By means of Decree No. 9043/2018, signed on June 12 and published in the Official Gazette on June 15 of the same month, the Executive Branch regulated Law No. 5895/2017 “Establishing transparency rules in the regime of companies incorporated by shares”. The new provisions bind companies incorporated by shares within the territory of the Republic, as well as foreign companies incorporated by shares that transfer their domicile to the national territory, as well as the shareholders of these companies.

The decree, which provides mechanisms to ensure the availability, access, use and destination of the relevant information required by the Ministry of Finance from companies incorporated by shares, also establishes certain provisions on corporate matters. In particular, it establishes formalities and mechanisms for the execution of the exchange of bearer shares for registered shares, the transfer of shares and the application of fines generated as a consequence of non-compliance with the law. In addition to the fine, non-punitive measures are also provided for as a consequence of non-compliance with legal and regulatory provisions, such as the blocking of the RUC of the company or the suspension of the economic rights of the shareholders.

It is relevant to mention that all the amendments to the corporate regime provided by Law No. 5895/2017 and the Regulatory Decree were carried out in consideration of the Recommendations of the Financial Action Task Force (FATF), which constitute an international scheme of measures that countries must implement to combat money laundering, the financing of terrorism and the financing of the proliferation of weapons of mass destruction, among other threats to the integrity of the international financial system.

These are the highlights of Decree 9043/2018:

1. Registration of the amendment to the bylaws

Article 4 provides that the by-laws must be approved by the minutes of the Board of Directors, which must state the number of shares subscribed and the number of shares subscribed and subscribed. The minutes of the board of directors must be executed in public deed and registered, after the Treasury Counsel's Office has issued an opinion, in the public registries. Once registered, the Treasury Counsel's Office must be informed again of the conclusion of such registration.

2. Exchange of shares

Article 6 sets forth the procedure for the exchange of shares and establishes that:

a) The exchange of the bearer share for the registered share shall be made upon physical presentation of the bearer share by the holder of the same.

b) The holder of the bearer share must indicate the date, by virtue of what title and from whom the share to be exchanged was acquired.

c) At the time of the exchange, the company will proceed to cancel the share, and must archive it both physically and digitally for a period of 5 years for an eventual verification by the Ministry of Finance. In case of non-compliance with this obligation, a fine of 400 jornales will be applied.

d) Each exchange procedure must be recorded in board minutes, and each board minute must be communicated to the Treasury Solicitor's Office within 15 days of its occurrence. The Treasury Counsel's Office will issue a record of the share exchange for each minute submitted. In case of failure to comply with the deadline, a fine of 100 daily wages will be applied.

In relation to the exchange of shares and fines for non-compliance, the Decree establishes that shareholders who fail to comply with the obligation to carry out the exchange within 24 months from the effective date of Law 5895/17 will be fined according to the elapsed term, with the following graduation: (i) shareholders who make the exchange up to 6 months after the 24 months established for the exchange, fine of 100 minimum daily wages; (ii) those shareholders who make the exchange up to 12 months after the 24 months established, fine of 200 minimum daily wages; (iii) those who make the exchange up to 18 months after the 24-month term established, fine of 400 minimum daily wages; and, (iv) those who make the exchange from 18 months or more after the 24 months established, fine of 500 minimum daily wages.

3. Individualization of the final beneficiary

Companies incorporated by shares must identify the beneficial owners and keep a record of them, indicating the following data: name, ID or RUC number, domicile, profession and reason for becoming a beneficial owner in the terms of article 3. The company must communicate this to the Treasury Solicitor's Office once a year, within the term to be determined by the Treasury Solicitor's Office.

It is important to mention that, for purposes of determining the beneficial owner, Article 3 of the Decree establishes that a beneficial owner is a person who (i) owns at least 10% of the shares, or (ii) exercises ultimate effective control of the company, or (iii) uses, enjoys or benefits from the assets of the company, or on whose behalf or for whose benefit a transaction of the company is carried out.

4. Data update and stock transfer

A copy of the updated share registry book and other required data must be submitted to the Office of the Attorney General. The deadline for this update will be regulated by the Office of the Attorney. Once the deadline is regulated, the fine for non-compliance will be 100 minimum daily wages.

The Decree also provides that such regulation will establish the requirements that the Limited Liability Companies (SRL) must comply with in order to update the data.

On the other hand, the Decree provides that from now on the transfer of shares must be reported again to the Attorney's Office within 5 days, including all the data of the beneficial owner. In case of non-compliance with this requirement, a fine of 200 minimum daily wages will be applied. In addition, the Decree establishes a fine of 100 minimum daily wages in case of non-communication of the transfer of shares by the shareholder to the company. Although the Decree does not regulate the obligation of communication of the transfer of shares by the shareholder to the company, it imposes a fine for failure to do so. In this regard, it is worth remembering that Law 5895/17 establishes that, in the event of a transfer of shares, the buyer must communicate it to the company within 5 business days, without prejudice that the communication is made by the seller. For this purpose, the name and surname, identity card or RUC and the domicile of the buyer must be indicated.

In the case of issuing companies, the Decree establishes that the National Securities Commission will be in charge of communicating the transfer of shares, under the same terms described above. For such purposes, the responsibilities and obligations provided for companies and partners in Law 5895/17 and in the Decree shall be equally applicable to the National Securities Commission.

5. Registration of companies with the Treasury Solicitor's Office and notification of Assemblies.

Companies incorporated after the entry into force of the Decree have 30 working days from the date of registration in the public registries to register with the Attorney General's Office (after publication of the extract of incorporation for 3 days in a newspaper of wide circulation). The same term applies to request the registration of any modification of bylaws, merger, transformation and dissolution. In case of non-compliance, a fine of 100 jornales will be applied.

Companies incorporated prior to the Decree have 90 working days from the date of effectiveness of the Decree to register with the Attorney General's Office (after publication of the extract of incorporation for 3 days in a newspaper of wide circulation). In case of non-compliance, a fine of 100 jornales will be applied.

All notices of Ordinary or Extraordinary Meetings must be given within 15 days after the meeting is held. In case of non-compliance with the deadline, a fine of 100 jornales shall be applied.

6. Suspension of economic rights

The Decree establishes that the suspension of the economic rights provided for in Law 5895/17 of the shareholders who do not carry out the exchange will be applicable without prejudice to the fines set forth in the Decree. In the event that the company does not suspend the economic rights of the shareholders who do not perform the exchange, the company will be fined with 200 minimum daily wages.

7. Information and consequences. Blocking of RUC

Once the 24-month term for the exchange of shares has elapsed, the Attorney's Office will communicate on a bimonthly basis to the Central Bank of Paraguay and to the Undersecretariat of State for Taxation the list of companies that complied with such obligation. With such information both the BCP and the SET will take the necessary measures with respect to the non-compliant companies and will inform SEPRELAD.

The companies affected by the Decree will be subject to blocking of the RUC until they have regularized their situation.

8. Application of fines and appeals against penalties

If the fine is accepted directly, a reduction of 50% of the fine will be granted, up to the limit of the minimum fine provided for in the regulation. In case the fine is not accepted, the opening of the summary proceeding will be requested, not being able to benefit from the aforementioned reduction, and the procedure for the determination of penalties for tax violations established in Law 125/91 and its amendments will be applied.

Finally, the Decree establishes the procedure for appeals against direct sanctions applied by the Bar.