Is Panama Real Estate a Good Investment? Plan B: Asset Protection Planning in Panama

Buying health, car, and home insurance seems like an obvious solution but you should also insure your other assets. Forming a Panama foundation protects you from jealousy, bad decisions, bankruptcy and even divorce. In this situation even your creditors will have to dismiss the case altogether as they will find that you have adequate estate planning and financial affairs far from saying "things will just work out".

Panama was one of the countries to create a flexible legal platform in direct competition with the Trust Companies of the United States as well as other jurisdictions in Europe, allowing you to dispose of your assets as you wish, making modifications as often as required, creating and changing to your liking each of the clauses (in accordance with the law) according to the family/property requirements of each specific person.

Many avoid the discomfort of talking about estate planning because it relates to death and loss of assets. Choosing how to deal with this issue is tantamount to getting ahead of the problem, or leaving things to the cruel reality of chance forcing our heirs, and even ourselves, to make very difficult decisions when there is no turning back. Not analyzing what we should do as we work throughout our productive life directly affects our retirement expectancy, disregard for inflation, loss of purchasing power (worthless or declining currency) and these problems do not recognize language or cultural barriers.

Therefore, it is imperative to start the estate planning process early and if not, do not be discouraged if you have not yet made arrangements. On this occasion, we will cover the topic of how to invest in one of the most "conservative" and medium to long term investment/asset protection modalities through buying real estate in Panama.

So, what is the concept of Plan B? What is the idea behind this concept?

The main idea is to create a passive income in Panama, obtaining a short or long term profitability depending on the value of the property you buy and the objective you have. In Panama there is no tax for "real estate speculation" which basically restricts the negotiation of a property in order to buy cheap and sell more expensive without keeping it for a long time, having a profit margin in between, or you can keep your investment and rent it to obtain monthly benefits projected in the long term.

This being said, buying a property through a Panama foundation is the perfect legal vehicle to protect you and your family's wealth/investment. In other words, you are creating your own retirement/pension plan.

Keep in mind that the purchasing power in Panama, due to the crisis, is low. Forty percent of real estate investments in Panama with a value over $140,000 are acquired by foreigners. This means that a foreign person (without the need of residency in Panama) tends to invest in properties that on average cost over two hundred thousand US dollars (US$200,000); this is due to the high purchasing power most foreigners have in comparison with the local buyer in Panama and the fact that in order to be eligible for a Panama investor visa, for the National Immigration Service, which is the Authority that grants residencies in Panama, you must invest at least that amount (or more, depending on the immigration category).

How does purchasing real estate in Panama work as an optimal investment?

The first thing is to locate the property. There are several opportunities in Panama, each province and region has its own climate, and there are multiple options. For example, buying in Panama City, Panama’s capital and economic center of Panama offers you rapid renting options as a vibrating and dynamic city full of buildings with beaches nearby. You can also invest in beach properties in central Panama in places like Pedasi, or look for more moderate climates (eternal spring) and a relaxed but comfortable life stile in the highlands (Boquete - Cerro Azul - Volcan). There are also emerging market options like David real estate offers in Panama.

Once you have found a property, the next step is to contact the owner, real estate agent or real estate lawyer. They should provide you with the registry information of the property i.e. finca number, location code, and even better would be a copy of the Public Deed (Escritura Publica). We highly recommend to perform a proper due diligence on the property (title check), where your Panama lawyer will look after your interests as a client by investigating the property in the Public Registry (authority that registers sales and purchases in Panama) checking that the cadastral values are correct, and the property has no debts nor claims.

When everything is ready, the LOI (letter of intention) can be prepared, where you make a formal offer to the seller. If the seller accepts your offer in writing (by signing the LOI) then your Panama attorney and the seller's attorney should prepare the promissory purchase agreement.

*** Please note that if the property has a mortgage with a local bank in Panama, the time to transfer the property will be longer and you must have a local bank account in Panama in order to buy a property in Panama.

The promissory purchase agreement will be notarized by a Notary in Panama (it is optional to register the promissory purchase agreement at the Public Registry if the deadline for the closing exceeds 90 days). Bear in mind that all documents must be drafted by a lawyer specialized in real estate law (sales and purchases transactions) to avoid delays. In Panama the down payment at the signing of the promissory purchase agreement is usually 10% and the rest must be paid upon closing when the Public Deed is signed and the transfer of the property is completed (by mutual agreement).Transfer taxes are paid by the seller. Notary and registration fees are paid by the buyer. The real estate agent/broker's commission is paid by the seller. Each party pays their own lawyer.

We have seen cases where the owner of the property did not have the house declared in the Public Registry nor tax office. That is to say, for the Panamanian government not having declared a building structure (when it physically exists in reality) is like having wasteland with nothing built on it, which is presumed as evasion of tax liability, for not paying taxes because the construction that increases the property’s value and "should" pay taxes (depending on the overall value of the property and house) has not been declared.

Once the purchase and sale deed is signed before a Panama Notary Public and the purchase price has been paid, and additionally the deed has been duly registered in the Public Registry of Panama, all steps will have been completed and you will have in your possession the transferred title of your Panama real estate acquisition.

Bear in mind that the notaries in Panama are public officials nominated by the president. Therefore, a notary in Panama will not receive any money to pay taxes, nor does he/she withhold any money for the buyer/seller, nor does he/she draft the contracts or conditions. This task is performed by legal professionals i.e. lawyers. Your Panama lawyer will draft the contract and handle the entire procedure to transfer the property. The notary in Panama will only attest that a purchase and sale contract was signed before him/her, but he/she will not provide any (legal) advise or services on how to do it.

In Panama there are no ESCROW accounts for lawyers like in the United States/Europe. This kind of service is restricted only for banks which charge very high banking fees (fixed rate) depending on the value of the transaction. It is recommended to have a bank account in Panama only if the property has a mortgage.

Once you have purchased the property (being a foreigner) and you need to deposit the rental income of the property, the bank in Panama will take into account that there is a nexus with Panama, and will have the justification to open a bank account for you, provided that all requested documents are presented, and the bank’s internal "Know Your Client" procedures have been fulfilled in order to make a profile of you as a client.

What are the benefits of buying real estate in Panama through a Panama Foundation?

Panama Foundations were created for estate planning purposes. The Law in Panama states that Panama Foundations cannot be seized, nor sequestered, by acts of its Founder, members of the Board or even its beneficiaries Therefore, creditors cannot take assets from the foundation, because when you transfer assets to your “Panamanian Trust” they legally no longer belong to you, they belong to the Panama Foundation for the use and enjoyment of the founder and beneficiaries.

Panama Foundations are ideal for structuring family wealth because they are a combination between a Foreign Trust (originally created in Liechtenstein) and a Holding Company, except that they cannot participate in commercial business, but they can own real estate investments, shares of Panama corporations, bank accounts, among others. They do not have an "owner" as they are made up by its Founder (who constitutes it) and the beneficiary(ies) who enjoy its assets. The key is to see Panama Foundations as a Holding Company.

Conmemore su legado.