How Law 254 of November 2021 for Accounting records will be enforced and the new deadline for compliance.
In our previous Insights article, Accounting Records in Panama: Part I, we detailed how the new law, Law 254 of November 2021, modifies, among other regulations, Law 52 of 2016 in establishing additional requirements regarding the maintaining of accounting records and supporting documentation to be kept by legal persons. This article will go further in explaining how it will be applied, guidance on differing circumstances, confidentiality of data and when will be the deadline for compliance.
How is Law 254 going to be enforced?
Resident agents are now obligated under the terms of Law 254 to provide an affidavit, every year, containing a list to the DGI (Direccion General de Ingresos), who are the General Revenue authority in Panama. On that list they must indicate the names and Panamanian tax ID numbers (RUC) of all of the corporations and foundations that they are appointed as resident agent for, and the entities are categorised as follows:
- Legal entities whose accounting records are appointed as being held and maintained at the resident agent´s office in Panama
- Legal entities where the accounting records are appointed as being held and maintained in a place that is not the offices of the resident agent, but the resident agent has the name, physical address and updated contact details of the person or place appointed and also has up to date copies of the accounting records and supporting documentation
- Legal entities that are not classified in the above two categories and therefore have not provided the resident agent with the above required details and documentation to be compliant with Law 254.
The authorities can request the accounting records at any time
The resident agent must provide the accounting records and all supporting documentation within a set time period upon receiving the request from the competent authorities. In accordance with the law, the resident agent must have copies of the accounting records and supporting documents to fulfill its own obligations as described within Law 254.
Penalties for non-compliance
In the event of non-compliance on the parts of either the resident agent or the entity, there are significant penalties.
If the required documentation is not provided, by the legal entity, then the level of penalties applied for non-compliance can result in it being sanctioned with:
- A fine ranging from $5,000 up to $1 million dependent on the level of seriousness of the offense.
- The suspension of the entity´s corporate rights
- The order by the DGI, who are empowered by Law 254 to instruct the Public Registry, to forcibly liquidate the legal entity that is non-compliant.
In addition, the resident agent, as the holder of the accounting records of the legal entity, will be sanctioned with a fine the level of which is dependent on the seriousness of the offense committed.
What about confidentiality of the information and documents?
All information provided to the authorities by resident agents, directors, or representative employees, in compliance with Law 254, is deemed as not representing a breach of professional privacy and confidentiality or restrictions on disclosure of information derived from the confidentiality imposed by contract or any other legal provision.
In accordance with Law 254, all accounting records information provided by the resident agent to their respective authority must be kept protected and secure, and it can only be accessed and used by the appropriate authority for the fulfillment of its lawful duties. Any breach by an official of this obligation of confidentiality will be treated as a serious administrative offence and be sanctioned without prejudice to the civil and criminal code of law.
Law 254 also determines that, for the purposes of national and international exchange of information, the Panamanian authorities are permitted to make request for the provision of the accounting records of a legal entity without this constituting a violation of confidentiality.
Can this requirement be avoided by dissolving the corporation or foundation?
No. Before the Public Registry of Panama will register the deed of dissolution, the resident agent must submit the express declaration that the legal entity´s accounting records and supporting documents have been provided for the statutory minimum period of the previous five years.
What is required to reactivate a legal entity that was suspended before the effective date of Law 254 (12th November 2021) in regards to accounting records?
Any corporation or foundation that was suspended at the Public Registry of Panama before 12th November 2021, must provide the accounting records to the offices of the resident agent in Panama in order to be reactivated. In addition, it must comply with all elements of the reactivation process as established by law e.g., settle all outstanding franchise tax payments.
According to law 254, what are the obligations for changing the resident agent of a Panamanian legal entity?
To change their Resident Agent, legal entities must provide their new Resident Agent, prior to the registration of its appointment at the Public Registry of Panama, the accounting records and supporting documentation or copies of the accounting records and supporting documentation. The outgoing resident agent must first ensure they have updated accounting records and supporting documentation also.
Deadline for compliance by existing legal entities
Initially, it was indicated within Law 254 that the deadline for legal entities incorporated before November 12, 2021 to deliver their accounting records to the offices of their resident agent was May 12th, 2022.
However, the deadline has been extended by the DGI, through resolution 201-2338 of April 1st, 2022, to October 10th, 2022. The clock is ticking!
It is important to note that, for this financial year ending December 31st, 2022 the deadline for provision of accounting records to the resident agent must be no later than April 30th, 2023.
English speaking accountants in Panama
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