Panama · Tax guide
Taxes when selling real estate in Panama: the 2 % and the 3 %
Understanding what each tax applies to helps you calculate the money needed to complete the sale and the balance the seller will receive. This guide explains the general rules and their main exceptions.
By Lic. Carlos Quirós V., lawyer, professional licence 15033.
Updated on .
In this guide
Why a 2 % and a 3 % appear in the same sale
A sale may give rise to two different obligations. The Real Estate Transfer Tax (ITBI) applies to the transfer of ownership; its general rate is 2 %. The income tax on capital gains relates to the economic result obtained by the seller; under the regime explained here, a 3 % advance is paid when the transaction takes place.
This is why there are two forms and two payments: one relates to the transfer, while the other is an advance on the tax on the gain. The law sets these rates; they do not result from splitting a single 5 % rate.
| Concept | What it represents | How it is declared |
|---|---|---|
| 2 % ITBI | Tax on the transfer of the property. It may arise even if the sale produces no gain. | Form 106. |
| 3 % ISR advance | Advance payment relating to the capital gain; it may be treated as final when the statutory option is available. | Form 107. |
The explanation and examples below focus on an occasional sale of real estate in Panama, outside the ordinary course of business and without exemptions. Situations requiring different treatment are explained later.
The value on which the percentages are calculated
The bases are calculated separately. For ITBI, the law compares the agreed value with the statutory cadastral base, which considers the value at acquisition, improvements and the 5 % increase for each applicable full calendar year. For the ISR advance, the total disposal value is compared with the cadastral value under article 701. The dates and information on each form must be checked; the two bases do not always coincide.
The cadastral value is the value recorded for tax purposes. A bank valuation or a commercial estimate does not automatically replace it. Likewise, the tax basis used to calculate the gain requires its own review.
The difference between sale price and gain
Receiving B/.200,000 for a property does not mean making a gain of B/.200,000. Part of that income recovers the investment made. To determine the taxable gain, the actual sale value, the basic tax cost and the expenses that may legally be recognised are examined.
Taxable gain = actual sale value
− basic tax cost
− allowable transaction expenses.
The basic cost must be supported by deeds, cadastral information, accounting records where available and the rules applicable to revaluations. Improvements and depreciation may require adjustments. The latest valuation or the historical purchase price should not be adopted without checking whether they represent the correct tax basis.
Under the capital gains regime for an occasional sale, the rate is 10 % of the taxable gain. The 3 % advance, by contrast, is calculated on the reference value of the transfer, before that cost is deducted.
What happens to the 3 %: final tax or refund of the excess
The law allows a taxpayer subject to this regime to opt for final treatment of the 3 %. It also provides for determining the tax on the gain and claiming the excess when the advance exceeds the result of applying 10 % to that gain.
The advance is taken into account when settling the liability. It is therefore inappropriate to mechanically add 3 % of the sale value to 10 % of the gain as if they were two full, independent taxes. The 2 % ITBI retains its separate nature: it is not credited as an ISR advance.
The refund is neither automatic nor money available at completion. It requires the corresponding return and procedure. The provision allows the excess to be claimed in cash or as a tax credit, subject to its conditions. If the cadastral base exceeds the price, the settlement of the advance and the scope of the final-tax option must be reviewed specifically.
How much the seller receives at completion
When negotiating a sale, it is useful to prepare a settlement calculation: start with the price and deduct the payments that will actually have to come out of it. The tax gain and the cash available are different figures.
Repaying B/.80,000 of mortgage principal reduces the cash the seller receives. That loan repayment does not in itself reduce the sale price or constitute a new deductible cost of the property. Financing and the tax calculation are analysed separately.
If a refund is obtained later, it will increase the cash recovered at that time. It should not be recorded as an immediate reduction in the taxes required to register the sale.
What changes between an individual and a company
In an occasional sale subject to the regime described, being an individual or a company does not in itself remove ITBI or the income tax advance. The type of property, the seller’s activity, exemptions and the form of the transaction also matter.
| Topic | Individual | Company |
|---|---|---|
| ITBI and advance | Review the 2 % and the 3 % using the applicable bases. | Review the same items; the company is the seller. |
| ISR on the gain | The special regime under article 701 is examined, rather than automatically applying the progressive ISR rates for individuals. | Article 701 is examined; the 25 % corporate rate is not automatically added to the same gain. |
| Money received | Becomes part of the seller’s assets, subject to their debts and obligations. | Becomes part of the company’s assets. |
| Subsequent use of the money | Withdrawing one’s own funds does not constitute a dividend distribution. | Transferring profits to shareholders may give rise to dividend tax and requires the distribution to be documented. |
For the individual
The B/.11,000 zero-rate bracket for ordinary income is not an automatic exemption for selling a property. A person with low annual professional fees may have obligations arising from this sale.
