You Only Have Until 31 August 2007, So Get Cracking...

By DON WINNER for Panama-Guide.com - This morning a post on the Panama Real Estate Yahoo! email group caught my eye. A guy was ticked-off because he purchased a condominium thinking that he was going to receive a 20 year exoneration from property taxes. He said he is looking into the possibility of suing someone because now that his condo is not going to be ready until sometime in 2008, that he's not going to be able to qualify for the 20 year exoneration. I've been asking around about this issue and I'm going to start a series of articles that examine the ins and outs of property tax exoneration. It turns out that a deadline is about to hit. According to Law No. 34 of 9 November 2005, you have until 31 August 2007 (the end of this month) to get your property registered, or no more 20 year tax break for you, sucka... (more)

"Do What To The Where What Who Now? Yeah, this is confusing stuff. Normally I only get into this when there's money at stake, and in this case the difference can easily extrapolate into millions of dollars in property taxes due (or legally avoided), depending on whether or not you have your act together.

I'm Only Talking About The 20 Year Thing Here: If you can't qualify for the 20 year tax exoneration, then there is still a reduced level of exoneration that will apply, depending on the registered value of your property. But those new levels only start to kick in after the 20 year exoneration is officially done and over. The point of this article is that you might still be in a position to lock-in your 20 year property tax exoneration if you have not done so already. So, just review what's presented here and apply it to your personal situation.

Ask Your Lawyer: If you get your legal advice from the Panama-Guide.com well then you probably deserve all of the bad things that are most likely going to happen to you. When it comes to the actual on the ground application of law you need to consult your lawyer. This article is not intended to replace that conversation, but rather to remind you, get you slightly more oriented than you were before, and maybe to get you a little motivated to dial the phone. But be sure to consult with your lawyer and/or accountant in order to make sure you have all of the right paperwork filed. With that having been said, I'm going to talk about the applicable Panamanian laws that create the rules and deadlines:

• Law No. 6 of 2 February 2005: The Panamanian government has been messing around with the idea of eliminating or drawing down the 20 year property tax exoneration for a long time. It was written into this law in early February 2005 and was supposed to be implemented started on 1 September 2005. But, this law was modified by...
  
  
• Law No. 34 of 9 November of 2005: This is the law that is currently in effect and the one that creates the deadline that is about to take effect. In order for you to qualify for a 20 year property tax exoneration your property has to have;
  
  
  • A construction permit issued before 1 September 2006. With that, you can start to build your house, or the guys who are going to be building your condominium can get started.
    
    
  • Once the construction is completed, they have the place inspected and are issued an occupancy permit.
    
    
  • With the occupancy permit in hand you can have the value of your property registered with the Public Registry, but in order to qualify for the 20 year tax exemption this has to happen before 31 August 2007.

Are We Good So Far? OK. Three things are required. A construction permit issued before 1 Sept 2006, an occupancy permit, and to have the value of the property registered with the Public Registry before 31 August 2007. If you don't have (or can't have) those three things, then you can not qualify for the 20 year tax exoneration.

Several Extensions: This is not the first time that Panamanian taxpayers have been staring this particular deadline in the face. There is a slim chance of another extension according to the rumor mill, but personally I think the chances are slim. According to Ricardo Faraudo from the Panama Relocation Attorneys, if there were to be an extension it would have to be proposed by the Ministry of Economy and Finance (MEF) and adopted by the Consejo de Gabinete del Presidente de Panama. That's the mechanism and there are some rumors (which I think are mostly wishful thinking) of an extension. The talk inside of the MEF is that the existing law will be upheld, and that they have not heard anything with regards to another extension. My personal belief is that the 20 year property tax exemption dies in three weeks.

What's the Up Side? There's always an up-side. First of all, this law makes older properties more attractive. But just slightly more attractive because the annual tax bill simply isn't all that much anyway, exemption or no exemption. And the other up-side is that even brand new properties that no longer qualify for the 20 year tax break still qualify for an exemption, just at a lower level and scaled based on the registered value of the property:

• Valued Up To $100,000 - 15 Year Exemption
  
  
• Valued from $100,000 to $250,000 - 10 Year Exemption
  
  
• Valued over $250,000 - 5 Year Exemption

Do The Math: What's your potential tax bill on property tax in Panama? Well, here's more good news. If you remember back to this article published in December of 2005, there is an "Alternative Tax" for the calculation of property taxes that allow you to pay at a lower rate. This program has been extended several times, but according to Ramses Cordoba the government has signaled that the deadline, which has now been established as 31 December 2007, will not be moved or extended, and it is considered to be firm. By way of a reminder:

• Your property tax bill is calculated on an annual rate it is paid or due every four months during the year (April, August and December)
  
  
• If you apply for the "Alternative Tax" then you will be taxed at a lower rate. If you don't apply for the alternative tax then your tax rate will top out at 2.1%.

Taxes Owed - $300,000 Condo: What would the tax burden be on a luxury condominium worth $300k? Assuming that whatever property tax exemption or exoneration you had coming has run out, your tax bill could be $2,615 per year if you file for the "alternative tax" or $5,562.50 per year if you don't. So, there's a potential savings of $2,947.50, a big incentive to apply for and qualify for the alternative tax assessment.

Get The Property Registered: According to Jenissa Aizpura, the Fiscal Auditor in the Exonerations Department of the Ministry of Economy and Finance (MEF), they are going to be using the date that the property was registered in the Public Registry to determine the cut-off and to apply the law. If does not matter if you start the application process for the property exoneration after 31 August 2007, as long as the value of the improvements on the property were registered in the Public Registry before the end of this month.

If You Need More Information: The phone number for the exemptions section of the MEF is 507-7428 but they don't speak English so head's up. Like I said before, your best bet would be to print this article and ask your lawyer. And every time I start to look into these kinds of issues I usually run into more information during the week, so there will probably be follow-up artcles in a couple of days. Hope this helps...

Copyright 2007, by Don Winner for Panama-Guide.com. As usual, go ahead and use whatever you want as long as you credit the source. Salud.