A new accounting law has changed the record-keeping requirements for companies, which will have a direct impact on Panama homeowners who use a corporation to own their property.
The new legislation, Law No. 254, requires all legal entities, including corporations and limited liability companies, to keep accounting records and key documents for a minimum of five years.
For property owners with organized records, the law should be nothing more than an inconvenience, says Punta Pacifica Realty’s in-house property attorney Maria María Alejandra González. But many owners are still worried about the implications of the new law and the steps necessary to make sure they are in compliance.
“It’s a lot of work right now,” says González, who has been helping PPR clients prepare for the upcoming deadlines. “Not all the clients have the accounting records.”
In an interview, González discusses the details of the new law and what owners need to know.
What does the law change?
The documents were required in the past, but you didn’t have to provide them to the resident agent, which is the lawyer or the law firm that holds the corporation. In the past, they were kept by their accountant or any other person designated by the beneficial owner. Right now, Panama is looking for tax transparency and the prevention of money laundering, financing of terrorism, and financing of the proliferation of weapons of mass destruction.
Is there going to be some sort of enforcement mechanism to make sure that people are fulfilling the requirement?
The law states that each attorney or law firm needs to provide a list to the DGI, which is the general revenue office. Each year every lawyer needs to provide a list of all the corporations or foundations that they hold as resident agents, and in the list, we need to specify if the company is in compliance with the provisions of Law 254; which confirms that we maintain the information corresponding to the accounting records.
I assume that carries fiduciary responsibility for you?
Correct. Right now, with the new law, there are penalties for the lawyers if the lawyers don’t request the documentation or if the lawyers don’t have a copy of the documentation; also, there are penalties for each entity if they don’t provide the required documentation and penalties for the beneficiaries. The sanctions are from $5,000 to $5 million.
Does it only affect property owners that are using some sort of corporate entity or is it all property owners?
Only the property owners have a legal entity as the owner of the property. It means corporations or private foundations of interest.
What advice would you give to the property owners facing this challenge?
If the owners have their accounting records up to date and they have an accountant that handles the incomes and outcomes of the properties, it’s not a big thing. Here at PPR, most of our clients that have registered entities are using them only to hold assets, such as properties. The most important thing is to provide to the resident agent an affidavit where the owners confirm the address where they keep their accounting records and the information and address of the contact person who keeps them, as well as a copy of the documents that reflect the assets of the legal person.
If I am an individual owner and have no operations, I can just submit a letter explaining that?
Well, yes. A declaration and the supporting documents that confirms it. If the entity just holds a property, you can provide the deed where it’s stated that the corporation bought the property at this price. The Law was enacted, but to date, we don’t have a Regulatory Decree that details and covers all the possible scenarios that we face every day. Therefore, we’ll keep the clients updated once we have the regulations of the Law.
What if they don’t have records or they have missing records?
We’re working with accountants who can help get everything in order before the due date. I’ve got clients that do not have accounting records at all, and they use it as a property to live in. In that case, we’re requesting a certification from an accountant stating that the corporation does not have accounting records because it’s only the holder of the property and the supporting document is the deed. So, each case is a little different. I would say that the most complicated thing right now is the ones that do not have accounting records or do not have accountants.
Of the records required, are there any that are going to be particularly challenging for some of the property owners?
I think they’re standard. I don’t think it will be hard for most people to provide the information and supporting documents. But it’s going to take time and effort. The government extended the due date to present the documentation until Oct. 31 of this year. As I mentioned before, the Law was enacted, but to date, we don’t have a Regulatory Decree that details and covers all the possible scenarios.
Still, have questions? Need more information? Let us know to be put in contact with Maria Alejandra Gonzalez