Law No. 179 (enacted 16 November 2020) includes incentives to foster and encourage development of the real estate sector.
The legislation includes provisions concerning the financing and leasing of real estate in Panama, as well as mortgage-related provisions to assist individuals to acquire a home. The real estate leasing provisions include measures that are similar to lease-to-purchase transactions (that is, rent is paid for a period of time with a purchase option at the end of the contract period).
The tax aspects of these real estate leasing measures provide that interest and rental fees paid during the financial lease of real estate will be considered to be taxable income to the lessor, and therefore subject to income tax and possibly other taxes. Also, deductible expenses for these lessors include expenses incurred for the use and preservation of the property (such as insurance premiums that cover the real estate). Financial lessor may depreciate the real estate during the term of the financial lease agreement based on allowable depreciation criteria.
The tax aspects of the new measures for tenants of a financial lease transaction include that the amounts of the rent paid as interest may be considered to be a deductible expense for the tenant (whether a natural person or legal person), as long as the annual deductible amount does not exceed a threshold (U.S. $15,000). If the value of the property is less than U.S. $200,000, the tenant may deduct up to 15% of the capital component linked to the monthly rent, but only during the first five years measured from the date of the contract for the real estate financing lease.
The legislation also includes relief from the real estate transfer tax. When the lease contract ends, if the real estate is transferred to the lessee, this transfer will not be subject to the real estate transfer tax. If the property is transferred to a third party at the direction of the lessee (such as a corporation or another natural person), there is no relief from imposition of the real estate transfer tax.
The amounts paid under the financial lease of real estate will not be subject to the “tax on the transfer of personal property and the provision of services” (impuesto sobre la transferencia de bienes corporales muebles y la prestación de servicios—ITBMS). Similarly, these amounts will not be subject to the application of the withholding for the surcharge of the “special interest compensation fund” (fondo especial compensación de intereses—FECI) for a period of 10 years in the case of certain properties (e.g., in the agricultural sector, or a principal residence).
Read a November 2020 report (Spanish) prepared by the KPMG member firm in Panama
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