Requirements for Accounting Records

The Government of Panama enacted Law 254, which provides for fiscal transparency and adjustments against money laundering. The Law covers several main points: Accounting Records, Due Diligence, and the Unique Beneficial Owners System. This article focuses on the changes related to accounting records requirements.

All Panamanian companies and entities with businesses or assets outside of Panama are required to keep accounting records and supporting documents, but recent legislation has strengthened these requirements. Legal entities must submit at least one copy of their accounting records and supporting documents to their Resident Agent each year and give information obligations to Resident Agents to notify Panamanian authorities about entities that do and do not comply with established requirements and practices.

The Law defines Accounting Records as “Those documents that clearly and accurately indicate the operations of the legal entity, assets and equity, as well as serve to accurately determine the financial situation and allow the preparation of 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 this 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 have effects within the Republic of Panama, or only engages in the holding of assets, whether within or outside Panamanian territory, it is obliged to keep and maintain supporting documents.

How long should these records be kept?

You must keep your records and supporting documents for a minimum period of 5 years.

Where should these accounting documents be kept?

They can 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 obliged to notify the Resident Agent in case of any issues with Accounting Records and Supporting Documents.

When will they request the supporting documents?

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

¿Hasta que fecha tengo para cumplir con este requerimiento?

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

Accounting records must be provided as follows:

A legal entity dedicated solely to holding assets such as stocks, real estate, bank accounts, and/or investment accounts, among others, presents as accounting documents that reflect the value of the assets, the income generated by these assets, and liabilities associated with these assets.

Any legal entity engaged in commercial activities outside the Republic of Panama must send us the daily ledger and a general 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 should you do if your legal entity is currently suspended?

If a legal entity has been suspended from the public registry before the entry into force of Law 254, the legal entity must be reinstated by providing its Resident Agent with accounting records or copies of accounting records.

Resident Agent Changes for 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 Resident Agent’s office inside or outside of the Republic of Panama, the name and contact information and 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 last 5 years prior to the dissolution registration. In this case, the Public Registry of Panama will only register the corresponding public dissolution deed if 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.

It is very important to establish that non-compliance with this law entails penalties for the legal entity ranging from USD$ 5,000.00 to USD$ 1,000,000.00, considering the seriousness of the offense, the recurrence, and the size of the damage.

In addition to this pecuniary sanction, the Public Registry is ordered to suspend the corporate rights of the legal entity that fails to comply, without prejudice to its compliance with the responsibilities established in the law, its regulations, and regulations. The General Directorate of Revenues (DGI) is authorized to order the administrative forced liquidation of the legal entity through the Public Registry.

Similarly, this law describes sanctions for resident agents who do not comply with it.

In addition, resident agents must resign from their position in relation to legal entities that fail to comply with this obligation.

Our team is at your disposal to help you comply with the obligations arising from this law. Contact us at cpa@panamags.com, and we will be happy to assist you.

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