What Is Panama Law 254 and Why Was It Implemented?
The aftermath of the Pandora Papers in Panama led to the enactment of Panama Law 254 in November 2021. This law reinforces corporate compliance regulations by building upon existing legal frameworks such as Law 23 of 2015, Law 52 of 2016, and Law 129 of 2020.
Panama Law 254 aims to strengthen the accountability of legal entities by introducing strict requirements for accounting records, the responsibilities of registered agents, and compliance deadlines to ensure financial transparency. These efforts align with international standards promoted by the OECD Global Forum on Transparency.
Accounting Records Requirements Under Panama Law 254
Legal Obligation to Maintain Accounting Records
Panama Law 254 mandates that all legal entities registered in Panama, including corporations and private interest foundations, maintain accounting records and supporting documentation for at least five years.
Previously, under Law 52 of 2016, registered agents could either hold physical records or maintain contact details of the entity responsible for them. However, Panama Law 254 now requires registered agents to physically store accounting records, which can be either originals or copies. Entities must ensure full cooperation with the Panama DGI (Tax Authorities) to avoid sanctions.
Who Holds the Accounting Records?
If the registered agent does not possess the original accounting records, the legal entity must provide written annual updates on the name and address of the person or entity holding the original records. Any changes must be reported immediately to comply with the oversight of the Superintendence of Non-Financial Subjects (SSNF Panama).
Categories of Legal Entities Under Panama Law 254
- Legal Entities Exclusively Holding Assets
Entities that do not engage in commercial operations but rather hold assets must provide details on:
- The value of the assets they own
- Income received from these assets
- Any liabilities associated with them
A balance sheet is required to comply with Panama Law 254.
- Legal Entities Conducting Commercial Operations Outside Panama
Entities operating outside Panama must provide:
- A general accounting ledger
- An accounting journal detailing financial transactions
Supporting Documentation Required by Panama Law 254
To comply with Panama Law 254, legal entities must maintain supporting documentation such as:
- Contracts
- Invoices
- Receipts
- Any other records reflecting financial transactions
Exemptions Under Panama Law 254
Certain legal entities are exempt from the requirements of Panama Law 254, including:
- Entities listed on a stock exchange (local or international)
- Entities part of an international organization or multinational group
- State-owned enterprises
- Entities registered under the Panama shipping registry
- Companies operating within Panama
Deadlines for Compliance With Panama Law 254
Annual Submission Requirements
Under Panama Law 254, legal entities must submit accounting records and supporting documentation once a year, no later than April 30 of each fiscal year.
Reactivation of Legal Entities
If a legal entity was inactive in the Panama Public Registry before the enforcement of Panama Law 254, it must first submit accounting records and supporting documentation to its registered agent before it can be reactivated.
Transfer of Legal Entities Between Registered Agents
A company transferring from one registered agent to another must provide accounting records and supporting documentation before the transfer is completed.
Dissolution of Legal Entities
The dissolution of a legal entity will only be registered in the Panama Public Registry if the registered agent filing the dissolution provides a sworn declaration confirming that they hold the accounting records and supporting documentation.
Confidentiality and Compliance Penalties Under Panama Law 254
Are Accounting Records Confidential?
Accounting records and supporting documentation remain confidential unless requested by a competent authority under Panamanian law.
What Are the Penalties for Non-Compliance?
Failure to comply with Panama Law 254 can result in severe penalties, including:
- Fines for legal entities ranging from $5,000 to $1,000,000
- Suspension of corporate rights
- Forced liquidation of the company
- Fines for registered agents ranging from $5,000 to $100,000
Updates on Compliance Deadlines
Under Resolution 201-2338, issued on April 1, 2022, legal entities incorporated before December 31, 2021, were granted an extension until October 31, 2022, to provide accounting records to their registered agents.
Registered agents were also given until December 31, 2022, to report non-compliant legal entities to the Panamanian Tax Authorities.
Why Panama Law 254 Matters for Corporate Compliance?
Panama Law 254 is a crucial legal framework designed to enhance financial transparency and corporate accountability in Panama. By enforcing stricter accounting record requirements, the law strengthens compliance regulations and prevents financial misconduct.
Businesses operating in Panama must ensure full compliance to avoid severe penalties and maintain good standing under Panama’s evolving corporate laws.
By adhering to the guidelines of Panama Law 254, legal entities and registered agents can safeguard their corporate reputation and ensure compliance with global financial regulations.
