These amends were approved in order to make adjustments to the legislation on international tax transparency, prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction.

In order to make adjustments to the legislation on international tax transparency, prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction, Law No. 254 of November 11, 2021 was recently approved (hereinafter "Law No. 254") modifying, among other regulations, Law No. 52 of October 27, 2016 (hereinafter "Law No. 52"), which established the obligation to keep accounting records for all legal entities, regardless of whether they operate in the Republic of Panama or abroad. Since the subject of "accounting records" has generated many questions among our clients, below we share answers to the most frequently asked questions received on this matter:

What are accounting records?

Law No. 254 defines accounting records as those that clearly and precisely indicate the operations of the legal entity, its assets, liabilities, and equity, as well as those that serve to always determine the financial situation with reasonable accuracy and allow the preparation of financial statements.

What are the main changes to Law No. 52 introduced by Law No. 254?

Law No. 254 establishes an annual obligation for legal entities to provide to their Resident Agent, as of April 30, the accounting records, or a copy of the accounting records for the fiscal period ending on December 31 of the previous year.

Where can the original accounting records of legal entities be kept?

The accounting records and supporting documentation may be kept at any location inside or outside the Republic of Panama.

What are the obligations of legal entities that keep their original accounting records outside Panama?

The legal entities are obliged to report to the Resident Agent annually , in writing, the name and contact details of the person who keeps the accounting records and supporting documentation in his/her custody and the address where they are kept.

If there is a change in the person who keeps the accounting records and supporting documentation in his/her custody, the legal entity must immediately inform its Resident Agent, the name and data of the new custodian and the physical address where they are kept.

Which companies are exempted from complying with the annual requirement to provide accounting records or a copy of accounting records to the Resident Agent?

  • Those listed on a recognized local or international stock exchange
  • Those that are owned by an international, multilateral organization or a State
  • Shipowners or charterers of ships registered exclusively for international service on the Merchant Marine of the Republic of Panama

Nevertheless, the abovementioned entities must keep in their control the original accounting records and supporting documentation. In the event of a request by the competent authority, the legal entity will be obliged to deliver its accounting records within 20 business days counted as of the request made by the Resident Agent.

What type of accounting records must be kept by legal entities that are exclusively dedicated to being holders of assets?

Legal entities that are exclusively dedicated to being holders of assets, regardless of their nature, must provide information that demonstrates the value of the assets that are held, the income received from those assets and the liabilities related to those assets. In the opinion of the General Directorate of Revenue, "holding companies" must provide their Balance Sheet since said document reflects the value of their assets as well as their income and liabilities.

What type of accounting records must be kept by legal entities that are dedicated to the sale and purchase of credit titles and commercial securities of a public nature or issued by the Government or Municipalities, as well as private ones, issued by individuals or commercial companies, to profit from their resale or from any other means of commercial speculation?

Legal entities engaged in the activities described above must provide a statement of account of the custodian or a general balance of the company.

What type of accounting records must be kept by legal entities that carry out commercial acts outside the Republic of Panama?

Legal entities that carry out commercial acts outside the Republic of Panama must provide a Journal and Ledger.

What is the deadline for delivery of the accounting records or the copy of the accounting records of legal entities incorporated before the effective date of Law No. 254 (November 12, 2021)?

Legal entities incorporated before November 12, 2021 will have a period of six months, counted as of the aforementioned date (e.g. until May 12, 2022), to deliver their accounting records or a copy thereof to their Resident Agent, to be kept at the Resident Agent's offices within the Republic of Panama.

What obligations does Law No. 254 establish for the reactivation of legal entities suspended before the effective date of Law No. 254 (November 12, 2021) in relation to accounting records?

To be reactivated, legal entities that are suspended at the Public Registry of Panama before November 12, 2021, must provide their Resident Agent with their accounting records or copies of their accounting records, to be kept at the Resident Agent offices within the Republic of Panama and, depending on the cause of suspension, comply with the reactivation process established by the law.

What measures must be taken into consideration for changes of Resident Agent of legal entities according to Law No. 254?

To change their Resident Agent, legal entities must provide their new Resident Agent, prior to the registration of its appointment at the Public Registry of Panama, the accounting records and supporting documentation or copies of the accounting records and supporting documentation, whatever the case may be, to be kept in the offices of the new Resident Agent within the Republic of Panama.

What measures must be taken into consideration for the dissolution of legal entities according to Law No. 254?

To dissolve a legal entity, its accounting records and supporting documentation or copies of the accounting records and supporting documentation, whatever the case may be, relative to the five years prior to the registration of the dissolution, must be kept by the Resident Agent and be readily available for at least a period of five years, counted as of the registration of the dissolution at the Public Registry of Panama.

Are there sanctions for legal entities in case of non-compliance with Law No. 254?

Yes, Law No. 254 establishes the following sanctions for legal entities in case of non-compliance:

  • Fine from five thousand Dollars (US$5,000.00) to one million Dollars (US$1,000,000.00), imposed by the General Directorate of Revenue, considering the seriousness of the offense, the recurrence, and the magnitude of the damage
  • The suspension of the corporate rights at the Public Registry of Panama of legal entities that fail to deliver the required information in accordance with the provisions of this Law, its rules, and regulations
  • The General Directorate of Revenue is empowered to order to the Public Registry the forced administrative liquidation of a legal entity, provided that said entity has been suspended by the Public Registry and has not been reactivated within a period of 1 year, counted as of the registration of its suspension at the Public Registry of Panama.

It is important for our clients to keep in mind that the deadline to send us a copy of their accounting records is coming close and will expire on May 12, 2022.