Panamanian Economy Continues To Expand

by Mike Godfrey, Tax-News.com, Washington

30 September 2005

The Panamanian economy expanded by 6.2% in the first six months of this year, as measured by the monthly index of economic activity. The most dynamic sectors included fish and seafood exports, agriculture products and tourism.

The government has forecast economic growth this year of between 4.5% and 5%, below the 6.1% growth witnessed in 2004, which was partly a result of temporary real estate tax breaks. The tax breaks, which gave exemption from real estate taxes for up to 20 years, had led to a construction boom in 2004.

The tax breaks were extended into 2005, but finally came to an end last month, although tapered relief continues to be available for shorter periods on new constructions.

Fiscal austerity measures being implemented by the government, with the IMF's strong approval, are expected to dent the economy this year.

Annual real estate taxes are relatively high in Panama:

• 1.75% from $30,000 to $50,000; plus
• 1.95% from $50,000 to $75,000; and
• 2.10% on values above $75,000

Real estate tax savings on a $200,000 home over 20 years under the exemption scheme would be $69,250 – or about one-third of the purchase price of a high-quality home.

Residences with construction permits issued after September 1 will have the following exemptions:

• Value up to $100,000: 15 years
• Value from $100,000 to $250,000: 10 years
• Value over $250,000: 5 years

Land is not exempt and property tax would continue to be paid on it if its value is above $30,000.

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