Tax Regime for the Sale of Real Estate in Panama

By Liz A. Prestan O.

By Liz A. Prestan O.

Selling real estate in Panama triggers not one, but two tax obligations, completely independent in nature and calculation.The first is the Real Estate Transfer Tax, which taxes the transfer of ownership itself.The second is the Capital Gains Tax, which taxes the economic benefit the seller obtains from the transaction.Although both taxes arise from the same event—the sale—and are usually settled concurrently, each has its own rules, tax bases, and potential exemptions.This article examines each tax separately, focusing particularly on the specific rules that apply when the seller buys and sells real estate regularly as part of their ordinary business operations.

Real Estate Transfer Tax (ITBI)

This tax is levied on the transfer of ownership of real estate when that transfer occurs in exchange for consideration: sale, exchange, payment in kind, or any other agreement that produces the same transfer effect. Its standard rate is 2% of the transferred value, and as a rule, it is the seller who must pay it—without prejudice to the various exemption regimes explained in the following sections.

Bill under consideration: ITBI exemption for new housing up to B/.120,000.00

To understand this initiative, it is necessary to go back to what happened with the law that preceded it. The former Article 4 of Law 106 of 1974 provided for an ITBI exemption for new housing, but it was repealed by Law 468, enacted in April 2025. Two months later, Law 472 of June 2025 reinstated that exemption, although with an expiration date: the benefit was limited to December 31 of that year. When that date arrived without an extension or a substitute being approved, the incentive simply expired in January 2026—an outcome that, according to the Ministry of Economy and Finance (MEF) and various construction industry associations, left numerous housing projects stalled and harmed buyers with transactions already underway.

In response to this void, and seeking a more permanent and targeted solution, the Cabinet Council issued Resolution No. 70, published in the Official Gazette on August 12, 2026, authorizing Minister Felipe Chapman to submit a bill to the National Assembly to amend Article 4 of Law 106 of 1974. The following day, August 13, 2026, Chapman personally presented the initiative to the full legislature. This is, therefore, a project still in process —it is missing its three debates— and not a rule in force; it is advisable to monitor its evolution until, eventually, it is sanctioned and published.

In response to this gap, and seeking a more focused and permanent solution, the Cabinet Council issued Resolution No. 70, published in the Official Gazette on August 12, 2026, authorizing Minister Felipe Chapman to submit a bill to the National Assembly to amend Article 4 of Law 106 of 1974. The following day, August 13, 2026, Chapman personally presented the initiative to the full legislature. This is, therefore, a bill still under consideration—it has yet to undergo its three required debates—and not yet a law in force; its progress should be monitored until it is eventually enacted and published.

According to the text submitted to the Assembly, the first B/.120,000.00 of the price of any new home sold for the first time—regardless of the property’s total value—would be exempt from the ITBI (Property Transfer Tax), provided the sale is finalized within two years of the occupancy permit being issued. The seller would continue to be responsible for paying the tax, and the bill itself declares null and void, without exception, any arrangement that seeks—openly or covertly—to shift this burden onto the buyer. In presenting the proposal, Minister Chapman emphasized that, although the law places the obligation on the seller, in commercial practice this cost ends up being passed on to the price paid by the buyer; hence, an exemption scheme specifically targeting the most affordable segment of the market was chosen.

For properties exceeding B/.120,000.00 but not reaching B/.200,000.00, the project does not simply eliminate the tax: it recalculates it based solely on the portion of the price exceeding the initial B/.120,000.00, and applies a scale to this excess—as explained by the Ministry of Economy and Finance (MEF)—designed so that the benefit does not disappear abruptly as soon as the initial threshold is crossed:

Selling real estate in Panama triggers not one, but two tax obligations, completely independent in nature and calculation.The first is the Real Estate Transfer Tax, which taxes the transfer of ownership itself.The second is the Capital Gains Tax, which taxes the economic benefit the seller obtains from the transaction.Although both taxes arise from the same event—the sale—and are usually settled concurrently, each has its own rules, tax bases, and potential exemptions.This article examines each tax separately, focusing particularly on the specific rules that apply when the seller buys and sells real estate regularly as part of their ordinary business operations.

