Since 2016, there has been a requirement to maintain accounting records and supporting documentation applicable to legal entities (corporations, limited liability companies and private interest foundations) that:
do not engage in activities;
and operations that are perfected, have effects or take place within the Republic of Panama,
or are exclusively used to hold assets within or outside the Republic of Panama.
Accounting records are understood as those that clearly and precisely indicate the operations of the legal entity, its assets, liabilities and equity, and those that serve to determine its financial situation with reasonable accuracy at all times and allow the preparation of financial statements.
For its part, supporting documentation is defined as that which includes contracts, invoices, receipts and/or any other documentation necessary to support transactions carried out by a legal entity.
New Requirements
With the introduction of Law No. 254 of November 11, 2021, legal entities are now required to provide to their resident agent, for its custody, original or copies of their accounting records, at the latest within four (4) months following the expiration of each fiscal year, i.e., no later than April 30 of each year. In other words, as of December 31, 2021, the accounting records must be delivered to us no later than April 30, 2022, and likewise at the expiration of the subsequent fiscal years.
However, legal entities incorporated before the entry into force of Law No. 254 of November 11 2021) shall have a term of six (6) months (until May 12 2022) to deliver to their resident agent original or copies of the accounting records corresponding to the year 2021.
The legal entity's original accounting records and supporting documentation may be kept by the legal entity anywhere in the world. However, suppose they are kept in a place different from the offices of the resident agent. In that case, the legal entity is required to provide its resident agent annually, in a written manner, with the address of the physical place where the original accounting records and supporting documentation of the company are kept and with the name and contact details of their custodian.
Please download and fill out the following form for each of your Panamanian entities with us.
Exemptions
The following legal entities are exempted from the obligation to provide their resident agent on an annual basis with originals or copies of their accounting records:
Legal entities listed on a recognized local or international stock exchange.
Legal entities owned by an international or multilateral organization or a State.
Legal entities that are owners or charterers of vessels registered exclusively under the international service of the Merchant Marine of the Republic of Panama.
Legal entities that carry out commercial operations within the Republic of Panama.
Notwithstanding the above, the referred entities should still need to keep and maintain accounting records and have them available in case of a request by a competent authority.
Accounting records to be kept by the legal entities
Accounting records should be provided to the resident agent in the following manner:
1) Legal entities engaged exclusively in being holding companies for assets, such as real estate, shares, participation quotas, bank accounts, among others, must provide, as accounting records, a document containing the following information:
Value of the assets;
The income generated by such assets; and
The liabilities relating to such assets.
For example, the information may be provided with an annual balance sheet containing the legal entity's assets, liabilities, and income values.
2) Legal entities that carry out commercial acts outside the Republic of Panama must provide, as accounting records:
A journal and a ledger.
3) Legal entities engaged in the purchase and sale of negotiable instruments and public or private securities, to profit from their resale or by any other means of market speculation, must deliver the following:
Account statement of the custodian; or
A balance sheet.
Sanctions
Resident agents should deliver on an annual basis to the Panamanian tax authorities a sworn declaration confirming all legal entities for which they act as a resident agent and indicating out of said entities
1) for which they maintain originals of their accounting records and supporting documentation;
2) for which they maintain copies of their accounting records and supporting documentation, the address where the originals are kept, and name and contact details of their custodian; and
3) for which they do not have the required information and documentation.
If a legal entity fails to comply with the requirements, its resident agent should report such fact to the authorities, and such non-compliance could result in
a fine to the legal entity, which may range from US$5,000.00 to US$1,000,000.00;
the suspension of the corporate rights of the legal entity; and
the inability to register any document in the Public Registry and obtain certificates issued by such Registry.
In addition, the resident agent may resign as such for a legal entity that does not comply.
Should you have any questions on this matter, please do not hesitate on contacting us.
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