Saturday, April 05, 2008

The New Panama Island Law

The New Panama Island Law


The day that President Martin Torrijos stamped his signature to Law 2 in the island of Bocas del Toro, an initial group of 7 projects for an estimated amount of US$732 million were unveiled. Now there are other projects in the pipeline in the Pearl, Veraguas and the Parida islands, showing that investors were awaiting this law....





INTRODUCTION



During recent years, Panama has become a top destination for tourists, investors and retirees from all over the world. Most retirees or “pensionados” come looking for more friendly, secure and affordable communities, such as Boquete, Volcan, the Caribbean islands of Bocas del Toro, the Pacific beaches and, of course, cosmopolitan Panama City.



Incentives for tourism investments were first granted by means of Law 8 of June 14, 1994. The enactment of this law began the process of branding Panama as a tourism destination, attracting investors and tourists alike, but mainly in the hospitality sector.



In the last few years, resort residential communities have taken off and entrepreneurs have identified islands such as the Archipelago of Bocas del Toro to develop their projects, but found that most of the lands in these areas were yet to be titled, thus making the process of installing their projects more difficult.



As early as 2003, a group of foreign and Panama lawyers and entrepreneurs headed by Juan Pardini and JJ Espino identified the serious problems with certain land transactions known as “rights of possession” and started lobbying with authorities and senators from the government of Panama to enact legislation to regulate land tenure and establish clear rules of the game to title land for tourism projects and local inhabitants. The government became aware of the need for second-home or retirement investors to obtain registered title to the lands where their projects are to be developed and secure legal stability for their investments. With this in mind, the Cadastral Land Office (locally known as Catastro) headed by Benjamin Colamarco with the help of Edgar Aguilera, Irma Lee, Carlos Moreno and others promoted a bill of law early in 2005 which after extensive discussions and debates with multiple groups was approved and enacted by the Legislative Assembly as Law No. 2 of January 7, 2006 “which regulates concessions for tourism investment and the sale of island territory for purposes of tourism development and other provisions” (and an Executive Decree containing the enabling regulations for Law No. 2 to be enacted soon), also referred herein as the “Island Law”. This law provides legal security, clear procedures and continuity to the efforts to promote tourism investments in Panama, as set forth in Law No. 8 of 1994.



The day that President Martin Torrijos stamped his signature to Law 2 in the island of Bocas del Toro, an initial group of 7 projects for an estimated amount of US$732 million were unveiled. Now there are other projects in the pipeline in the Pearl, Veraguas and the Parida islands, showing that investors were awaiting this law.



Panamanian law distinguishes between two kinds of property: (a) private or titled property, and (b) public or state-owned property.



Titled property is that whose ownership, area, value, boundaries and other details are duly recorded at the Public Registry of Panama. The Public Registry of Panama contains a centralized record system of all titled property in the Republic of Panama.



State-owned property is all land and territories owned by the Republic of Panama, which can be used by a private person (individual or company) if an administrative concession has been granted over the same for a limited period of time. State-owned properties can also be exploited or used for agricultural purposes by persons in the event a possession rights certificate has been granted by the Agrarian Reform of the Ministry of Agriculture. Rights of possession (in this article referred to as “RoPs”) have also been recognized by local authorities such as Municipalities and Regiments (“Corregidores”). Law No. 2 of 2006 acknowledges RoPs granted by any of the authorities identified above, subject to the process established for the issuance of concessions.



Law No. 2 of 2006 provides to tourism investors the opportunity to either obtain a long term concession or acquire and title the property where they will undertake their projects.



CONCESSIONS



Concessions can be defined as leasehold agreements between the Ministry of Economics and Finance through the Cadastral Office, a government institution in charge of the management of all state owned property, and individual persons or companies for a determined period of time. Once the concession is granted the person awarded the concession must pay to the Ministry of Economics and Finance an agreed lease amount.



Law No. 2 provides the following additional characteristics for concessions over areas located in the tourism zones as defined by the Ministry of Tourism, whether located on islands, coastal lands, and other properties of the State, to be granted for tourism projects:



Longer concession periods granted to investors for use of state-owned lands:
Law No. 2 of 2006 establishes concession periods of 40 years with the option for an extension of 30 years.
There also exists the possibility of a concession for 60 years, with an extension for an additional 30 years.
The length of the concession will depend on the amount of the investment and potential for generation of employment, subject to the parameters to be set by the Ministry of Economics and Finance.
The granting of these concessions will be awarded by means of a public bidding procedure as it will be more fully detailed in the enabling regulations.
An express procedure for the procurement of concessions over lands to be used for tourism projects.
All improvements and buildings constructed over concession areas may be titled and recorded in the Public Registry. This will facilitate procurement of financing for the investors as well as the option to sell, lease, transfer, mortgage or in any other manner make use of the concession granted to him and the improvements attached thereon.


Law No. 2 of 2006 creates an “Express Window” (“Ventanilla Unica”) within the Cadastral Office of the Ministry of Economics and Finance in charge of receiving all applications as well as processing all approvals and authorizations required for concessions. This special department will have representatives from all entities whose approval is necessary to complete the concession contract and start a project. To speed up project start-up, and once the developer present all basic requirements, this Express Window department may issue a provisional authorization to begin operations, while the developer complete all remaining requirements for the permanent concession.



Among the requirements to be provided to the Ministry of Economics and Finance to obtain the concessions created by this law are:



· Preliminary development master plan of the property.

· Project budget.

· Development program and execution schedule.

· Evidence of financial capability of the petitioner.

· Certificate issued by the Ministry of Tourism certifying that the requested area is located within a tourism development zone.

· Approved Environmental Impact Study.

· Certificate that the petitioner is registered before the Tourism Enterprise Registry of the Ministry of Tourism.