To date, the project has garnered the support of the most representative associations in the real estate and construction sectors: the Panamanian Chamber of Construction (CAPAC), the Panamanian Association of Real Estate Brokers and Developers (ACOBIR), and the National Council of Housing Developers (Convivienda) have all expressed their support, highlighting its potential to reactivate housing developments stalled after the expiration of the previous tax exemption and to generate construction jobs. Meanwhile, the Executive Branch has announced that it is preparing a program called “Abono Inicial Pa’ Ti” (Down Payment for You), designed to ease the initial outlay for first-time homebuyers, although details have not yet been made public.

There is also a constitutional requirement that cannot be overlooked: Article 276 of the Constitution mandates that any tax exemption that reduces revenue in the State budget must be accompanied by a source of income to compensate for it. To fulfill this mandate, the Ministry of Economy and Finance (MEF) has announced that it will submit a separate bill to the Assembly, aimed at collecting the ITBMS (Transfer Tax on Goods and Services) that currently escapes payment for purchases made on foreign e-commerce platforms and short-term rentals such as Airbnb, as a source to finance the fiscal cost of this ITBI (Transfer Tax on Real Estate) exemption.

If it becomes law as currently drafted, this exemption would coexist—and in some cases compete or overlap—with the ITBI exemptions that already benefit companies with ordinary business operations, described in Section III below. Determining which of the two regimes is more advantageous for a transaction between B/.120,000.00 and B/.200,000.00 will therefore be a case-by-case exercise once the reform is enacted.

Capital Gains Tax

Here the story is more complex than with the ITBI (Tax on Real Estate Transfers). Instead of a uniform rate, Panamanian law offers three different paths for calculating the tax on the profit from the sale of real estate, and which of these paths applies depends, essentially, on a single question: Does the seller buy and sell real estate as a regular part of their business, or is it a one-off transaction outside of that business?

Sales within the ordinary course of business

For properties exceeding B/.200,000.00, the text is silent on any differentiated treatment.In the absence of an explicit provision, it would be reasonable to assume that these transactions would continue to be subject to the standard 2% tax rate, or alternatively, the exemption scheme for ordinary business activity explained in Section III, depending on the seller’s circumstances.

The progressive rate

Qualifying for the progressive rate is not automatic: it requires that all of the following requirements be met simultaneously:

• That the company’s business is specifically the purchase and sale of homes and commercial premises; and
• That, in addition, the properties sold meet two specific conditions: that their building permit dates from after January 1, 2010, and that they are new units—that is, sold for the first time.

In practice, this last requirement is usually the deciding factor. A company dedicated to buying and reselling existing properties—foreclosed properties, for example, and not newly built units—simply cannot comply, even if it makes many more than ten sales a year; for it, the progressive tax rate is inapplicable.

Once both filters are met, the tax base will be the higher of the sale price and the cadastral value in effect at the time of the transaction. The following scale applies based on that:

Regarding the ITBI (Property Transfer Tax), companies operating under the progressive rate can be exempt from paying it, but only if they all meet the conditions established by the most recent amendment to Article 4 of Law 106 of 1974:

• That the sale is finalized within five years of the issuance of the occupancy permit for the dwelling.
• That the property is new, that is, that it is its first sale.
• That the occupancy permit was issued before July 1, 2023.
• That the building permit was issued sometime between July 1, 2016, and July 1, 2022.

The general rate

If the above requirements are not met, the company with ordinary business operations will be subject, by default, to the general Income Tax rate. Under this procedure, the tax on the profit obtained from the sale of real estate is settled at the close of the fiscal period, within the company’s own Income Tax Return, without the need to process Form 107 separately. That said, it is not uncommon for notarial practice to still require a sworn statement clarifying that this form is not attached precisely because the transaction is taxed under the general rate.

Regarding the ITBI (Property Tax), the historical rule exempts companies taxed under the general rate from payment, with one exception: if the sale occurs more than two years after the occupancy permit is issued, the tax is due—although the amount paid can later be credited against Income Tax. What has complicated the situation is the recent reform to Article 4 of Law 106 of 1974, which ties the benefit to conditions designed for new housing within very specific date ranges (occupancy permit before July 1, 2023, construction permit between July 1, 2016, and July 1, 2022). The question remains whether a company under the general rate, whose properties do not fall within those dates, retains the old two-year exemption, or whether that general rule has been tacitly superseded by the new standard. Until the tax authority clarifies this point, each case must be evaluated separately.

Sales Made Outside the Ordinary Course of Business

If the seller does not buy and sell real estate on a recurring basis—if, instead, the transaction is an isolated event within their business—a different system applies: a fixed rate of 10% on the taxable profit, accompanied by an advance payment mechanism. Before the transaction is finalized, the seller must pay the tax authorities 3% of the total sale price or the cadastral value, whichever is higher, as a credit against Income Tax.

