Buying Land In Panama - the Down Payment and Capital Gains Tax
by Ives Brant
In most purchase situations in Panama, especially when you're buying land or a resale property, you will have to give the Seller a down payment, approximately 12%. If you insist on putting the down payment into escrow, that will nearly always kill the deal. Escrow doesn't work in Panama for down payments on land. It is not merely that people don't know about it, or mistrust it. Most land sellers in Panama would not trust escrow. Somebody that nobody knows personally is going to hold the money, and I as the seller am going to trust this anonymous somebody to give me the money after you take title to my land? You've got to be kidding!!
It's a deal killer for a very simple reason: the Seller needs the down payment from you to pay his capital gains taxes. These taxes must be paid before -- BEFORE -- he can sell to you.
Let's repeat that, because it defies logic for most foreigners. The Seller must pay his taxes BEFORE he can sell to you. Not just his transfer tax of 2%, but also his capital gains tax of 10% on the profit he is realizing. In most parts of the world, taxes come AFTER the taxable event. Sometimes, as with sales tax, they come WITH the taxable event. Not in Panama real estate, however! The government realized too many people weren't paying their taxes after selling a piece of real estate, so they cleverly switched it.
Now the tax payment PRECEDES the taxable event, the sale to you. It's brilliant on their part, but creates a hurdle for the buyer and seller. The Seller won't risk his own cash to pay the taxes -- it would be nice, but it just will not happen -- and either you take a leap of faith and ante up a down payment that he should hand over to the tax authority, or you can buy property in a different country.
I will defer all questions like "What if he waltzes off with my down payment!?" to your legal counsel. It hasn't happened to us yet, and there are ways to mitigate this risk, but that gets more involved and is better discussed directly with people who have experience buying land in Panama. Yes, it's a valid concern and either you take on the risk, safeguarded by a contract that better have some teeth, or you skip buying in Panama.
As an experienced Panama land buyer, I have several techniques to minimize or remove of the risk related to the down payment.
I haven't had a problem yet related to down payments in Panama. Panamanians are, in the great majority, honest and upstanding. That helps! There are a couple of areas where that rule does not hold true, and I recommend you sign up for my free newsletter if you're serious about acquiring land in Panama.
Why Foreigners Come to Panama
by Ives Brant
Ten percent of England's citizens live outside its borders, but Americans have been far more hesitant to venture abroad to live, with only about two percent living as expatriates. That's changing, and a lot of them are considering Panama. Here's why:
1. Baby Boomers. You've heard the statistic: 70 million Americans retiring in the next 15 years and seeking their place in the sun. If 1/10 of just one percent of them head for Panama, that's 70,000 folks with a Social Security and pension income.
2. Returning Military. Tens of thousands of US servicemen know Panama already, because they were stationed there. If they retire abroad, it's a likely destination for them. Already they are buying lots and building homes in Coronado, or snapping up condos in Panama City.
3. Cruise Ship Passengers Every year hundreds of thousands are treated to the sight on Panama City's skyline upon traversing the Canal. They tend to be near retirement age and their cruise leaves them with excellent impressions.
4. Panama is Inviting Them. With funding of documentaries and commercials on US and Canadian TV, the country is serious about promoting itself as a tourist and retiree destination.
5. The Internet. With a Vonage phone (so talking with friends and family back home is just a local call either way) and e-mail, it isn't so lonely or scary abroad. Chat groups like Yahoo's viviendo_en_panama help too.
6. Terrorism. The tragic events of 2001 triggered an outflow of Americans. Suddenly, the citadel of America did not feel as safe, and countries with warm climates, unlikely targets for terrorists, became attractive to many.
7. Panama's Housing. Suddenly, Panama City and the surrounding beach areas have extremely attractive housing options for any budget.
8. The Skyline. With hundred-story residential towers going up, Panama City conveys such dynamism that its attraction is felt immediately.
9. Retiree Benefits. For "pensionados" there is a long list of breaks on transportation, food, lodging, entertainment, and health care.
10. Stability and Infrastructure. Panama is now a solid country, and the United States will not let it be otherwise. Anything that could threaten the Canal guarantees immediate US intervention.
11. Red Frog and Vista Mar. Ambitious developments pave the way for more upscale developments and higher demand for land, just by showing how it's done.
12. High Costs at Home. For retirees, who need more personal services, including quality health care, but don't buy many imported goods, Costa Rica has been a fine haven. In Panama, they get all that plus extensive retiree benefits and it's a great place to buy almost anything.
13. Familes. Suddenly, suburbia has arrived around Panama City, with Balboa and Costa de l'Este, not to mention fine international schools. Employees of the US embassy, of multinationals with subsidiaries in Panama, and those who have found a way to make a living internationally are flocking into these areas.
