Dear client:
In the following, you will find important information in relation to the requirements about “accounting records” as per the recently enacted Law 254 of November of 2021, which modifies Law 52 of 2016.
Law No. 52 of 2016
The Law No. 52 of 2016 of the Republic of Panama imposed to all legal entities, which do not perform operations within the territory of Panama, the obligation to keep accounting records and retain supporting documentation for up to five (5) years.
The accounting records and supporting documentation had to be kept in:
- The offices of the resident agent in the Republic of Panama, or
- In any place set by the administrative bodies of the legal entity, notifying the resident agent of the physical address where those records are kept, and information of the person in charge of their custody.
In lieu of the previously explained, we had requested you to provide us information regarding the place of the accounting records and information of the person in charge of their custody.
Main amendments to Law 52.
Law 52 of 2016 was recently amended by Law No. 254 of November 11th, 2021 (Law 254), which established new requirements in relation to “Accounting Records” that must be kept by legal entities.
The main modification introduced by Law 254 consist in establishing an obligation to provide annually to the resident agent of the legal entity, the accounting records and the supporting documents, whether in original or copies, within the four (4) following months of the closure of the fiscal year, thus on April 30th of each year at the latest.
The obligations of Law 254 extend not only to legal entities who do not perform operations in Panama, but also to those who only possess assets within or outside Panama.
The accounting records will be kept by the resident agent under strict confidentiality, unless there is a requirement issued by a competent authority of the Republic of Panama, in accordance to applicable laws.
Place where original accounting records may be kept.
The original accounting records and supporting documents may be kept anywhere in the world, under the control of the legal entity; or in Panama, under the custody of the resident agent.
If they are kept outside of the office of the resident agent, the legal entity has the obligation to inform the resident agent, annually and in writing, the physical address where these records are kept, as well as the name and contact information of the person who is in custody of the original accounting records and supporting documentation.
You will find the definition of accounting records and supportive documents as they are define in Law 52 as follows, as well as a guideline which will allow you to identify the documentation you must provide us every year.
What are accounting records and supporting documents, according to Law 52
Accounting Records are those who indicate in a clear and precise way the operations, either accounting or financial, of the legal entity, its assets, liabilities and patrimony, as well as those who serve to determine the financial position with reasonable accuracy at all times and are used in the preparation of financial statements.
Supportive documentation its define as those who include contracts, invoices, receipts and/or any other documentation necessary to support the transactions perform by a legal entity.
Type of accounting records that must be kept by legal entities.
A. Legal entity who possess assets only
Legal entities who exclusively hold assets (real state, stocks, shares, bank accounts, investment accounts, among others) must provide the resident agent, as accounting records, a document that contains the following information:
- The value of its assets;
- The revenues generated by those assets; and
- The liabilities of such assets.
The information may be provided with the annual delivery to the resident agent of a balance sheet which contains the amount of assets, liabilities and revenues of the legal entity relating to the previous fiscal period.
B. Legal Entities who engage in the purchase/sale of title of credit and securities, either of public of private nature, in order to benefit by their resale or by any other means of commercial speculation.
Those legal entities must provide the resident agent;
- Statement of Account from the custodian; or
- Balance sheet of the legal entity
C. Legal Entities who perform commercial activities outside the Republic of Panama must provide:
- Financial Statements.
Legal entities exempted from providing accounting records (original or copies) to resident agents.
- Legal entities listed on a recognized local or international stock market
- Legal entities owned by an international or multilateral organization or by a State
- Legal entities who are ship-owners or charterers of vessels registered exclusively under the international service of the Merchant Marine of the Republic of Panama
- Legal entities that perform commercial operations within the Republic of Panama
Failure to comply with the obligations to provide the resident agent with the accounting records and supportive documentation (in original or copies).
The resident agent must notify the regulatory agency of such situation, which may cause:
- Fines to the legal entity in the range of US$5,000.00 up to US$1,000.000.00
- Suspension of corporate rights of the legal entity
- Inability to register any type of documents in the Public Registry and to obtain certificates issued by such Registry.
IN SUMMARY:
- You must send to us the original or copies of the accounting records and supportive documents corresponding to fiscal year 2021, before October 31, 2022 and subsequently prior to April 30th of each year;
- If the original accounting records and supportive documents are kept in a different place that the offices of the resident agent, you must provide by writing every year the physical place where those original accounting records and supportive documents are kept, as well as the information of the person in charge of such custody.