Additional requirements are established regarding the accounting records to be kept by legal entities in the Republic of Panama

Last November 11, the Executive Branch of the Republic of Panama approved Law 254 of November 11, 2021, Which introduces adjustments to the legislation on international tax transparency and prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction. Among the most relevant adjustments of this new legislation are the additional requirements regarding the accounting records that legal entities must keep.

Since 2016, it was established in Panama the obligation for legal entities (corporations and foundations) to keep accounting records and maintain their supporting documentation for a minimum period of five (5) years. The foregoing as provided by Law No. 52 of 2016, which establishes the obligation to keep our accounting records for certain legal entities and dictates other provisions.

For the purposes of the new legislation, the Accounting Records are defined as “those records that clearly and precisely indicate the operations of the legal entity, its assets and equity, and may also enable  to determine the financial situation with reasonable accuracy at all times and allow the preparation of financial statements.” The supporting documentation is understood as “That which includes contracts, invoices, receipts and/or any other documentation necessary to support the transactions carried out by a legal entity.”

The main modifications with respect to the obligations of the Accounting Records introduced by the new legislation are as follows:

• Accounting records (in original or copy) of legal entities must be provided to the resident agent for safekeeping, no later than four (4) months after the expiration of each fiscal year, i.e., no later than April 30 of each year.
• The original accounting records may be kept in possession of the legal entity anywhere in the world or in Panama under custody of the resident agent. If the original accounting records are kept outside the offices of the resident agent, the legal entity is required to inform the resident agent, annually and in writing, the name and the contact details of the person who keeps the original accounting records and supporting documentation in custody, as well as the physical address where they are kept. Any change in the person keeping the accounting records must be communicated in writing immediately by the legal entity to the resident agent.
• The following legal entities are exempted from the obligation to provide the resident agent with the accounting records or a copy thereof on an annual basis: in its custody

1. Legal entities listed on a recognized local or an international stock exchange.
2. Legal entities owned by an international or multilateral organization or a State.
3. Legal entities that are owners or charterers of vessels registered exclusively under the international service of the Merchant Marine of the Republic of Panama.
4. Legal entities that carry out commercial operations within the Republic of Panama.

• The accounting records must be submitted in the following manner:

1. In the event of legal entities that do not engage in acts of commerce and are engaged exclusively in being

1. Legal entities that do not engage in acts of commerce and are engaged exclusively in being holders of assets, whatever their class may be, must provide information showing the value of the assets held, the income received from such assets and the liabilities relating to those assets. The information may be provided together with the annual delivery to the resident agent of a balance sheet containing the amount of the assets, liabilities, and income of the legal entity for the previous fiscal period.
2. Legal entities that carry out acts of commerce outside the Republic of Panama and any other legal entity not covered by the previous item must provide a journal and a major.

• Legal entities established before the entry into force of the law (before November 11, 2021), shall have a term of (6) six months, to deliver the accounting records or copies of the accounting records to the resident agent, to be kept in the offices of the resident agent within Panama.
• In order to be reactivated after being are suspended in the Public Registry before this law entered in force and effect, they must provide to their resident agent the accounting records or the copies of the accounting records to be kept in the offices of the resident agent within the Republic of Panama.
• In events of change of resident agent, prior to the registration of its designation in the Public Registry, the legal entity must provide to the new resident agent the accounting records and supporting documentation or copies of the accounting records and supporting documentation, as the case may be, which must be kept at the offices of the new resident agent within the Republic of Panama.
• Legal entities whose records and supporting documentation are kept in any place other than the offices of the resident agent within the Republic of Panama or abroad must inform the name and contact information of the person who keeps the custody of the accounting records and supporting documentation and the place where they are kept.
• In the event of dissolution of the legal entity, the accounting records and supporting documentation or copies of the accounting records and supporting documentation, whichever the event may be, in respect of the five years prior to the registration of the dissolution, must be kept by the resident agent of the legal entity and be available for a minimum period of five years, counted as of the registration of the dissolution in the Public Registry of Panama. In this event, the Public Registry of Panama shall only register the respective public deed of dissolution that includes the express declaration of the resident agent indicating that it maintains in its possession the accounting records and supporting documentation or the copies of the accounting records and of the supporting documentation, as the case may be, in accordance with the provisions of the Law.
• As of July 15, the Resident Agent shall deliver annually to the DGI (General Directorate of Revenue) an affidavit containing a list of the legal entities to whom it provides the service of resident agent, including the name of each, its RUC (Panama tax identification number) and containing the following:

1. The legal entities whose original accounting records and supporting documentation are kept at the offices of the resident agent within Panama.
2. Legal entities whose accounting records and supporting documentation are kept in any other place than the offices of the resident agent and certifying that they have copies of the accounting records and the name and contact information of the person who keeps the original accounting records and supporting documentation in their custody and the physical address where they are kept.
3. As for legal entities which do not have the information set forth in paragraphs 1 and 2 above, the competent authority may apply sanctions to the those included by the resident agent includes in the declaration referred to in this third paragraph.

• The authorities may request the documentation at any time, and the legal entity must provide the documentation to the resident agent within the term established by the competent authority.
• The information received by the competent authority from the resident agent must be kept strictly confidential and may only be used by the competent authority for the faithful fulfillment of its functions in accordance with the applicable laws. Failure to comply with this confidentiality obligation by an official shall be punished as a serious administrative offense, without prejudice to the civil and criminal liability resulting therefrom.
• Legal entities that fail to comply with the obligations of accounting records shall be sanctioned with fines from USD 5,000 to 1,000,000 considering the seriousness of the offense, the recidivism, and the magnitude of the damage. Additionally, the Public Registry shall be ordered to suspend the corporate rights of the legal entity that fails to comply. The DGI is empowered to order the Public Registry the compulsory administrative liquidation of the legal entity.

The new law modifies five current laws, which are Law 23 of April 27, 2015, “which adopts measures to prevent money laundering, the financing of terrorism and the financing of the proliferation of weapons of mass destruction and dictates other provisions”; Law 51 of October 27, 2016, “which establishes the regulatory framework for the implementation of the exchange of information for tax purposes and includes other provisions”; Law 52 of October 27, 2016, “which establishes the obligation to keep the accounting records for certain legal entities and dictates other provisions”; Law 124 of January 7, 2020, “which creates the Superintendence of Non-Financial Subjects and establishes other provisions”; and Law 129 of March 17, 2020, “which creates the Private and Unique System of Registration of Beneficial Owners of Legal Entities”. Additionally, it modifies Article 318-A and Article 756 of the Fiscal Code of the Republic of Panama, and repeals Law 2 of February 1, 2011, “which regulates the provisions to know the client for resident agents of existing legal entities in accordance with the laws of the Republic of Panama”.

With the introduction of this new legislation Panama continues to adjust its laws to international standards that maintain the country’s proper rating in terms of international tax transparency before the Global Forum of the Organization for Economic Cooperation and Development (OECD).