The Executive Branch of the Republic of Panama approved Law 254 of November 11th, 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.
Accounting Records are defined as "those that clearly and precisely indicate the operations of the legal entity, its assets and equity, as well as serving to determine the financial situation, with reasonable accuracy at all times, and allow the preparation of financial statements."
For its part, supporting documentation is understood as "contracts, invoices, receipts or any other documentation necessary to support the transactions carried out by a legal person."
Main modifications concerning the Accounting Records:
1. Accounting records (in original or copy) of legal entities must be provided to the resident agent for safekeeping no later than four months following the end of each fiscal year, i.e., no later than April 30th of each year.
2. Original accounting records can be kept in possession of the legal entity anywhere in the world or in Panama under the custody of the Resident Agent.
Suppose the original accounting records are kept outside the offices of the resident agent. In that case, the legal entity is required to inform the resident agent, annually and in writing, of the name and contact details of the person who keeps the original accounting records and supporting documentation in their custody, including the physical address where they are kept.
In addition, the legal entity must communicate in writing any changes in the person maintaining the accounting records immediately to the resident agent.
3. 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:
Legal entities that are listed on a recognized local or international stock exchange.
Legal entities owned by an international or a 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.
4. The companies must submit the accounting records in the following manner:
Legal entities that do not engage in acts of commerce and are engaged exclusively in being holders of assets, whatever their class, must provide information showing the value of the assets held, the income received from such assets and the liabilities relating to those assets. They can provide annually to the resident agent a balance sheet containing the amounts of the legal entity's assets, liabilities, and income for the previous fiscal period.
In the event of legal entities that carry out acts of commerce outside the Republic of Panama, and any other legal entity not covered by the last numeral, they must provide a journal and a major.
5. Legal entities established before the entry into force of the Law (before November 11th, 2021) shall have a term of six (6) months to deliver to the resident agent the accounting records or copies of the accounting records to be kept in the offices of the resident agent within Panama.
6. Legal entities suspended in the Public Registry before the entry into force of the Law 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 Panama before being reactivated.
7. In a resident agent change, the legal entity must provide the accounting records and supporting documentation to the new resident agent or copies of the accounting records and supporting documentation before registering its designation at the Public Registry. The new registered agent must keep the accounting records at their offices within the Republic of Panama. Legal entities that keep their records and supporting documentation in a place other than the offices of the resident agent, anywhere in the world, must inform the name and contact information of the person who keeps the accounting records and supporting documentation, including the physical address where they are kept.
8. In the dissolution of a legal entity, the resident agent must keep and have available the accounting records and supporting documentation, or copies of the accounting records and supporting documentation, respective to the five (5) years before the registration of the dissolution for a minimum period of five (5) 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 public deed of dissolution, including 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 supporting documentation, per the provisions of the Law.
9. The Resident Agent shall deliver to the Panama Tax Authority (General Directorate of Revenue) a sworn statement, annually, as of July 15th, containing a list of the legal entities for which it provides the service of resident agent, including the legal entity's name, tax identification number and containing the following:
The legal entities whose original accounting records and supporting documentation are kept at the offices of the resident agent within Panama.
The legal entities whose accounting records and supporting documentation are kept in a place other than the offices of the resident agent. In addition, a certification that they have copies of the accounting records, the name and contact information of the person who keeps the original accounting records and supporting documentation, and the physical address where they are kept.
Legal entities which do not have the information outlined in paragraphs 1 and 2 above. The competent authority may apply sanctions to the legal entities that the resident agent includes in the declaration referred to in this third paragraph.
10. The authorities may request the documentation at any time, and the legal entity must provide the documentation to the resident agent within the time established by the competent authority.
11. The information received by the competent authority from the resident agent must be kept strictly confidential. The competent authority may only use it for the faithful fulfillment of its functions according to the respective laws. Failure to comply with this confidentiality obligation by an official shall be punished as a severe administrative offence without prejudice to the civil and criminal liability.
12. Legal entities failing to comply with the accounting records obligation shall be sanctioned with fines from USD 5,000.00 to 1,000,000,000.00 considering the seriousness of the offence, 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. Panama's Tax Authority is empowered to order the Public Registry the compulsory administrative liquidation of the legal entity.
Modified Legislation:
Law 23 of April 27th, 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 27th, 2016, "establishes the regulatory framework for the implementation of the exchange of information for tax purposes and dictates other provisions."
Law 52 of October 27th, 2016, "establishes the obligation to keep our accounting records for certain Legal entities and dictates other provisions."
Law 124 of January 7th, 2020, "which creates the Superintendence of Non-Financial Subjects and dictates other provisions."
Law 129 of March 17th, 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. It repeals Law 2 of February 1st, 2011, "which regulates the measures to know the client for resident agents of existing legal entities per the laws of the Republic of Panama".
With the introduction of this new legislation, Panama seeks to adjust its laws to international standards that improve the country's rating in terms of international tax transparency in front of the Global Forum of the Organization for Economic Cooperation and Development (OECD).
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