With this advance payment already made, the seller has two options. They can go to the General Directorate of Revenue with a sworn statement declaring the actual profit obtained—supported by documentation of deductible expenses—so that the tax is definitively set at 10% on that actual profit; Or, if you prefer not to go through that additional procedure, you can simply accept the 3% already paid in advance as the final tax payment, without any further settlements.

Other taxes applicable to companies with ordinary business operations

The special treatment these companies receive regarding capital gains and ITBI (Tax on Real Estate Transfers) does not exempt them from the rest of the ordinary tax burden. Whether they pay under the progressive rate or the general rate, they still owe:

• Notice of Operation: It is calculated at 2% of the declared assets, with a floor of US$100.00 and a ceiling of US$60,000.00 per year, and is paid along with the income tax return for the period.
• Dividends: 5% when the distributed amount comes from foreign source income, and 10% when it comes from Panamanian income;if there is simply no profit to distribute, the tax is not levied.
• Complementary Tax: a 4% rate on profits, which is triggered when the company does not distribute dividends, or distributes less than 40% of its earnings for the period.
• Property Tax: under the progressive scale of Articles 764 to 766 of the Tax Code.
• Notice of Operation: It is calculated at 2% of the declared assets, with a floor of US$100.00 and a ceiling of US$60,000.00 per year, and is paid along with the income tax return for the period.
• Remittances Abroad: 12.5% ​​on the remitted amount, unless a Double Taxation Agreement reduces that charge.

Specifics depending on the applicable rate

Under the progressive tax rate, income from the sale of real estate is not added to the rest of the company’s income in the annual tax return, simply because it has already paid its tax independently at the time of each transfer.

Under the general tax rate, the opposite occurs: these revenues are included with the company’s other income and taxed together, all at the general rate, at the end of the period.This leads to an important consequence to keep in mind: if the total annual revenue exceeds US$1,500,000.00, the company automatically enters the Alternative Income Tax Calculation (CAIR) method.Since CAIR is triggered by revenue volume—not profit—even a company that has been carrying losses could be caught by the General Directorate of Revenue’s system.At that point, it is advisable to consider requesting an exemption from CAIR, a decision that, being an accounting matter, should be validated in conjunction with the company’s auditors.

Operational Requirements for a Business with Ordinary Business Activities

Panamanian law does not create a special permit for those who regularly buy and sell real estate; they are subject to the same procedures that any other business engaged in commerce in the country must follow.

Notice of Operation

Executive Decree No. 26 of 2007, in paragraph 7 of Article 14, exempts from the Notice of Operation those who carry out commercial or industrial activity on an occasional, non-habitual basis. Read in reverse, this would suggest that all habitual activity does require such a Notice—but neither Decree 26 itself nor Law 5 of 2007, which regulates the matter, expressly states what qualifies as “non-habitual.”

In practice, this gap is filled by Decree 170, which establishes that the activity becomes the ordinary course of business at more than ten properties sold per period. It follows that a company exceeding this threshold is, by definition, operating habitually, and the exception in Decree 26 simply does not apply: it needs its Business License.

Under the general tax rate, the opposite occurs: these revenues are included with the company’s other income and taxed together, all at the general rate, at the end of the period.This leads to an important consequence to keep in mind: if the total annual revenue exceeds US$1,500,000.00, the company automatically enters the Alternative Income Tax Calculation (CAIR) method.Since CAIR is triggered by revenue volume—not profit—even a company that has been carrying losses could be caught by the General Directorate of Revenue’s system.At that point, it is advisable to consider requesting an exemption from CAIR, a decision that, being an accounting matter, should be validated in conjunction with the company’s auditors.

Municipal Registry

With the Notice of Operation in hand, the next step is to register the business with the corresponding municipality. Once the tax assessment resolution—which sets the monthly municipal tax—is issued, the company is required to submit its Municipal Income Tax Return every March. Municipal Agreement No. 40 of April 19, 2011, establishes the deadline for this: ninety calendar days after the taxpayer’s fiscal year-end.

Registration with the Social Security Fund

Any company that operates with employees—that is, where there is an employer-employee relationship—must register with the Social Security Fund, which will provide an employer identification number for all future transactions with that entity. Once registered, the company must submit a payroll report each month, withholding Income Tax, Social Security, and Educational Insurance contributions from employee payments.

