Through Executive Decree No. 258 of September 13, 2018, regulations have been introduced to Law 52 of October 27, 2016.
This decree applies to all legal entities that do not conduct operations that are completed, finalized, or take effect within the Republic of Panama. This decree modifies and clarifies Law 52 of October 27, 2016, which established the obligation for offshore legal entities to maintain accounting records and supporting documentation. Specifically, this decree[MT1] stipulates that accounting records must be maintained at the offices of their resident agent in the Republic of Panama, or at any other location within or outside the country, as determined by the legal entity's governing bodies. It also establishes a retention period for these records[MT2] of no less than five (5) years[MT3] counted from the last day of the calendar year in which the transactions supported by said records were completed, or from the last day of the calendar year in which the legal entity ceases operations.
The regulations of the aforementioned Law establish parameters under which accounting records and supporting documents must be handled, according to the type of entities:
- Those entities that do not carry out commercial acts and are only asset holding companies;
- Those entities that carry out commercial acts outside the Republic of Panama, as well as any entity other than an entity that exclusively holds assets.
Entities that exclusively hold assets.
For this type of company, the regulation only establishes the obligation to document information that demonstrates the value of the assets owned by the entity, as well as the income received from said assets, when required by the competent authority.
Entities that carry out commercial acts outside the Republic of Panama.
Regarding these entities, the regulations stipulate that a Journal and a Ledger must be provided as accounting records when requested by the competent authority. However, this requirement does not apply to entities engaged in commercial activities such as the purchase and sale of debt securities and commercial paper of a public nature or issued by the government or municipalities, as well as those issued by private individuals or commercial companies for profit through resale or any other means. For these latter entities, a statement of account from the custodian or the company's balance sheet must be provided.
The above does not exempt you from the obligation to provide any supporting documentation or additional information that the competent authorities may request in a given case.
is considered Supporting documentation to be what is necessary to substantiate the transactions carried out by a legal entity, including contracts, invoices, receipts and other documents.
If the accounting records and supporting documentation are kept in a location other than the resident agent's office, the legal entity shall be obliged to provide its resident agent, in writing, with the following information:
- The physical address of the location where the accounting records and supporting documentation are kept; and
- The name and contact details of the person who has them in their custody.
The law also establishes that the legal entity is obliged to inform its resident agent, in writing, of any change that arises in both the aforementioned address and the contact person, within a period of no more than fifteen (15) business days, counted from the date on which said change occurs.
If the legal entity fails to comply with this obligation, its resident agent will be required to resign from that position and register said resignation in writing in the Public Registry of Panama within a period of no more than ten (10) business days, counted from the day after the termination of the period granted to the legal entity to deliver to its resident agent the accounting records and supporting documentation.
It establishes that those entities that carry out commercial acts outside the Republic of Panama and that maintain their accounting records and supporting documentation within Panama, must align themselves with the International Financial Reporting Standards (IFRS) as well as the standards issued by the International Accounting Standards Board (IASB); additionally, these must be prepared and endorsed by a Certified Public Accountant of the Republic of Panama (CPA).
In the case of entities that maintain their accounting records and supporting documentation outside the Republic of Panama, they may keep them in accordance with the accounting standards applicable in the jurisdiction where the accounting records are kept in accordance with IFRS.
Similarly, there will be entities that carry out commercial acts outside of Panama, that decide to keep their accounting records both inside and outside the Republic of Panama, and that may choose to prepare them in such a way that such means are duly authorized by Panamanian legislation or the legislation of the respective jurisdiction where said records are kept.
In this regard, the regulation establishes that the resident agent will not be exempt from providing such information to the competent authority even in those cases in which he has resigned from his status as resident agent, indicating also that failure to comply with this requirement will result in the imposition of a fine of one thousand balboas (B/. 1,000.00) plus one hundred balboas (B/. 100.00) for each day that has passed without the non-compliance being remedied, as established in article 7 of Law 52, without prejudice to the other sanctions imposed in article 4 of the aforementioned Law.
Importantly , [MT4] I want to inform you that a bill to amend Law 52 is currently before the National Assembly and is expected to be approved by the middle of this year. This amendment will primarily emphasize the mandatory nature of record-keeping. It also includes new penalties for resident agents and taxpayers who fail to keep their accounting records and supporting documentation up to date.
If you are a lawyer or law firm, remember that this is part of the comprehensive fulfillment of your obligations.
We can help you; if you have any questions, doubts or concerns, write to us at: contabilidad@mlcico.com
I am at your service.
Ms. Magda A. Carvajal
Certified Accountant / AML Specialist.
Associate
MLC & Co.
For further reference, see Law 52 of October 27, 2016 and Executive Decree No. 258 of September 13, 2018, published in Official Gazette No. 28149-B of October 28, 2016 and Official Gazette No. 28612 of September 14, 2018, respectively.
