New Executive Decree No. 62 of March 30, 2017
This Executive Decree regulates private non-profit associations and foundations in the Republic of Panama.
Panama, April 2017. Last March 30th the Executive Decree No. 62 dated March 30th, 2017, was published, which regulates private interest nonprofit associations and foundations whose legal status is recognized by the Ministry of the Interior, by adapting the regulatory framework for the granting of legal status to such organizations.
This Executive Decree repeals Executive Decree No.524 of October 31st, 2005, Executive Decree No.627 of December 26th, 2006, Executive Decree No.615 of July 12th, 2012, and renders ineffective Resolution No. 30-R-10 of February 16th, 2012.
Main aspects to take into consideration:
Scope of application - Definition
Executive Decree 62 of March 30th, 2017, embraces Private Interest nonprofit Associations and Foundations, churches, congregations, religious communities or associations, federations and subsidiaries whose legal status is recognized by the Ministry of the Interior, hereinafter referred to as NPOs.
This Decree does not include cooperative, trade union, sport, farmers’ and other associations subject to special legal regime.
Definition of NPO: A private non-partisan entity, which in accordance with its nature does not receive personal property benefits; therefore, its income shall not be distributed among its founders, members or directors, without thereby restricting its capacity to contract them or other personnel for specific labors or provision of services.
The application for legal status shall be submitted to Department of Legal Affairs and Legal Procedures of the Ministry of the Interior, through a lawyer.
The Ministry of the Interior will manage cooperation agreements with state and private universities, as well as with other entities, in order to ensure that the legal representation service is provided free of charge.
They shall be panamanian or foreign natural or legal persons with domicile or residence established in the Republic of Panama.
They shall also be embassy officials, diplomatic personnel, State agencies and personalities of international importance within the business, philanthropic, cultural, religious, educational, scientific, artistic and sports environments, duly verified. The board members shall be three (3) natural or legal persons. For the latter, the minutes of the general meeting in which their participation is approved shall be provided.
Granting of legal status
The applications for legal status submitted to the Ministry of the Interior shall be subject to a consultation process with relevant institutions in accordance with their objectives.
The composition, powers, quorum, way of making decisions, among others, of the General Assembly must be indicated in the statutes. In addition to the above, the Board must indicate the democratic procedure for the election and duties of each member, ensuring transparency.
The requirement to submit a work plan for the first five (5) years is removed.
The entity in the process of formation which has not been observed will be granted the legal status through a resolution.
If observations are made:
• It shall submit the corrections within sixty (60) calendar days from the notification of such observations. By the deadline and having been submitted the corrections, the resolution will be issued.
• If the corrections are not in accordance with the requests of the Ministry of the Interior, fifteen (15) calendar days shall be granted to correct the errors. After expiry of that period, the Ministry shall have thirty (30) days to issue the resolution, granting or rejecting the legal status.
• The requests shall be rejected if after the expiry of the aforementioned periods of sixty (60) days or the extraordinary period of fifteen (15) days for amendments, the legal representative lets the deadline expire or does not provide the documentation in accordance with the executive decree.
• Against the decisions issued by the Ministry of the Interior, there is an appeal for reconsideration which shall be filed within five (5) days from the notification; and the rejected requests shall be re-entered only once.
Registration in the Public Register
The Resolution together with all the corresponding documentation shall be recorded in a notarial deed, which shall be registered in the Public Register.
Registration in the Ministry of the Interior
The track of activity is kept in the Ministry of the Interior, in which every entity with recognized legal status, and registered in the Public Register, must be recorded. It is a prerequisite to submit a written application from the attorney in fact or legal representative and uncertified copy of the deed with proof of registration in the Public Register.
Obligation to maintain a registered office
The entity is obliged to maintain a registered office for the purposes of notifications which must be served. The Ministry of the Interior shall carry out an examination, before or after the recognition, at the declared registered office.
Funds received by the entities with legal status recognized by the Ministry of the Interior, and channelled through public institutions, shall be considered of public nature and subject to monitoring actions.
The self-management income and income from other sources, not channelled through a public institution, shall not be considered public funds, or subject to the management, allocation and operating rules established for them; therefore, the entity shall use such funds in accordance with the provisions of its Statute, without prejudice to the examinations, verifications and monitoring which the Ministry of the Interior shall carry out.
Public funds shall be deposited in financial institutions registered in Panama (formerly, they were only public financial institutions).
