By Lilia Isabel Lee, Tax & Legal Manager, BDO Panama, Panama City
Panama’s Executive Branch has approved the enactment of Law 254 of November 11, 2021, introducing amendments to the legislation on international tax transparency and on “the prevention of money laundering, the financing of terrorism and the financing of the proliferation of weapons of mass destruction.”
These amendments revise a set of laws previously enacted in 2011, 2015, 2016, and 2020 to comply with international standards required by the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF). The new law amends, adds articles, and derogates regulations of seven laws in total.
This article reviews the most important amendments to each of the affected laws in turn.
Amendments to the law of prevention of money laundering and other financial crimes (Law 23 of 2015)
The new law modifies the definitions of “beneficial owner” and “legal structure” to amplify their coverage, as well as the definition of non-financial regulated entities, which was previously abolished and is now reinstated.
Investment companies are included in the list of regulated entities supervised by the Superintendency of the Securities Market (Superintendencia del Mercado de Valores).
The article related to adequate identification, reasonable verification, and documentation of due diligence is replaced by risk assessment measures for financial and non-financial regulated entities with regard to money laundering, terrorist financing, and financing of proliferation of weapons of mass destruction related to customers, countries, or geographical areas, and products, services, transactions or distribution or marketing channels. Also, the law includes an additional article about the obligation of non-financial regulated entities to obtain information and documentation related to the financial and transactional profile.
The supervisory bodies of financial and non-financial regulated entities are empowered to regulate matters relating to mechanisms of understanding of the nature of their customer’s business, taking into account the type of business carried on by the regulated entity. Supervisory bodies for the purposes of Law 23 of 2015 are the Superintendency of Banks of Panama, the Superintendency of Insurance and Reinsurance of Panama, the Superintendency of the Securities Market, the Intendency of Supervision and Regulation of Non-Financial Subjects, the Instituto Panameño Autónomo Cooperativo, and any other public institution determined by law to ensure the supervision of other activities described in Law 23 of 2015 or whose risk profile so requires.
The amount of the fine for non-compliance with Law 23 of 2015 is increased from PAB/USD 1 million to PAB/USD 5 million, depending on the seriousness of the offense, the degree of the relapse, the magnitude of the damage, and the size of the obligated entity. Other sanctions for non-compliance with the provisions set forth in Law 23 of 2015 and its subsequent regulations include suspension of corporate rights and the forced administrative liquidation before the Public Registry of Panama of the legal entity, even if it’s the resident agent’s fault only. These sanctions are applicable to obligated subjects, as well as to those who allow or authorize the non-compliance.
Amendments to exchange of tax information for tax purposes (Law 51 of 2016 and Tax Code)
Law 51 of 2016 establishes the regulatory framework for the implementation of the exchange of information for tax purposes. Amongst its amendments, the obligation to report the balance or value of the reportable account is waived provided that the account has been closed during the relevant calendar year.
Also, the amendments modify the amounts of the fine for failure to deliver all the information and documentation required for causes attributable to the investigated party within the term granted, which is increased from PAB/USD 5,000 to one PAB/USD 100,000.
In addition, the application of sanctions is extended to cases where non-compliance with the current obligations is detected and in cases where the private source discloses or shares confidential information with an unrelated third party. Sanctions will also apply to account holders providing false information in the self-certification to the financial institution. This sanction will be a fine ranging from PAB/USD 5,000 to 50,000, in addition to other civil and criminal liabilities. It entails regulation by the competent authority.
As per the tax code, the amendments add a paragraph to existing article 756, stating that non-compliance in the presentation of the country-by-country report will be subject to a fine of PAB/USD 100,000 for each fiscal period. In addition, a progressive fine of PAB/USD 5,000 per day will be applied until the non-compliance is remedied, a fine of PAB/USD 25,000 if the information provided is inconsistent or erroneous, and a fine of PAB/USD 500,000 in case the information has been intentionally altered.
Amendments to accounting record-keeping regulations (Law 52 of 2016)
Law 52 of 2016 establishes the obligation to keep accounting records for certain legal persons and dictates other provisions. As per the adjustments introduced by Law 254, now legal entities engaged exclusively in holding assets are obliged to keep accounting records and supporting documentation. Therefore, legal entities that do not carry out operations that are perfected, consummated, or take effect within the Republic of Panama and those that are engaged exclusively in holding assets must provide the accounting records or a copy thereof to the resident agent by April 30 of each year.
For legal entities existing before November 12, 2021, a period of six months is given to deliver to the resident agent the accounting records or copies of the accounting records. Legal entities suspended before the Public Registry prior to November 12, 2021, must also provide the resident agent with the corresponding accounting records if they wish to be reactivated and have their corporate rights reinstated.
Legal entities must inform the resident agent in writing of the contact information of the custodian of the accounting records and supporting documentation whenever they are located at a place other than the resident agent’s offices. Also, the resident agent must keep copies of the stock certificates and shareholder registry of those corporations for which it acts as such at its offices within the Republic of Panama.
