 years counted as from the restoration of the property.

• In order to benefit from this incentive, the investment must be made during the ten years following the establishment of the Decree-Law, that is, until August 2007.

Panama Real Estate Taxes

Article 764 of the Panamanian Tax Code indicates which properties are exempt from property tax. These properties include:

1. Properties registered at a value of 30,000 USD or less including improvements to the land, i.e. construction

2. Land used exclusively for farming and registered with the Ministry of Agriculture and Development at less than 150,000 USD.

The tax basis should be understood as being the value of the land plus the improvement. Article 766 of the Tax Code goes on to establish the property tax table to be the following:

If you have a property valued at 100,000 USD you should pay the following in property taxes:

2.10% of (100,000 USD – first 30,000 USD which is tax exempt) = 1,470 USD

Alternative Property Tax Calculation - following Appraisal

Under the recent real estate tax amendment of 2005, the following alternative tax rate is applicable to properties whose property taxes are paid up to date and whose registered value in the public registry has been updated with a sworn declaration of the estimated value of the property, duly signed by an appraiser:

So the same property under the alternative property tax calculation would be as follows:

1.0% of (100,000 USD – first 30,000 USD which is tax exempt) = 700 USD

Those properties which are not paid up to in property taxes and which have not presented their estimated value in a timely manner, may not take advantage of this alternative calculation.

If you have real estate, with no improvements built on it, and you register the property with an updated cadastral value within one year of the publication of the amendment to the Tax Code - i.e. February 2006 - you will be eligible to have the property taxed according to the alternative tax rate.

In order to apply for the alternative property tax calculation you must present the following documentation:

1. Application addressed to the Director of the Cadastral Department Paz y Salvo (Certificate of good standing from the tax department)

2. Paz y Salvo (Certificate of good standing fro the Public Registry)

3. Copy of cedula of the property owner or Paz y Salvo from the Company which owns the property

4. Current appraisal issued by an approved appraisal official

Tax Incentives for Projects in Special Tourism Zones

Panama has declared different parts of the country as Special Tourism Zones which can receive multiple tax exemptions among other benefits, which include:

• Property taxes exemption including land

• Income tax exemption for a period of 15 years

• 20 years exemption from Import taxes including the Sales tax (5%)

• 20 Years Income Tax Exemption originated by the interests charged by creditors in the tourism activity investment

• Tax Exemption for ports, marinas or airport duties built or reconstructed by the investor.

The Special Tourism Zones are:

Zone 1, La Amistad: Located in the provinces of Chiriqui and Bocas del Toro, characterized by the presence of La Amistad International Park and Baru National Park. The structure is composed of 61 attractions (47 are natural and 14 are cultural) which make this zone propitious for ecological tourism.

The main areas of this zone are concentrated in Boquete and to a lesser extent Cerro Punta, Volcan and the Sereno River.

Zone 2, Bastimentos: The province of Bocas del Toro has one of the largest Marine Parks in the country which includes beach areas, reefs and the presence of the Afroantillian culture which is most present in the architecture of the city of Bocas del Toro.

The tourist areas of this zone are made up of 78 attractions (58 are natural and 20 are cultural), predominating sandy, white beaches and crystalline waters which are ideal for diving and ecological tourism.

Zone 3, Arco Seco: The Arco Seco is conformed by the coastal areas of the provinces of Herrera and Los Santos, unique for their traditions and socio-cultural events which attract large amounts of visitors.

Zone 4, Farallon: Farallon includes 80 kilometers of Pacific Coast, distributed between the provinces of Panama and Cocle. Its tourist potential is comprised of 24 natural attractions of which 17 are beaches and the remaining attractions are in the area of the Anton Valley for ecological tourism.

Zone 5, Metropolitan: The principal attractions are related with Panama City, shopping, business activities, historical and cultural attractions as well as the natural parks that surround it. This zone has 126 attractions (72 are natural and 54 cultural).

Zone 6, Portobelo: Portobelo is located in the province of Colon; it consists of beaches and innumerable diving areas, a National park and an assembly of Historical Monuments. Zone 6 accounts for 82 attractions (54 are natural and 28 are cultural) mainly reefs for underwater explorations and ruins of the forts of Portobelo.

Zone 7, San Blas: The Caribbean of the Kunas, an exotic place due to its islands and areas of corral reefs and white sandy beaches guards one of the most traditional and native of the Americas.

There are 200 attractions in this zone (173 are natural and 27 are cultural). Its potential is characterized by more than 300 coral based islands and associated white sandy beaches.

Zone 8, Archipelago de Las Perlas: Composed of more than 30 islands and 83 beaches in the Pearl Island Archipelago, complimented by ample coral reefs and innumerable sport fishing areas. Zone 8 is made up of 136 attractions all of which are natural, characterized by beaches and fishing spots.

Zone 9, Darien: The tourist potential of this zone is made up of 72 attractions (39 natural and 33 cultural). The main attraction is the Darien National Park declared by UNESCO as a Biosphere Reserve ideal for the ecological and adventure tourism, additionally it integrating the indigenous groups that live in this zone