Dissolution of NPOs
The NPOs shall be dissolved for the reasons established in their statutes, with prior agreement of the Board with the General Assembly approval. The dissolution shall be registered in the Public Register and subsequently notified to the Ministry of the Interior.
The bylaw reform application shall be approved by the Ministry of the Interior through resolution, which shall be recorded in a notarial deed for its registration in the Public Register. A copy of the notarial deed with proof of its registration shall be submitted to the Department of Legal Affairs and Legal Procedures of the Ministry of the Interior.
Formation of foreign organizations and federations subsidiaries
Besides all the requirements previously requested, it is stated that the subsidiary’s registered office must be in the Republic of Panama, and it must also be established who the legal representative is, who can be either panamanian or a foreigner with residence in Panama.
For the formation of federations, all subsidiary’s requirements shall be met, providing certification from the Public Register with proof of registration and validity of each one of the entities which shall integrate the federation, the Minutes of the General Assembly with majority of votes and uncertified copy of the certification of the registration at the Ministry of the Interior.
Private interest nonprofit foundations, maintain the requirements for the application of legal status in the Ministry of the Interior and must be registered in the Register of such Ministry.
Supervision, monitoring and evaluation of private interest nonprofit associations and foundations
The Department of Supervision, Monitoring and Evaluation of NPOs, within the Department of Legal Affairs and Legal Procedures of the Ministry of the Interior, is in charge of supervising, monitoring and evaluating the operational functioning of NPOs.
In accordance with its functions, this Department shall: Verify the recognition and registration of NPOs’ legal status; supervise based on the risk report, the legal condition of every NPO, regarding administrative requirements and procedures; verify and request the records of the funds received, generated or transferred by NPOs; apply all supervision, monitoring and evaluation measures required.
This Department shall have the following responsibilities: require all the appropriate and necessary documentation to carry out the supervision, monitoring and evaluation; order and carry out the examination of the books and minutes, documents and other information related to the administration, financial management and functioning of the entities subject to supervision; request NPOs’ dignitaries, representatives or responsibles all necessary reports; temporarily cease the legal status of NPOs for a period no longer than thirty (30) days on any of the following grounds:
• They do not inform change of registered office, Board in force and financial statement.
• They are engaged in any activity contrary to the nonprofit nature of NPOs
• They commit acts or develop activities contrary to this Executive Decree.
The suspension shall be maintained until they make the corrections and comply with the observations. In addition, this Department shall cease the legal status of NPOs by order of the competent authority, in which case the suspension shall be maintained during the term of the investigation or process.
When any NPO meets any of the grounds for suspension, this measure shall be ordered through administrative procedure by resolution.
The Department of Supervision, Monitoring and Evaluation of NPOs shall carry out visits to the registered office and request any documentation to justify, clarify or correct deficiencies related to the entity’s legal status. The Department shall keep strict confidentiality about all the information and documentation, providing access only to involved parties or their representatives.
The information regarding Nonprofit Associations and Foundations with Legal Status and those currently in process shall be provided by request of the Financial Analysis Unit, the Tax Collection Department and the Public Prosecutor’s Office.
NPOs which have not submitted to the Department of Legal Affairs and Legal Procedures, the documentation proving their registration at the Public Register, shall provide uncertified copy of such registration within a period no longer than thirty (30) calendar days from the date in which they are informed to submit it.
Publication of the Register
The Ministry of the Interior shall publish in its web site the list of associations and foundations within the Register of the Department of Legal Affairs and Legal Procedures.
Jurisdiction in case of conflicts
It is stated that internal conflicts of NPOs lie within the jurisdiction of ordinary courts of law; therefore, the Ministry of the Interior shall not decide on them. However, at the request of the interested parties, they shall be decided through the alternative methods of conflict resolution.
NPOs with authorization from the Tax Collection Department within the Ministry of Economy and Finance to receive income tax-deducible donations, or which receive public funds to execute projects or which transfer funds abroad, shall submit to the Ministry of the Interior a report, for the previous year, on their registered office, board in force and financial statement. Such report shall be submitted during the first three (3) months of the year, since 2018.
The NPOs which the previous paragraph refers to are those recognized by the Ministry of the Interior in accordance with Executive Decree 62 of 2017, as well as those formerly granted. The failure to comply with the obligation to submit the report for two consecutive years shall cause the suspension of the legal status until the corresponding reports are submitted.