After safety, healthcare and cost of living, ownership in Panama is normally the next important question. This article offers an overview of the basic forms of ownership, for the four most common assets – business, real estate, investments and motor vehicles.
Taking up residency in a foreign country, whether as a retiree or otherwise, would eventually result in owning one or more local assets.
Expats are generally not averse to the idea of foreign ownership, provided the risks are known and acceptable, and the processes are clear. That is why we created this article – to give prospective and new expats an overview and basic understanding of ownership in Panama.
The discussion to follow is a summary of salient features to enable further research if the overall scenario satisfies your criteria.
The ownership–residency relationship
Panama has a variety of visa options for permanent residency; some of these can lead to naturalization.
One of the visa options, the Friendly Nations Visa, requires the applicant to show a professional relationship with the country. Buying or starting a business in Panama is one way to satisfy that visa requirement. In this case, understanding business ownership becomes important.
Likely the most popular visa amongst US citizens is the Pensionado Visa. After the initial period of renting and becoming familiar with an area, many retirees decide to buy a home. In this case, understanding real estate ownership becomes important.
Ownership questions normally revolve around the limitations and risks in owning local assets of significance.
Panama’s Constitution treats property ownership by foreigners in the same way as its citizens. Property ownership is an inherent right under Panama’s Constitution.
The country created Law 54 in 1998 to protect foreign investments. It states, in my own words, that foreigners have the freedom to participate in trade and industry. The economic benefits earned by foreigners through their investments can be utilized as they see fit, including capital, dividends, interest and profit. Foreigners have the right to commercialize their products and services, and other investments in Panama.
Anybody can own a business in Panama, either by way of a start-up or buying an existing business.
Before we discuss the typical forms of business ownership in Panama, a few notes on the limitations around the type of business that can be considered:
- Owning a business in any form does not automatically give an expat a work permit;
- The following jobs are preserved for Panamanian citizens:
|Agricultural Sciences jobs||Medical Doctor|
|Architect||Medical Laboratory Technician|
|Engineer||Public Relations jobs|
- Operating as a real estate or insurance broker can only be done after five years of legal residence in Panama.
A business in Panama can be owned in three different forms, namely sole ownership, a partnership or by means of a corporation.
Typical of smaller or family lifestyle businesses, this form of ownership gives the person or family outright ownership of all the business assets.
Panama’s laws make provision for three types of partnerships, mostly notably the Civil Partnership (Sociedad Civil in Spanish). It is generally used for professional practices.
Partnerships are an uncommon form of business ownership amongst expats.
The incorporation of a Panama company is quick and simple, with no limitations as to residency or citizenship requirements. It is a versatile format of ownership in Panama that can be used to open an offshore bank account, conduct international trade or hold investments of any kind.
An International Business Corporation (IBC) is a popular legal entity, especially for the purpose of asset protection. The Panamanian IBC (or S.A. for Anonymous Society in Spanish) is a company with shares. The shares can be bearer shares, giving the company and its shareholders anonymity, if required.
Nowadays though, with the new international banking regulations, if an IBC wants to open a bank account, it is mandatory to disclose the corporation’s shareholders information to the bank.
A practical alternative to the IBC is a Limited Liability Company (LLC). It is similar to an IBC but with less complexity. One of the main benefits of an LLC is its transparency, given that the owner’s personal information is publicly available, which is a requirement to do business in many countries nowadays.
A corporation requires a minimum of 3 officers and/or directors. These representatives can be either legal entities or individuals. In the case of individuals, they can be of any nationality or country of residence. Nominee officers are permitted.
Individuals or families with a high net worth might consider a Private Interest Foundation (PIF) to hold and protect assets. A PIF cannot engage in commercial activities but can own investments such as real estate, shares in a corporation, listed equities or bank accounts.
The biggest advantage of the PIF is the fact that the assets it holds are not subject to any wrongful acts of its founder, board members or beneficiaries.
Real estate ownership
Panama has progressive property laws and apart from the protection provided by the constitution, the government has enacted several laws to protect private property rights. Foreigners, residents, and citizens enjoy equal protection. In other words, there are no restrictions on real estate ownership in Panama.
The property can be registered in your personal name or it can be acquired by a legal entity such as a corporation or private interest trust. A very important aspect of Panama property that needs to be understood up front, is that there are 2 “types” of property, namely Titled and Rights of Possession.
Most properties are “titled” which means the underlying instrument representing the real estate is a title deed. Ownership of a titled property is registered in the government’s Public Registry.
The process of buying and selling titled real estate in Panama is similar in concept to that of the USA. The actual process would follow these steps:
- Promise to Purchase Agreement (a formal contract to allow the due diligence process);
- Title Search (the due diligence process to confirm ownership, encumbrances, etc);
- Buy-Sell Agreement (the final agreement upon the completion of a positive title search);
- Transfer of Title (recording the sale in the Public Registry).
A mortgage can be secured by registering a lien over the property. Titled property is subject to property taxes.
Rights of Possession (ROP) property
A ROP is simply a document that certifies the right of possession of government property. This right passes onto to the next generation and this right can be sold to third parties, including foreigners.
The difficulty in dealing with ROP property stems from the fact that ROP certifications can be issued by multiple authorities and these certifications are not recorded in the Public Registry or any central database.
The process to buy a ROP property is very similar to that of titled property, but with more emphasis on the due diligence to ensure there are no conflicts of interest:
- Promise to Purchase Agreement (a formal contract to allow due diligence process);
- Certification Search (a very detailed due diligence process);
- Buy-Sell Agreement (the final agreement upon a positive due diligence outcome);
- Conveying of ROP Certification (transfer of ownership).
Note: Two expats that I have spoken to, and who have bought ROP real estate without any problems, have mentioned that they use two different lawyers for the due diligence process. The cost involved could potentially be prohibitive, but it will certainly contribute towards risk mitigation in dealing with ROP ownership in Panama.
It is possible to convert ROP property into a titled property.
A title search is not always 100% accurate. There can be “hidden defects” which will not show up even with a most thorough title search. Hidden defects can include forgeries, fraud, defective deeds, an undisclosed spouse and clerical record errors.
Title insurance protects real estate owners against future loss if the state of the title changes from the date the insurance policy was purchased. There are no Panamanian title insurance companies. However, there are licensed agents in Panama of several international insurance companies who offer property title insurance policies to safeguard your ownership in Panama.
There are no limitations as far as car ownership goes, so even a tourist can buy and insure a car.
This is a little bit off topic, but maybe a good idea to summarise the legalities around a driver’s license.
You can use your international driver’s licenses for the first 90 days of your stay.
However, applying for residency changes the situation somewhat. As soon as your temporary residency card is issued, you can no longer use your international driver’s license. From that date, you need a Panama driver’s license.
Just to make it more interesting, it will be a temporary license, expiring on the same date as your temporary residency! Then, after you receive your permanent residency card, it’s off to the authorities again for your permanent license. Fortunately, it is a much easier process than the initial application, and the permanent license is valid for four years.
“Don’t worry about being successful but work toward being significant and the success will naturally follow” – Oprah Winfrey
I would love to have your thoughts on ownership in Panama in general or any specific issues you have encountered.
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