Legal entities that are listed on a recognized local or international stock exchange or those owned by an international, multilateral, or state organization, shipowners or charterers of vessels registered exclusively under the international service of the Merchant Marine of the Republic of Panama are exempted from the obligation to deliver the original accounting records or a copy thereof to the resident agent on an annual basis. However, they shall keep in their control the original of the accounting records and supporting documentation and shall be obliged to deliver their accounting records within 20 working days from the request made by the resident agent due to a requirement made by the competent authority, and also inform in writing the resident agent the contact information of the custodian of the accounting records and supporting documentation.
In the event of a change of resident agent, the legal person must provide the new resident agent, prior to the registration of its appointment in the Public Registry of Panama, with the accounting records and supporting documentation or copies of the accounting records and supporting documentation, whichever the case may be, which must be kept at the offices of the new resident agent within the Republic of Panama, or inform in writing the contact details of the person who keeps custody of the accounting records and supporting documentation and the physical address where they are kept.
Amongst other new obligations, resident agents must submit an annual sworn statement to the General Directorate of Revenues as of July 15 containing a list of the legal persons for whom they exercise the service of resident agent, including the name and unique taxpayer registration number. The first sworn statement must be filed within 30 calendar days after the expiration of the six-month period beginning on November 12, 2021, with respect to legal entities existing before November 12, 2021.
The obligation of the resident agent to provide the competent authorities with accounting records or copies and supporting documentation does not constitute a breach of professional secrecy or disclosure restrictions. The competent authorities should maintain the information received in a structured manner and use it only for the faithful performance of their functions.
The fines applicable by the General Directorate of Revenue to legal entities and resident agents for failure to comply with the obligations of Law 52 of 2016 range from PAB/USD 5,000 to 100,000 and suspension of corporate rights.
Beneficial owner registration amendments (Law 124 of 2020 and 129 of 2020)
Law 124 of 2020 creates the Superintendency of Non-Financial Institutions in the Republic of Panama, whilst Law 129 of 2020 creates the Private and Unique System of Registration of Beneficial Owners and Legal Entities.
The main adjustments introduced by Law 254 to Law 124 of 2020 is its broadening of the scope of supervision and regulation of the Superintendency of Non-Financial Institutions to include non-financial regulated entities domiciled in and outside Panama. This includes certified public accountants as non-financial regulated subjects so long as they, in the exercise of their profession, perform on behalf of a client any activity subject to supervision. It also includes the Financial Analysis Unit and foreign jurisdictional authorities in the list of persons to whom information collected by the Superintendency within the scope of its functions may be disclosed.
As per Law 129, Law 254 eliminates the criteria for determining ownership, control, or influence of a beneficial owner, and authorizes the Executive Branch to further regulate the criteria for determining ownership, control, or significant influence.
As per the private and unique system, the amendments oblige resident agents to register the data of the legal entity and its beneficial owner(s) within a term not exceeding 15 working days (previously 30 days) from the date of incorporation or registration of the legal person or else, the appointment of a new resident agent before the Public Registry of Panama. Legal entities are required to deliver to their resident agent information required by the latter, including the identification of the beneficial owner or beneficial owners, within a period of 15 working days. They must also notify their resident agent of any change in the information on the beneficial owner or beneficial owners, so that the resident agent may make the due update within a maximum of five working days following the date on which the information was received. The notification to be made by resident agents to the Superintendency of Non-Financial Institutions in the event of resignation is reduced to a maximum of 10 working days. The Superintendency of Non-Financial Institutions must be notified of the appointment of a new resident agent within a maximum of 15 working days.
If the resident agent fails to register or update the information of the legal entities it represents, then a fine is imposed. This fine was limited by Law 254 from PAB/USD 5,000 to 50,000 for each legal person that the resident agent fails to inform. Additionally, the Superintendence of Non-Financial Subjects may impose daily progressive fines, the amount of which shall be equivalent to PAB/USD 500, until the non-compliance is remedied for a maximum term of six months.
Final remarks
In addition to the above-amended laws, Law 2 of 2011 was abolished in its entirety, since it contained rules that were in open contradiction with international standards of transparency and exchange of tax information.
These adjustments were mostly redefinitions of terms, inclusion of competent authorities, increases in the penalties for noncompliance, and enhancements to compliance from resident agents. Many of these adjustments require additional regulations from both the Executive Branch and supervisory agencies.
The Panamanian government hopes that these adjustments will result in keeping Panama off the black and grey lists of international organizations, avoiding the negative repercussions that these lists may have, such as a decrease in foreign investment and international transactions, limitations, and higher costs of banking services, correspondent banking, and remittance operators, as well as a worse risk and investment rating. Likewise, the objective is to prevent Panama from being included in other discriminatory lists.
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