In addition, the DGI includes capital gains when determining the educational insurance base for individuals, according to the items and exclusions in their return. This contribution must therefore also be reviewed, and the 2 % plus 3 % should not be presented as the sum of all possible obligations.
For the company and its shareholders
If the company makes the sale, the remaining proceeds do not automatically become the shareholder’s personal money. A distinction must be made between a profit distribution, a return of capital, repayment of a documented debt and other legitimate grounds for transferring funds.
A taxable distribution of Panamanian-source profits may be subject to the general 10 % dividend withholding. The base is the relevant profit distributed, not automatically the entire sale price. The complementary tax must also be reviewed if there are undistributed profits.
Regular sales, new housing and other exceptions
Anyone developing projects or engaged in buying and selling properties must review the rules for the ordinary course of business and the applicable options under article 701. It is not enough that the seller is a company: a business may sell its office occasionally, while an individual may conduct a regular real estate activity.
The first sale of new homes and commercial premises may be subject to special ISR rates, determined by the type and value of the property and the relevant permits. These rules are independent of ITBI exemptions or reductions. Both obligations must be checked before applying the 2 % plus 3 % formula.
2026 reform: ITBI benefit for new housing
Law 546 of 31 August 2026 provides, for first sales of new housing that meet its conditions, an exemption on the first B/.120,000 of the base and reduced rates on the excess for transactions of up to B/.200,000.
If the taxable base exceeds B/.200,000, an eligible transaction retains the exemption for the first B/.120,000; the general regime applies to the excess, without the preferential scale. The benefit requires the sworn statements and permit information required for the deed: the price alone does not establish eligibility.
Formal completion must generally take place within two years of the occupancy permit. A transitional provision provides for thirty months for earlier permits, subject to its other requirements. Sales preceding entry into force are governed by the rules applicable on their date.
For example, an eligible B/.150,000 transaction with that same taxable base would apply 1 % to the excess amount of B/.30,000: B/.300 in ITBI. ISR is reviewed separately. This benefit should not automatically be extended to resales, plots or commercial premises.
An annual exemption does not settle the tax on the sale
Annual property tax, ITBI and ISR are different concepts. An exemption for improvements or a tax benefit for a family estate does not in itself establish that a sale is exempt from the other two.
Gifts, inheritances, reorganisations and transactions involving properties for special uses require examination of their own rules. This guide does not automatically apply the treatment of an occasional sale to them.
Who files, when payment is due and what to prepare
The DGI identifies the seller as responsible for filing forms 106 and 107 using their tax registration. When a company sells, its details are used and the duly authorised person acts on its behalf.
ISR on the transaction is paid before the sale is registered at the Public Registry. The DGI states that filing and payment must take place within the same calendar month; it also indicates this monthly coordination for ITBI. The deed must include the details of the relevant payments.
The contract must explain who provides the funds, how payment is evidenced and what is withheld from the price to meet the obligations. An agreement between buyer and seller about expenses must respect mandatory rules and does not replace the tax return.
For transactions covered by this new-housing benefit, a clause imposing on the buyer the payment, reimbursement or assumption of ITBI legally owed by the seller is void.
- Identify the transaction: seller, property, price, regular or occasional activity and existence of a special benefit.
- Review the property: ownership, cadastral value, land, improvements, mortgages and tax status.
- Reconstruct the tax basis: acquisition deeds, improvements, accounting records, accepted valuations and supported expenses.
- Prepare the settlement: ITBI, advance or special ISR, bank debt, expenses and the balance the seller will receive.
- Document and register: forms, payments, tax clearance certificate and other completion requirements.
- Review after completion: updating the owner, any refund and, for companies, the use of funds and possible profit distribution.
If the shares in the company that owns the property are sold
When shares are sold, the property continues to belong to the company; the holders of the shareholding change. The seller of the shares and the company that owns the property are separate persons.
The transaction may be subject to the capital gains regime for securities, with 5 % withholding on the price of the shares and the rules under article 701, paragraph e. This 5 % has its own basis and settlement; it is not the sum of the 2 % and the 3 % on a direct sale of the property.
Before buying a company that owns real estate, its liabilities, tax obligations, ownership and documentation must be reviewed. The chosen form should not be presented as an automatic guarantee of savings or exemption.
Questions on this topic
Read the answers in the firm’s catalogue.
Continue reading
How we can help you
If you need to apply these rules to your situation, learn about the scope of our services and arrange your consultation.