6 Steps to Buying Property in Panama
Buying property in Panama is probably easier than you're used to in your home country... but the process may take longer. Here is an overview of what you will need to do in order to buy property.
ONE: Decide How to Structure the Title
Do you want the title to be in your personal name, or in a corporation, or in a private interest foundation? There are pros and cons of each.
Personal Name(s): Putting the property in one or more personal names is the easiest.
Corporation: Putting the property in a corporation is the option of choice for most expats. Unlike the US where there are multiple types of corporations (C Corp, S Corp, LLC, etc.), there is only one type of corporation in Panama.
Private Interest Foundation: If you are not going to be getting rental income from your property and you have a complicated estate plan, then you can also discuss the pros and cons of a private interest foundation with your attorney. For the sake of simplicity, we will not go into this here.
TWO: Hire an Attorney
You may not need an attorney in your home country when purchasing property, but in Panama you need an attorney for the contract, the deed, and registering the property with the public registry. The only exception is if you're purchasing directly from a developer, as their attorneys will handle this process for you. However, even if you are buying directly from a developer, you may still want an attorney to review the promise-to-purchase contract. We have reputable bilingual attorneys we can recommend.
THREE: Separate the Property
Once a verbal offer has been made and accepted, a small deposit is given to the seller to "separate" the property and take it off the market. The deposit is typically about $5,000, but this amount can vary depending on the purchase price of the property. A simple 1-2 page separation agreement is used to outline the terms of the offer, and a time limit is given to sign a promise-to-purchase agreement. This time can range between 10 to 30 days, depending on a variety of factors such as location of buyer and seller, upcoming holidays, etc.
FOUR: Promise to Purchase Contract and Deposit
Once the terms of the sale have been agreed to, then the attorneys create a Promesa, which is the Promise to Purchase contract. This is a very simple document that lists: the parties, the property, the price, the terms, the timing, and a few legal paragraphs. It is often just four or five pages. The Promesa can be signed, scanned and returned via email, so the parties need not be in Panama. Once the Promesa is signed, then the buyer sends a deposit directly to the seller--typically 10% minus the amount of the separation agreement. The amount of the deposit can be negotiated during the offer. For example, a buyer might offer a larger deposit for a longer closing period or to make an offer more appealing if multiple people are making offers at the same time.
FIVE: Good Standings
Before the deed can be submitted to the public registry, the attorney for the seller gathers the good standings, called Paz y Salvos in Panama. This proves that there is no existing debt related to the property, and without these good standings, the property cannot close. Every property must have good standings from the PH administration (condo administration), the water company, the electric company, and the tax authority for both transfer taxes and property taxes.
SIX: The Deed, Final Payment, and Registration
The buyer's attorney will create the deed, which in a simplified form is changing the verb tense of the Promesa from "I will" to "I did." The deed is the final contract that is signed by both parties and submitted to the public registry. An original signature is necessary, so both parties need to be in Panama on the same date for signature. If this isn't possible, then you can can grant a limited Power-of-Attorney to your attorney. The final payment is given at the same time as the deed is signed. This can be handled in a few different methods to provide security to both parties.
Closing times will vary. If there are no roadblocks, then a property can close in 30-45 days, although it can often take 2-3 months.
ONE: Decide How to Structure the Title
Do you want the title to be in your personal name, or in a corporation, or in a private interest foundation? There are pros and cons of each.
Personal Name(s): Putting the property in one or more personal names is the easiest.
- PROS: This is the easiest way to make a purchase, and there are no additional expenses.
- CONS: If all of the people who are listed on the title get in a car accident and die at the same time, then the property will need to go into probate, which can be confusing for someone who doesn't live in Panama or who doesn't speak Spanish. This process can also take a long time.
Corporation: Putting the property in a corporation is the option of choice for most expats. Unlike the US where there are multiple types of corporations (C Corp, S Corp, LLC, etc.), there is only one type of corporation in Panama.