The basis for this obligation is found in Article 87 of Law 51 of 2005: any individual or legal entity operating in Panama that employs a worker or apprentice—through an express or tacit employment contract with payment of wages or salary—must register as an employer within the first six business days of commencing operations. Two conditions must be met for this obligation to arise: operating in the country and having someone actually working under an employment relationship. This also aligns with what the Social Security Fund itself has stated informally: without a first employee hired, there is no obligation to register as an employer or to enroll anyone.

Considerations When the Seller Is Part of a Banking Group

There is a scenario that deserves separate consideration: when the company that buys and sells real estate—typically properties received in payment of debts or foreclosed upon—belongs to a banking group or has some type of connection with a bank operating in Panama.

The Banking Law, in its Article 101, establishes a general prohibition: banks cannot buy, acquire, or lease real estate for themselves. This rule is waived, however, in three situations: when the property is necessary for the bank’s own operations or for the well-being of its personnel; when it involves land acquired to build and sell housing or develop urban projects, within the limits of Article 99 of the same law; or when there are exceptional circumstances expressly authorized by the Superintendency of Banks. There is also an additional, highly practical option: when a debtor defaults, the bank holding the property as collateral can keep it and sell it as soon as possible, within the timeframe set by the Superintendency.

“Article 101. Prohibition on the Purchase or Lease of Real Estate. Banks are prohibited from purchasing, acquiring, or leasing real estate for themselves, except [in the cases described above] […] Notwithstanding the foregoing, banks that have accepted real estate as collateral for their loans may, in the event of default, acquire such real estate for sale at the earliest opportunity […]”

The manner in which such real estate must be accounted for and sold once acquired is regulated in Agreement No. 3-2009 of the Superintendency of Banks of Panama, dated May 12, 2009—a regulation that applies to official banks, banks with a general license, and banks with an international license whose original supervisor is the same Superintendency. Articles 2 through 6 impose specific obligations on the banking entity: defining a sales policy, notifying the acquisition, recognizing it in the accounting records, respecting a deadline for disposing of the property, and establishing the corresponding reserves. These same obligations extend to the bank’s subsidiaries that make such acquisitions, and, when the acquirer is an affiliate—not a direct subsidiary—the Agreement places the responsibility for compliance on the company that owns the bank’s shares.

It follows from all this that a Panamanian bank can retain properties given as collateral—even through subsidiaries or affiliates—but in doing so, it submits to this specific regulation. The question that truly matters, on a case-by-case basis, is whether the company that ultimately sells these properties is within the regulatory consolidation perimeter of the bank or its holding company. When a company is not included in the consolidated financial statements of a bank regulated in Panama—because it is, rather, dependent on a foreign parent company with its own auditing and accounting, separate from any local branch—there is a solid argument to support the claim that it falls outside the scope of the obligations of Agreement No. 3-2009: the “acquisition by affiliate” scenario contemplated by that regulation presupposes, precisely, that the affiliate in question forms part of that consolidation perimeter, under the supervision of the Superintendency of Banks of Panama.

Frequently Asked Questions in Practice

What does it generally mean for a company to qualify as having an ordinary course of business?

Once the threshold of ten properties sold in the same fiscal period is exceeded, the company is trapped, with no intermediate solutions, by the entire set of obligations described in this article: those related to capital gains and ITBI, yes, but also the Notice of Operation, the municipal registry, and the other taxes already mentioned, regardless of whether it ends up paying under the progressive or the general rate.

Must Form 106 always be filed and the 2% ITBI always paid?

Not in all cases. Under the progressive rate, the company is exempt from the ITBI (Property Transfer Tax) if it meets the conditions already outlined in section III.A.1. Under the general rate, the exemption also exists, although it is lost if the sale occurs more than two years after the occupancy permit is issued—in which case the amount paid serves as a credit against Income Tax—; and, as already explained, the recent amendment to Article 4 of Law 106 of 1974 leaves some uncertainty regarding the actual scope of this exemption under the general rate.

Is it still necessary to file Form 107 for capital gains?

That depends on which rate applies. With the progressive rate, each sale requires its own Capital Gains Declaration for the Sale of Real Estate (Form 107), calculated using the rates in Article 701, paragraph a), of the Tax Code. With the general tax rate, however, the tax is paid directly in the Income Tax Return at the end of the period, without going through Form 107.

From which sale does the calculation methodology change?

From the eleventh sale of the fiscal period. It is precisely at this point where, according to the definition in Decree 170, the activity ceases to be occasional and becomes the ordinary course of business, with all that this entails.

