Investing in real estate in Panama by renting the properties can be very profitable. However, real estate lease laws are old and confusing to foreigners. Here is a summary of Panama’s leasing laws:
The Civil Code of 1917 copied the Spanish Civil Code that regulates real estate leases in rural and urban areas. Private residential real estate whose rents exceed $150 per month, commercial and educational activities, and industrial use are covered by this law.
Law 93 of 1973 controls urban residential leases, subleases, rent of rooms and furnished apartments up to $150 per month. Forty years ago, $150 a month was a hefty rent. Vacation (holiday) apartments that are rented for more than six months are also subject to this law. Tenants enjoy greater protection against rent increases and evictions than under the Civil Code.
Leases that are excluded from Law 93 include rural properties, properties reverted from the former Panama Canal Zone, fixed daily rate rentals (motels, inns, hotels and pensions), rentals of vacation homes for less than six months and properties leased by the government.
Since foreigners will only rent properties for more than $150 a month, only the rights of tenants under the Civil Code will be covered here:
Rents: Both parties can negotiate any monthly rental price and increases they want. Rental contracts are usually in Spanish. When foreigners rent to other foreigners, the contract can be written in Spanish and translated or written in both languages.
Security deposits: A security deposit equal to one month’s rent is sent to the Ministry of Housing, which refunds it to the tenant at the expiration of the lease, unless the landlord files a claim for back rent or damage to the tenant’s property. However, most foreigners are not aware of this requirement and many Panamanians ignore it by collecting the deposits themselves.
Lease Duration: There are no restrictions regarding the length of a lease. Landlords cannot evict a paying tenant before the lease expires. However, tenants may terminate any lease with 30 calendar days’ notice.
Utilities: Some utilities and services cannot be transferred to the tenant’s name, such as water and condominium homeowners association fees, which are paid by the owner and incorporated into the rental fee. Cable TV, Internet, phone, and electricity can be in the name of the tenant who pays those bills. Commercial property bills, such as building maintenance fees, water, and utilities, are generally paid by the tenant.
Triplicate: Prepare the Rental Agreement in triplicate. The tenant keeps one copy, the landlord receives another copy, while a third copy is filed with the Ministry of Housing, which also retains the security deposit. Again, many foreigners are not aware of this requirement, while many Panamanians simply ignore it by requiring only copies for the tenant and owner.
foreign they are usually asked to provide the first month’s security and damage deposits. A Panamanian personal reference letter is often requested. Local bank checks or cash are preferred.
Repair The electrical, plumbing and structural parts of the building are usually the responsibility of the owner.
invest In Panama real estate by renting apartments or houses can be very profitable. Some foreigners rent from multinational corporations that have regional headquarters here for their executive employees and visitors. Rental payments are often made via bank transfers and some pay by check.
Taxes they are paid by foreigners and Panamanians alike on their income. However, there are many cancellations and tax deductions just like in the US and Canada and in European countries. A landlord can write off maintenance fees, repairs, management services, realtor commissions, utilities, and other expenses.
Real estate agent commissions They usually consist of a month’s rent and since there is no MLS in Panama, it is not uncommon to see two or three real estate agents splitting the commission between them. The current law requires paying a tax of 7% of the ITBMS (VAT) in addition to the commission.
Realtor Services on behalf of the tenant generally includes the installation of cable television, internet, telephone and electricity in the name of the tenant if the tenant requests this service.
Hire a competent Panama real estate attorney to advise you on real estate laws, landlord-tenant laws, and taxes before purchasing apartments or houses as an investment.