New features of accounting records in the Republic of Panama

In accordance with the obligations accepted by the international community on the principles of transparency of taxation, the Republic of Panama adopted the Law No. 52 of 2016, which establishes the obligation to maintain accounting records for those legal entities that do not conduct transactions that are carried out, are concluded or have effects within the Republic Panama.

You will find the most prominent features of the new legislation below:
The law is effective from January 1, 2017.
As noted above, the law states that legal entities that do not perform transactions that are carried out, are concluded, or have effects within the Republic of Panama are required to maintain accounting records. This means that it refers to legal entities, i.e. companies of all types and private funds registered or transferred to the Republic of Panama, but not operating in the territory of the Republic of Panama and therefore not receiving income from Panama sources.

Accounting statements and confirming documents must be kept for a period of not less than five (5) years, counting from the last day of the calendar year in which the transactions or deals were consummated or on the last day of the calendar year in which the legal entity ceased its activities.

Accounting records and supporting documents can be kept in the offices of the resident agent, and in cases where such documents and supporting documents are stored elsewhere, the legal entity is required to inform the agent in writing about the physical address where the accounting statement and supporting documents are placed, as well as the name and contact information of the person who keeps them. Any changes to the address must be communicated to the agent within 15 (fifteen) business days.

If the information is requested by the competent authority from the agent, the legal entity must provide accounting statement within the period not exceeding fifteen (15) business days. If documents and information are not provided, the agent submits an application for resignation with regard to the legal entity.

In case of non-observance of this rule, a fine in the amount of one thousand dollars (USD 1,000.00) is imposed, as well as one hundred dollars (USD 100.00) for each day that passes without eliminating the cause that led to the violation.

In addition to the obligation to perform accounting, as mentioned earlier, the Law No. 52 of 2016 also amended Article 318-A of the Tax Code of the Republic of Panama, in particular by adding restrictions on corporate rights for the following reasons:

  • Suspension of corporate rights of legal entities that do not appoint the registered agent within more than ninety (90) calendar days after the resignation, dismissal or termination of its former resident agent;
  • Suspension of corporate rights of those legal entities that failed to pay state fees within three (3) consecutive years;
  • Suspension of corporate rights of those legal entities that have not paid any fine or penalty imposed and duly executed;
  • The suspension contributes to the inability to initiate proceedings, conduct business or dispose of their assets, inability to file claims or exercise any rights, and inability to carry out any corporate actions that are necessary for the legal entity.

If the suspension is recorded, the legal entity has two (2) years to be renewed. During this period, any member of the board, shareholder, partner, registration agent or person concerned can apply for reactivation, having prepaid the fine of one thousand dollars (USD 1,000.00). After the period of two (2) years passes without the specified reactivation, the register will start final liquidation and, therefore, the legal entity will be finally liquidated.

The said Law No. 52 of 2016 also adds the following paragraphs to Law 2 of 2011:

Article 9-A provides for the mandatory certification of a resident agent, where he assures that he does not have to be paid for the provision of services, when a legal entity decides to change the agent through the management body.

Article 10 provides for the possibility of resignation as a resident agent when he has lost contact with a shareholder or has not received payment for his contributions for three (3) consecutive years.

Finally, the Law No. 52 of 2016 amends Article 21 of the Law 47 of 2013, which describes the safekeeping of bearer shares, noting that when the owner of bearer shares does not provide the relevant certificate, it is considered to be terminated in accordance with the law, as well as political and economic right, attached to this share, represented by the certificate of bearer shares.