What expenses are deductible when calculating capital gains?

Article 93-B of Decree 170 limits the list to four items: purchase and sale commissions, attorney’s fees, notary fees, and registration fees. Nothing else is included—not even the Property Tax paid on the sold property, which is expressly excluded from the list of deductible expenses.

Are there planning alternatives, such as a spin-off or a trust, to avoid qualifying as ordinary business activity?

A spin-off, a mechanism recognized by the Panamanian Commercial Code, does theoretically offer a solution: distributing a company’s real estate inventory among several beneficiary companies, so that none of them, viewed separately, reaches the eleven annual sales that trigger the ordinary business activity regime.

But this route has its own complications. Those who avoid qualifying as ordinary business activity also forgo its benefits—especially the potential ITBI exemption—and would end up paying capital gains tax and ITBI under the standard rules that apply to occasional sellers. And there’s something even more delicate: a structure expressly designed to circumvent the classification could be interpreted by the tax authorities as a deliberate attempt to evade related obligations—the Notice of Operation, in particular—creating a contingency that should be carefully considered before proceeding down that path.

Ultimately, what are the benefits and risks of classifying as ordinary business activity?

From a strictly legal perspective, the benefits boil down to two: access to potentially more favorable capital gains tax treatment (the progressive tax rate) and, where applicable, exemption from the ITBI (Property Tax), with the nuances already described.There doesn’t appear to be any inherent risk in this classification, provided the company fully complies with all legal requirements.

However, there is a risk that affects any company that sells real estate with some frequency, whether or not it qualifies as an ordinary business activity: failure to declare the dividends derived from each sale in accordance with current law; the determination by the tax authority that a Notice of Operation was required and it was never processed; failure to pay the corresponding tax when required; or, in general, not being up to date with the taxes described in this article.

From a strictly legal perspective, the benefits boil down to two: access to potentially more favorable capital gains tax treatment (the progressive tax rate) and, where applicable, exemption from the ITBI (Property Tax), with the nuances already described.There doesn’t appear to be any inherent risk in this classification, provided the company fully complies with all legal requirements.

From a strictly legal perspective, the benefits boil down to two: access to potentially more favorable capital gains tax treatment (the progressive tax rate) and, where applicable, exemption from the ITBI (Property Tax), with the nuances already described.There doesn’t appear to be any inherent risk in this classification, provided the company fully complies with all legal requirements.

Conclusion

What is clear after this overview is that Panama combines a simple transfer tax with a considerably more complex capital gains tax regime, and that this complexity increases precisely when the seller crosses the threshold of ten properties per period and begins operating under the ordinary course of business. Accurately classifying each transaction—knowing whether the progressive or general rate applies, and whether or not the ITBI exemption is applicable in light of the successive reforms to Article 4 of Law 106 of 1974—is no small matter: it determines both how much the company ultimately pays and the risk of incurring liabilities for not having processed the Notice of Operation, municipal registration, or Social Security registration on time. And since real gray areas persist in these regulations—especially regarding the scope of ITBI exemptions after the most recent reforms—there is hardly a generic shortcut: each transaction requires its own analysis before establishing a tax strategy.

Adding to this picture, as this article is being written, is a reform still under development: the bill that modifies Article 4 of Law 106 of 1974, presented by Minister Chapman before the Plenary of the National Assembly on August 13, 2026 (with Cabinet Resolution No. 70 of August 12 as its immediate antecedent), which would exempt the first B/.120,000.00 of the first sale of a new home from ITBI—with a special scale for the portion between B/.120,000.00 and B/.200,000.00—provided that the transaction is finalized within two years of the occupancy permit. It is no coincidence that this initiative has arisen now: it directly addresses the gap left by the repeal of the former Article 4 (Law 468 of 2025) and the expiration, on December 31, 2025, of its temporary reinstatement (Law 472 of 2025). While the bill undergoes its three debates in the Assembly—and while the substitute income tax required by Article 276 of the Constitution is being defined—it is worth bearing in mind that, if approved, it would add a third ITBI (Tax on the Transfer of Real Estate) exemption regime to those already existing for ordinary business operations. This will make it even more necessary to compare cases individually once the final text is enacted and published.

This article is for informational and general legal analysis purposes; it does not constitute legal advice for a specific case. The availability of incentives, licenses, and tax treatments must be verified according to the facts and regulations in force at the time of each transaction.