A corporation to buy property in Panama?

A corporation to buy property in Panama? Why would anyone want to jump through those sorts of hoops?

After all, anyone – foreigner as easily as Panamanian – can buy property in Panama (save for some restricted areas). And there’s nothing to prevent you from buying in your own name.

However, depending on your particular situation, it may be wiser to use a Panamanian corporation.

Check the differences

When moving from one country to another, it is easy to assume that most of the rules from your home country are similar to those of the new country. This can be a costly mistake.

One assumption is that ‘rights of survivorship’ would apply in Panama. Not so. If you register the title of a property under more than one person’s name in Panama, it just means that each party owns a share of the total. When one co-owner dies, the property does not automatically pass to the surviving co-owner. In some instances, especially when the co-owners are not married, it will pass on to the deceased partner’s heirs.

Even if your co-owner named you as heir in their will made out in Panama, you would still need to go through probate here.

Probate means high legal fees

Probate in Panama is before a court. You will need an attorney to represent you, and although there is no estate tax, attorney fees and costs will be high.

This is the main reason a corporation to buy property in Panama makes sense. If the shares are properly structured, you will avoid probate altogether.

There is an added advantage to forming a corporation to buy property in Panama. If you form a sole purpose corporation to own the property, at the time of sale you could sell the shares of the corporation instead of selling the property directly. This would legally avoid transfer tax.

Avoid transfer tax

Transfer tax is payable by the seller on every sale or transfer of real estate property. The rate is 2% of whichever is highest: the sale price or the updated value of the property. As a fiction of the law, the updated value is calculated at 5% per year of ownership.

If the value is more than $150,000, it makes economic sense to form a corporation to buy property in Panama. Even at lower prices, circumstances such as unmarried partners or a business partnership may make the use of a corporation to buy property in Panama the right decision.

Confidentiality possible

Finally, some degree of confidentiality can be obtained by using a corporation to buy property in Panama, but bear in mind anonymity will require getting nominee directors for your company, and not getting a mortgage, since the bank will ask that you personally appear as debtor in the documentation that will be public record.

In any event, the attorney assisting you in Panama should be asked to advise you and if you come from a world-wide income taxation jurisdiction, you ought to get advice from a specialist in your home country, so that you are conversant with any reporting requirements.

Rainelda Mata-Kelly and her firm in Panama City specialize in administrative, corporate, commercial and maritime law. She and her staff were bright spots for me after my arrival here.