Selling real estate in Panama may give rise to two separate obligations before the transfer is registered with the Public Registry: Real Estate Transfer Tax and income tax on the gain. Identifying the taxable base, rate and applicable regime from the outset helps prevent delays when executing the deed.
Which taxes can arise from selling a property?
The tax cost of a property transfer cannot be determined using a single formula. The transaction must be analysed from two separate perspectives:
| Obligation | What it taxes | Usual procedure |
|---|---|---|
| Real Estate Transfer Tax (ITBI) | The transfer of ownership for consideration | Form 106 and payment under the corresponding code |
| Income tax on the disposal | The gain or the tax treatment assigned to the sale | Form 107 and payment, or assessment through the income tax return where applicable |
The General Directorate of Revenue (DGI) states that Forms 106 and 107 are processed through e-Tax 2.0 and that the return and payment associated with the sale must be completed before the transfer is registered. Organising the documents, confirming ownership and correctly linking the property to the taxpayer are therefore part of the tax closing process.
ITBI and the general 2% rule
Law 106 of 1974 establishes a 2% tax on transfers of real estate for consideration, including sales, exchanges, transfers in settlement of debts and other transactions that transfer ownership. As a rule, the seller bears the obligation. The contract should nevertheless be reviewed to allocate transaction costs correctly, without shifting obligations that the law assigns mandatorily.
Before calculating the tax, confirm the agreed price, the property’s registered value, the nature of the transaction and any applicable exemption. An exemption should not be presumed from the type of property or the treatment received on a previous transfer.
The position on new housing
The treatment of first sales of new homes has undergone recent changes. Law 468 of 2025 repealed the exemption in Article 4 of Law 106 of 1974, and Law 472 of 2025 temporarily reinstated that benefit until 31 December 2025.
In August 2026, the Executive Branch introduced Bill 661. The National Assembly reported that the bill passed its third debate on 26 August 2026. Its text proposes an exemption for the first B/.120,000 of the taxable base on the first sale of new homes and a preferential scale for certain homes valued at up to B/.200,000.
Legislative approval does not replace assent and promulgation. Before applying the benefit, confirm that the law has received assent, been published in the Official Gazette and is in force on the transaction date.
Capital gains when the sale is not part of the ordinary course of business
When the transfer falls outside the seller’s ordinary course of business, Article 701 of the Tax Code provides for a 10% tax on the taxable gain. The system includes a 3% advance payment calculated on the total disposal value or cadastral value, whichever is higher.
The advance payment does not always equal the final liability. The seller may assess the actual gain, with evidence of the acquisition cost and allowable expenses, or treat the advance as the final tax where the rules permit. The appropriate approach depends on the available documentation and the economic result of the sale.
The supporting evidence should cover:
- the acquisition price and date;
- legally recognised expenses and their supporting documents;
- the sale price and payment method;
- the current cadastral value;
- improvements made and duly registered;
- the seller’s identity and tax status.
What changes when selling property is part of the business?
A company that regularly develops or markets real estate should not assume that every sale is treated as an isolated transaction. The analysis begins with its actual activity, the number and nature of its transfers, the type of property and the dates of its permits.
The applicable regime may subject transaction income to a special rate or the general income tax rate. It may also change how Form 107 is filed and how income is reflected in the annual return.
Classification is not merely a way to compare rates. It also affects accounting, cost documentation, the Notice of Operation, municipal obligations and consistency across sworn statements. Splitting transactions or transferring assets without a verifiable economic reason may create more exposure than savings.
A practical checklist before signing the deed
- Define the nature of the sale. Determine whether it is occasional, part of the ordinary course of business or a first sale of a new home subject to a special regime.
- Confirm values and ownership. Review the registry certificate, cadastral value, property account and seller’s tax identification.
- Verify exemptions. Check their legal basis, validity, requirements and specific application to the transaction.
- Calculate each obligation separately. Do not confuse ITBI with tax on the gain.
- Prepare the forms. The DGI instructs taxpayers to prepare Form 106 first, followed by Form 107.
- Reconcile payments. Payments must be correctly linked to the returns before completing registration.
- Retain the file. The contract, certificates, forms, receipts, appraisals and supporting documents must substantiate the tax position taken.
To assess the tax implications before completing a sale, explore our tax planning services.
Frequently asked questions
Does the buyer pay ITBI?
As a rule, the legal obligation rests with the seller. The contract should clearly allocate other expenses and avoid arrangements that conflict with a statutory prohibition applicable under a special regime.
Is the 3% always the final tax?
Not necessarily. It is an advance payment under the capital gains regime for transactions outside the ordinary course of business. The option of assessing the actual gain must be reviewed against the applicable documents and deadlines.
Is payment alone enough to register the sale?
No. Forms, payments and certificates must correspond to the property, seller and transaction. The deed must also meet notarial and registration requirements.
Can the new housing exemption already be applied?
Its promulgation must be verified. The Assembly passed Bill 661 in its third debate, but the benefit can only be applied in accordance with the text that receives assent and is published in the Official Gazette.
Conclusion
The risk is not limited to calculating a rate incorrectly. It also arises from applying an expired exemption, misclassifying the seller’s activity or reaching closing without the necessary forms and evidence. Early analysis helps model the tax cost, allocate responsibilities in the contract and complete registration without last-minute improvisation.
Official sources consulted
- Infojurídica: Law 106 of 1974 and subsequent changes.
- General Directorate of Revenue: capital gains Form 107.
- General Directorate of Revenue: instructions for Forms 106 and 107.
- Ministry of Economy and Finance: proposal on new housing.
- National Assembly: third-debate approval of Bill 661.
This article provides general legal information and analysis; it does not constitute legal advice for a particular matter. Tax treatment must be verified against the facts, documentation and legislation in force at the time of each transaction.