· Performance bond for 10% of the value of projected works, which will expire once the improvements are recorded.



DIRECT PURCHASE



Islands, whose ownership, according to the Constitution of Panama, up to now, was limited to nationals, have always been an area of special interest for tourism related investments.



Law No. 2 of 2006 provides the following incentives to foreign or national individuals or corporations interested in purchasing island territory for developing a tourism project:



· Island territory may be sold for tourism related purposes, provided an affidavit is granted, confirming the purpose of the investment and the number of jobs to be created.

It is important to repeat that no more than 50% of an island can be sold to foreigners or foreign interests in a corporation. The sale of island territory must be submitted to a public bidding procedure as it will be more fully detailed in the enabling regulations and obtain the approval of the Ministry of Economics and Finance. However, projects over RoPs or already initiated or undertaken on an island before the enactment of Law 2 may request direct sale of the island property.

· Individuals or corporations legally occupying island territory will have the right to obtain concession of the same and be able to transfer it to a third party.



The contract for purchase of island territory must include at least the following:



· Description of the land granted for sale, including area, measures and boundaries.

· Value of the land object of the sale. The price will not be less than the average of the appraisals made by the Ministry of Economics and Finance and the Cadastral Office.

· Estimated amount and details of the investment, including the amount to be invested in utilities and infrastructure for the project.

· Environmental Impact Study and Mitigation Plan.

· Complete description of the project in its definite phase, including investment amounts and execution term for the development of the project.

· Description of beach easements, which can be no less than 22 meters.

· Precise description of the public domain assets located within the island territory.

· A bond of at least 10% of the value of the contract and that will be valid during the term of the project. This bond will expire proportionally as the improvements are recorded.



All projects within these areas must comply with the territorial zoning master plan to be prepared by government authorities. Until this master plan is approved, each project may submit its own zoning plan which will be processed and approved through the Express Window.



The same “Express Window” (“Ventanilla Unica”) within the Cadastral Office of the Ministry of Economics and Finance will be in charge of receiving all applications as well as processing all approvals and authorizations required for direct purchases of island territories.



RESTRICTIONS



Due to the nature of islands, and for sovereign protection purposes, the following restrictions have been set for these special tourism areas:



· They cannot be located less than 10 kilometers from the borders.

· They cannot have been designated as historical patrimony or national patrimony.

· They, due to their characteristics, cannot have been dedicated to the conservation of the environment or for forest or scientific purposes.

· They cannot be part of Indian territory.



The sale of these special tourism areas cannot exceed 50% of the total territory of each island and ownership cannot be transferred to another State. Tourism projects pursuant to Law 2 cannot exceed 30% of the total territory of an island.



As an effort for nature conservancy, the following limitations have been set for certain areas:



The construction over coral formations is forbidden as well as any activity that may cause the death or destruction of their ecosystem.
The cutting, use or commerce of swamp forests, their products, parts or derived products is forbidden, except for tourism projects after the approval of the respective environmental impact study.


As a final note regarding restrictions, concessions and sale of beachfront property may only be granted up to 22 meters as of the line of high tide. The area of 10 meters as of the line of high tide is considered beachfront and cannot be granted in concession under any circumstances. The area of 12 meters as of the beachfront can be granted in concession as a coastal easement.



SPECIAL SITUATIONS



Law No. 2 of 2006 cover a special procedure for individuals domiciled in an area, who have kept a permanent and uninterrupted possession of national island property, for at least 2 years before the enactment of the law, and prove that they have used such property for their own home or agricultural purposes.



These persons will be granted a concession for a period of 90 years without having to participate in a public bid process, plus not having to comply with the requirement of posting a bond and, being exempted from payment of the concession lease.



A corporation that properly purchase the RoPs from an individual resident in the area who proves that he complied with the requirements of Law 2 will be subrogated in the rights of such person for purposes of obtaining the concession.



Another special situation set forth in Law No. 2 of 2006 is the obligation of concessionaires and investors to hire non-skilled local personnel from the area during the construction of the project.



2ND HOME & VACATIONAL HOUSING



In an additional effort to promote residential tourism investments in Panama, Law No. 2 also provides incentives for “Vacational or Permanent Residential Units”. The purpose for this incentive is to promote the development of vacation and retirement homes or buildings, which may be built over concession areas on islands or coastlands, provided they are located within a tourism development zone as defined by the government and only one parcel per petitioner. These projects additionally will enjoy the incentives and benefits of Law 8 of 1994. Enabling regulations will be enacted to provide rules for the size of the parcel, costs of constructions and improvements over the same.



CONCLUSIONS



Law No. 2 of 2006 confirms the decision of the Government of Panama to support, promote and grant more legal security to tourism investments plus an orderly development and a better use of the island and coastal resources of Panama. The implementation of this Law No. 2 of 2006 will definitely result in benefits and profits for both the tourism industry and the country of Panama and its people.



Written by



Juan F. Pardini

President

BusinessPanama Group

www.BusinessPanama.com



With the assistance of

Gilda Berman and Michelle Delgado

Attorneys at Pardini & Associates

www.Padela.com





In the BusinessPanama Group, we have experienced licensed real estate brokers, lawyers and other professionals to assist you on any business you need.

We can help you with:

Locating properties in Panama City , Bocas del Toro, Boquete, Islands or Mountains
Developing a project on the islands
Forming a company to own your property
Legal services to purchase the property
Applying for your residence program
Title insurance
Home owners insurance
Bank mortgage financing
Others
We will be delighted to assist you, represent you, or advise you. As Panama is the bridge of the Americas , let the Business Panama Group be the bridge between you and Panama 's rich potential. We are here to help you find a beautiful home or successfully launch your project without problems in Panama .

For more information, please contact any of offices in Panama City, Boquete or Bocas del Toro.

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