FAMILY PROPERTY OR FIRST HOME
The real estate tax is typified in Article 763 of the Tax Code and indicates that this tax applies to “all land located in the territory of the Republic, as well as buildings and other permanent constructions made or to be made on such land; whether or not they have a title deed, registered in the Public Registry of Property”.
The table to determine the amount to be paid is as follows:
| Property value | Property tax rate |
| Up to US$30,00 | Exemption (0%) |
| US$30,001 – US$250,000 | 0.6% |
| US$250,001 – US$500,000 | 0.8% |
| US$500,001 or more | 1% |
However, in 2019 an amendment was made to the Tax Code with reference to real estate tax and the terms “Taxable Family Property (TFP) and Principal Dwelling” were introduced.
Thus, on October 17, 2017, Law 66 was born, by means of which the terms mentioned in the previous paragraph are regulated and the exemption from payment of the real estate tax is established for real estate whose taxable base, does not exceed a cadastral value of one hundred and twenty thousand balboas (B/.120 000.00).
What is Taxable Family Property (TFP)?
The taxable family estate corresponds to the real estate destined for permanent use by the owner of the property for housing purposes with his family, living under the same roof.
What is Principal Residence (PR)?
The principal dwelling shall be that of permanent use by the owner of the real estate, a natural person, for housing purposes, among his residential real estate and which does not constitute family property.
Who can apply?
Both natural and legal persons (corporation, private interest foundation, trust) may apply.
Now we explain what the tax basis would be if you take the Taxable Homestead or Principal Residence:
| Property value | Property tax rate |
| Up to US$120,000 | Exemption (0%) |
| US$120,001 – US$700,000 | 0.5% |
| US$700,001 or more | 0.7% |
To make a comparison between the two methods, we will explain with an example of a home whose value is US$150,000:
Tax payable without TFP or PR Tax payable with TFP or PR
| Property value | Property tax rate | Property tax (annual) |
| First US$30,000 | Exemption (0%) | US$0 |
| US$120,000 | 0.6% | US$720.00 |
| Total: US$150,000 | US$720.00 |
| Property value | Property tax rate | Property tax (annual) |
| US$120,000 | Exemption (0%) | US$0 |
| US$30,000 | 0.5% | US$150.00 |
| Total: US$150,000 | US$150.00 |
With this example we can see how a real estate property with a value of US$150,000 with the regular tax rate would pay an annuity of US$720.00 and if it is under the TFP or PR regime it would pay US$150.00 annually; this change would generate a savings of US$570.00 annually.
What are the requirements to apply?
- Copy of the public deed or original certificate issued by the Public Registry.
- Copy of identity card or passport of the owner.
- Affidavit indicating the use to which the property will be put.
As a conclusion, taking advantage of the Taxable Family Property or Principal Residence benefit generates important annual savings in real estate taxes. As a last point, take into consideration the beneficiaries to be placed, since you could eliminate their right to constitute their family estate.
If you want to know more details such as: How to choose the beneficiaries, what to do if my application was rejected, or how to choose the one that best suits my needs, do not hesitate to contact us.
For more information on legal advice, do not hesitate to contact us at lac@lacgrp.com or our central line +507 395 5607.
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