Renting Properties in Panama

Investing in Panama real estate by renting out the properties can be very profitable. However, real property leasing 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 regulating real property leases in rural and urban areas. Private residential real estate whose rents exceed $150 a month, commercial, educational activities, and industrial use are covered by this law.

Law 93 of 1973 controls urban residential leases, sub-leases, renting rooms, and furnished apartments up to $150 month. Forty years ago, $150 a month was a substantial rent. Holiday (vacation) apartments renting for more than six months also come under this law. Tenants enjoy greater protection from rent increases and evictions than under the Civil Code.

Leases which are excluded from Law 93 include rural properties, former Panama Canal Zone reverted properties, fixed daily rate rentals (motels, inns, hotels, and boarding houses), vacation home leases less than six months, and government-owned leased properties.

Since foreigners will only be renting properties for more than $150 a month, only tenant’s rights under the Civil Code will be covered here:

Rents: Both parties can negotiate any monthly rent prices and increases as they wish. 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 upon expiration of the lease unless the landlord files a claim for past due rent or tenant property damage. However, most foreigners don’t know about this requirement and many Panamanians ignore it by collecting the deposits themselves.

Duration of the Lease: No restrictions exist concerning the length of a lease. Landlords can’t evict a paying tenant before a lease expires. However, tenants can break any lease with 30-calendar day’s prior notice.

Utilities: Some utilities and services can’t be transferred into the tenant’s name such as water and condo homeowner’s association fees which are paid by the landlord and incorporated into the rental fee. Cable TV, internet, phone, and electricity can be in the tenant’s name who pays those bills. Commercial property bills such as building maintenance fees, water, and utilities are usually paid for by the tenant.

Triplicate: Prepare the Rental Agreement in triplicate. The tenant keeps one copy, the landlord gets another copy, while a third copy is filed with the Ministry of Housing which also holds the security deposit. Again, many foreigners don’t know about this requirement while many Panamanians simply ignore it by requiring only copies for the tenant and the landlord.

Foreigners are usually asked to supply first month’s security and damage deposits. A Panamanian personal reference letter is often demanded. Local bank checks or cash are favored.

Repairs of electricity, plumbing, and structural parts of the building are usually the landlord’s responsibility.

Investing in Panama real estate by renting apartments or homes can be very profitable. Some foreigners rent to multinational corporations who have regional headquarters here for their executive employees and visitors. Rental payments are often made by bank wire transfers and some pay by check.

Taxes are paid by foreigners and Panamanians alike on their rental income. However, there are many tax write-offs and deductions just as in the U.S. and Canada and in European countries. A landlord can write off maintenance fees, repairs, management services, realtor commissions, utilities and other expenses.

Realtor’s Commissions usually consist of one month’s rent and since there is no MLS in Panama it is not uncommon to see two or three realtors splitting the commission between themselves. Current law requires paying a 7% ITBMS (VAT) tax on top of the commission.

Realtor’s Services on behalf of the tenant usually includes setting up cable TV, internet, phone, and electricity in the tenant’s name if the tenant asks for this service.

Hire a competent Panama real estate attorney to advise about real estate laws, landlord-tenant laws, and taxes before purchasing apartments or homes as investments.