- PROS: This is the easiest for estate planning purposes. A corporation has at least three directors. When one director dies, the corporation continues to live, and the deceased person is simply replaced with someone else through shareholders minutes. Another pro is that the corporation can be sold with the property inside of it. This isn't a real estate transaction but a corporate transaction, which is an easier process.
- CONS: There is a cost to setup a corporation, and there is a yearly fee to keep the corporation in good standing. Plan on $1500-$2000 to create the corporation and $300-$600 per year in fees. The difference in yearly fees will depend on whether or not you use a registered agent in Panama or if you act on your own behalf.
Private Interest Foundation: If you are not going to be getting rental income from your property and you have a complicated estate plan, then you can also discuss the pros and cons of a private interest foundation with your attorney. For the sake of simplicity, we will not go into this here.
TWO: Hire an Attorney
You may not need an attorney in your home country when purchasing property, but in Panama you need an attorney for the contract, the deed, and registering the property with the public registry. The only exception is if you're purchasing directly from a developer, as their attorneys will handle this process for you. However, even if you are buying directly from a developer, you may still want an attorney to review the promise-to-purchase contract. We have reputable bilingual attorneys we can recommend.
THREE: Separate the Property
Once a verbal offer has been made and accepted, a small deposit is given to the seller to "separate" the property and take it off the market. The deposit is typically about $5,000, but this amount can vary depending on the purchase price of the property. A simple 1-2 page separation agreement is used to outline the terms of the offer, and a time limit is given to sign a promise-to-purchase agreement. This time can range between 10 to 30 days, depending on a variety of factors such as location of buyer and seller, upcoming holidays, etc.
FOUR: Promise to Purchase Contract and Deposit
Once the terms of the sale have been agreed to, then the attorneys create a Promesa, which is the Promise to Purchase contract. This is a very simple document that lists: the parties, the property, the price, the terms, the timing, and a few legal paragraphs. It is often just four or five pages. The Promesa can be signed, scanned and returned via email, so the parties need not be in Panama. Once the Promesa is signed, then the buyer sends a deposit directly to the seller--typically 10% minus the amount of the separation agreement. The amount of the deposit can be negotiated during the offer. For example, a buyer might offer a larger deposit for a longer closing period or to make an offer more appealing if multiple people are making offers at the same time.
FIVE: Good Standings
Before the deed can be submitted to the public registry, the attorney for the seller gathers the good standings, called Paz y Salvos in Panama. This proves that there is no existing debt related to the property, and without these good standings, the property cannot close. Every property must have good standings from the PH administration (condo administration), the water company, the electric company, and the tax authority for both transfer taxes and property taxes.
SIX: The Deed, Final Payment, and Registration
The buyer's attorney will create the deed, which in a simplified form is changing the verb tense of the Promesa from "I will" to "I did." The deed is the final contract that is signed by both parties and submitted to the public registry. An original signature is necessary, so both parties need to be in Panama on the same date for signature. If this isn't possible, then you can can grant a limited Power-of-Attorney to your attorney. The final payment is given at the same time as the deed is signed. This can be handled in a few different methods to provide security to both parties.
- CERTIFIED CHECK: If both parties have a Panama bank account, a certified check will be given to the notary along with the final deed. The notary holds the check until the deed is released from the public registry.
- WIRE TRANSFER: If you as the buyer don't have a Panamanian bank account, you can make the final payment by wire transfer. In this case the deed is signed by both parties and then held by the notary. Once the funds have been received by the seller, then the notary releases the deed to the public registry.
- ESCROW ACCOUNT: Escrow accounts aren't typical in Panama, and they can be expensive to use. One option is to use a US-based escrow company, which will cost $600-$1000 per transaction. If both parties are in agreement, a US escrow company can be used to hold the funds until the deed is released from the public registry. If both parties are Americans, then this is a valid option. However, non-US citizens rarely like to use a US-based escrow account.
Closing times will vary. If there are no roadblocks, then a property can close in 30-45 days, although it can often take 2-3 months.