The  Panama Government enacted Law 254 on November 11, 2021, which provides for fiscal transparency and adjustments against money laundering. The Law talks about several main points; the Accounting Records themselves, Due Diligence and the Ultimate Beneficial Owner Registration Process. This article focuses on changes related  to accounting records requirements.

All Panamanian companies and entities with business or assets outside of Panama are required to keep accounting records and supporting documents, but recent legislation has strengthened these requirements and legal entities must send at least one copy to their Resident Agent every year of the accounting records and supporting documents, at the same time, grant disclosure requirements to the Resident Agents to notify the Panamanian authorities about the entities that comply and those that do not comply with the established requirements and practices.

The Law defines the Accounting Records “Those documents that clearly and precisely indicate the operations of the legal entity, the assets and patrimony, as well as that serve to accurately determine the financial situation and allow preparing financial statements.” And supporting documents are defined as “All contracts, invoices, receipts and/or other documents necessary to support the transactions carried out by the entity”. It is important to mention it in order to understand what we have to do.

Obligation to keep Accounting Records

If your legal entity does not carry out operations that are perfected, consumed or take effect within the Republic of Panama, also those that are engaged solely in being holding companies for assets, either within or outside Panamanian territory, you are required to maintain and carry supporting documents.

How long should you keep these records?

You must keep your Records and Supporting Documents for a minimum period of 5 years.

Where should these accounting documents be kept?

They may be kept anywhere inside or outside of Panama as stipulated by the entity, but they must send a copy to the Resident Agent, updating it before April 30 of each year.

You must always keep the information updated.

Legal entities are required to notify the Resident Agent in the event that any information regarding the Accounting Records and Supporting Documents is requested.

When will the supporting documents be requested?

It is important to mention that, if the competent authority requires something additional to the documents already provided, they are required to send the additional documents within the time established by the same authority, in order to comply with the requirement.

Until what date do I have to comply with this requirement?

Legal Entities incorporated before the entry into force of the law (before November 11, 2021) have a deadline until October 31, 2022 to submit their accounting documents or copies of accounting documents at the office of their resident agent in Panama. In addition to a copy of the accounting records, upon request, the legal entity must provide the resident agent with the documents that supports the accounting records within the deadline determined by the competent authority to comply with the requirements.

Accounting records must be provided as follows:

1. A legal entity engaged solely in being holding company for assets such as shares, real estate, bank accounts and/or investment accounts, among others, submits as accounting documents that reflect the value of the assets, the income generated by these assets and liabilities.
2. Any legal entity that carries out commercial activities outside the Republic of Panama must send us the Journal and the Ledger.

Remember that, if requested by the competent authority, the legal entity must provide the supporting documents and additional information within the time required by the competent authority.

What to do if your legal entity is currently suspended.

If a legal entity has been suspended from the public registry prior to the entry into force of Law 254, the legal entity must be reinstated by providing its resident agent with accounting records or supporting accounting copies.

Changes of Resident Agents of Entities

The legal entity must provide the new Resident Agent with the Accounting Records and Supporting Documents, or a copy thereof, before registering the appointment in the public registry. For legal entities whose records and supporting documents are kept in a place other than the office of the resident agent inside or outside the Republic of Panama, the name and contact information and the physical address where such documents are located must be disclosed.

Dissolution of Entities

In this case, the entities must provide the Accounting Records of the past 5 years prior to the registration of the dissolution. In this case, the Public Registry of Panama will only register the corresponding public deed of dissolution as long as it includes an express statement from the resident agent who keeps the accounting records and supporting documents, or a copy of the account and supporting documents established in this Law.

It is very important to establish that non-compliance with this Law leads to sanctions for the legal entity that range from USD$ 5,000.00 to USD$ 1,000,000.00 considering the severity of the fault, the recurrence and the size of the damage.

In addition to this pecuniary penalty, the Public Registry is ordered to suspend the corporate rights of the Legal Entity that fails to comply, this without prejudice to its compliance with the responsibilities established in this Law, its rules and regulations. The General Directorate of Revenue (DGI) is empowered to order the Public Registry the forced administrative liquidation of the legal entity.

Likewise, this Law describes sanctions for Resident Agents who do not comply with it.

In addition, resident agents must waive their status before legal entities that fail to comply with this obligation.