Development is booming in Panama to meet the demand for housing, tourist accommodations, business centers and service infrastructure. Many of those who come to invest or live in Panama also choose to build, taking advantage of cheap labor and a string of government incentives to encourage development.

The Panamanian Institute of Architecture and Urbanism estimates construction will generate more than $10 billion over the next five years, and Panama City in particular is a shining example of the building boom. Indeed, construction is one of the main engines of Panama economic growth, which is expected to have increased nearly 7% this year.

To further stimulate the construction sector, special legislation has been put into place to offer tax breaks and preferential interest rates to developers. Other special incentives on construction include those made in special tourist zones and are considered ‘in the public interest' as defined by the Panamanian Institute for Tourism.

Tourist zones are granted a 20-year exemption on real estate taxes, as well as import duties and value-added tax over the importation of furniture, materials, equipment used for the construction, as well as vehicles of at least eight passengers.

Those who do invest in Panama may be eligible for residency and immigrant visas. Below are some of the benefits and exemptions available for real estate investments in Panama; please contact us to discuss how you can take advantage of these special offers.

Real Estate Tax Exemptions

Land and real estate located in Panama valued above $30,000 are all subject to real estate taxes, which is based on the value of the land plus any improvements (such as new constructions). Real estate transactions can increase the value of the land, which is appraised by the Ministry of Economy and Finances.

However, in September 2006, new rules came into effect (replacing earlier incentives programs) offering tax exemptions of up to 15 years on the construction of residential homes. These exemptions are transferable when the property is sold.

• Commercial Buildings: 10 year tax exemption
• Other Construction Use: 10 year tax exemption
• Houses:
  • Up to US$100,000 --- 15 year tax exemption
  • US$100,000 - US$250,000 --- 10 year tax exemption
  • More than US$250,000 --- 5 year exemption

Preferential Interest Rates

Through to May 2009, reduced mortgage interest rates up to 6.5% below regular rates are also offered in some cases. To qualify, the home being built must become the owner's principal dwelling, and be valued below $62,500. This incentive is mostly appealing to those who want to move or retire to Panama .

Income Tax Exemption

In some cases, profits on real estate sales that are reinvested in new constructions can be exempted from income tax. In order to qualify, the re-investment must be made in housing valued at $62,500US or less.

Special Tourism Zones

The Panamanian government has designated several zones within the country of special interest for tourism, and is offering additional incentives to promote development within those areas:

• 20-year exemption on real estate tax
• 15-year exemption on income tax derived from tourism activities
• 20-year exemption from import duties and value added tax on furniture, materials, equipment, parts and accessories for construction, as long as they are not manufactured in enough quantity in Panama. (This includes eight-passenger vehicles, as well as aircraft, boats, etc. to be used exclusively for tourist activities).

Old Panama City, or Casco Viejo

Flanking Panama City's gleaming high-rises and cosmopolitan allure lies the Old Town, or Casco Viejo, which thrived in the 17th century in the heyday of Spanish colonialism in Panama.

Much of the exquisite architecture has fallen to ruins, but restorations are under way breathing new life into the charming and colourful old district. The Panamanian government is offering special incentives for the restoration of historical monuments and buildings within the Casco Viejo, including:

• 10-year income tax exemption on the sale or rental income of properties
• 30-year real estate tax exemption
• total exemption on the 2% transfer tax of real estate on the first sale of properties valued above $50,000
• preferential interest rates on loans
• total import tax exemption for equipment and materials related to construction and restoration that are not available in Panama

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