Panamá accounting records regulations

Panama has introduced changes to its accounting records regulations through Executive Decree No. 177 of December 30, 2024 (Decreto Ejecutivo No.177 de 2024) (the "Decree"). This new Decree supersedes Executive Decree No. 168 of 2024 and introduces significant amendments to Law 52 of 2016 (the "Accounting Records Law"), as amended by Law 254 of 2021.

By Executive Decree No. 177, from December 2024, we are obliged to ask our client to provide an affidavit and financial statement for all corporations, limited liability companies, and private interest foundations established in Panama that either (i) operate exclusively outside Panama or (ii) function solely as asset holding companies (with assets located within or outside Panama).

Documentation Requirements: The Decree introduces specific documentation requirements for each category of legal entity:

• Panamanian Legal Entities must provide an annual sworn declaration regarding their asset-holding status and absence of taxable income, and Financial statements or financial summaries
• Foreign Legal Entities must provide an annual sworn declaration regarding their asset-holding status and either financial statements or a summary of their finance.
• Non-operative legal Entities must provide an affidavit of their inactive status and absence of assets or income.

Signature requirements: Under the new regulation, these documents can now be signed by:

• A member of the board of directors (for corporations);
• A member of the foundation council (for private interest foundations);
• The ultimate beneficial owner OR a duly authorized representative of the ultimate beneficial owner.

Exemptions to provide the affidavit and accounting records: The Decree maintains certain exemptions from compliance requirements for specific categories of legal entities:

• Tax residents of Panama. Therefore, the operating companies currently filing tax reports for activities conducted in Panama are not required to provide the affidavit and financial statements.
• Companies listed on recognized local or international stock exchanges
• Entities owned by international organizations or states
• Ship owners or charterers registered exclusively under Panama's international merchant marine service.

However, these exempt entities must still maintain their accounting records and supporting documentation. They are obliged to provide such records within twenty business days upon request from competent authorities through their resident agent.

New Categories of Legal Entities that must provide an affidavit and accounting records

The Decree has established three distinct categories of Panamanian legal entities, each with specific accounting requirements:

A. Panamanian Legal Entities

• Must exclusively function as asset holding companies (within and/or outside Panama)
• Beneficial owners (UBO) must be solely Panamanian citizens
• Required documentation: Annual sworn declaration confirming their asset-holding status

B. Foreign Legal Entities

• Dedicated to asset holding and/or income generation (within and/or outside Panama)
• Must have at least one foreign citizen as an ultimate beneficial owner
• Required documentation: Financial statements or a summary of financial position

C. Non-Operating Legal Entities

• Must have no commercial activities
• Must generate no income within or outside Panama
• Must hold no assets within or outside Panama
• Required documentation: Annual certification of inactive status confirming inactive status

Reporting Deadlines:

• Legal entities must submit accounting records for the previous fiscal period to their resident agents by April 30 of each year.
• Starting January 2025, resident agents must file declarations by June 15 of each year.

Penalties

Non-compliance with the Accounting Records Law and the new Decree carries significant penalties:

• Fines ranging from US$5,000 to US$1,000,000
• Potential suspension of corporate rights
• Risk of forced liquidation of the legal entity
• Furthermore, resident agents who fail to comply with their reporting obligations may face sanctions under Law 254 of 2021.

For more information, contact us at lill@kerycruz.com