The Republic of Panama, through Law No. 52 of 2016 (“Law No. 52”), established the requirement that all legal persons (public limited companies, limited liability companies and private interest foundations) are obliged to keep accounting records and maintain supporting documentation for a minimum period of five (5) years.

Recently, the aforementioned Law No. 52 was modified by Law 254 of November 11, 2021 (“Law 254”), establishing additional requirements regarding the “accounting records” that legal persons must keep.

Next, we formulate some questions that help us explain the modifications to Law No. 52:

What is the main modification of Law No. 52 introduced by Law No. 254?

The obligation is established that the accounting records that legal entities must keep and maintain must be provided to the resident agent, for their custody, no later than four (4) months after the expiration of each fiscal year, that is,  no later than April 30 of each year. That is, the accounting records as of December 31, 2021, must be delivered to us no later than April 30, 2022, and also by the expiration of subsequent fiscal years.

The accounting records may be provided to the resident agent in original or a copy and will be kept by the resident agent in a confidential manner, unless there is a requirement from a competent authority of the Republic of Panama, in accordance with the applicable laws.

Where can the original accounting records be kept?

The originals of the accounting records can be kept in the possession of the legal entity anywhere in the world or in Panama under the custody of the resident agent. If the original accounting records are kept outside the offices of the resident agent, the legal entity is obliged to inform, annually and in writing, the resident agent the name and contact details of the person who maintains the original accounting records and documentation. backup in their custody, as well as the physical address where they are.

What are accounting records according to Law No. 52?

Accounting records are understood as those that clearly and precisely indicate the operations, both accounting and financial, of the legal entity, its assets, liabilities and equity, as well as that serve to determine the financial situation with reasonable accuracy at all times and allow the preparation of financial statements.

What type of accounting records should legal persons keep?

A. Legal entities that are exclusively dedicated to being holders of assets, such as real estate, shares, participation fees, bank accounts and / or investment accounts, among others, must provide as accounting records, a document containing the following information :

• The value of assets;

• The income generated by said assets; Y

• the liabilities related to those assets.

The information may be provided with the annual delivery to the resident agent of a general balance sheet that contains the amount of assets, liabilities and income of the legal entity related to the previous fiscal period.

B. Legal persons engaged in the sale of public or private credit titles and securities, to profit from their resale or by any other means of commercial speculation, must deliver:

• The custodian’s account statement; or

• The balance sheet of the legal entity.

C. Legal persons that carry out commercial acts outside the Republic of Panama must deliver:

• A diary and a major.

What companies are exempted from providing the accounting records or copies thereof to the resident agent?

The following legal entities are exempt from the obligation to provide the resident agent with the accounting records or a copy of them annually:

1. Legal persons listed on a recognized local or international stock exchange.

2. Legal persons that are owned by an international or multilateral organization or a State.

3. Legal persons that are shipowners or charterers of ships registered exclusively under international service of the Merchant Navy of the Republic of Panama.

4. Legal persons that carry out commercial operations within the Republic of Panama.

What is supporting documentation according to Law No. 52?

Supporting documentation is defined as that which includes contracts, invoices, receipts and / or any other documentation necessary to support the transactions carried out by a legal entity.

What are the consequences for a legal entity in case of not providing the original or copy of the accounting records to the resident agent in a timely manner?

The resident agent must report such fact to the regulatory entity and such non-compliance could generate: (i) fines to the legal entity of US $ 5,000.00 to US $ 1,000,000.00; (ii) the suspension of the corporate rights of the legal person; and (iii) the impossibility of registering any type of document in the Public Registry and obtaining certificates issued by said Registry. In addition, the resident agent is obliged to resign as such with respect to the legal person that does not comply.

For how long must accounting records and supporting documentation be kept in the event of dissolution?

In the event of dissolution, the accounting records and supporting documentation or their respective copies corresponding to the five (5) years prior to the registration of the dissolution must also be kept by the legal entity and be available for a minimum period of five ( 5) years from the registration of the dissolution.

 If you have incorporated a company in Panama or you wish to have more information about current legislation, please do not hesitate to contact us.