Financial institutions should review the provisions of Law No. 51 and implement internal policies and procedures to comply with the reporting obligations.

On October 28, 2016, Panama enacted Law No. 51 (Law), which establishes a legal framework under which financial institutions must collect and report specified information to the Panamanian tax authority.

To comply with the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS), the Law requires financial institutions to perform due diligence procedures in accordance with Annex I of the Intergovernmental Agreement¹ and with future regulations on the CRS.

Furthermore, the Law creates additional obligations for financial institutions, such as the maintenance of all documentation obtained during the performance of due diligence procedures for five years. The Law also requires financial institutions to file a "nil return" when the financial institution does not maintain a reportable account.

In addition, the Law allows financial institutions to rely on service providers for the performance of due diligence and reporting obligations, as long as the particular law or regulation of each sector allows for it. In this case, both the service provider and the financial institution will be jointly liable for complying with the reporting obligation.

The next step for Panama is the development of regulations aligned with the CRS. The Panamanian Executive Branch has not released an official date as to when the regulations will be published. A follow-up Tax Alert will be issued with this information.

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ENDNOTES

¹ Law No. 47 de 24 de October de 2016, published in the Official Gazette No. 28145-A.