Balance Sheet for Offshore Companies - Why is It So Important?

For several years, the Federal Revenue of Brazil (RFB) has been stepped up enforcement actions on offshore, companies and investments in favored taxation territories (so-called "tax havens").

In general, these areas do not require accounting records of the companies they host, but tax residents in Brazil who have assets abroad in behalf of an offshore company should be aware of a number of specific obligations to the Brazilian tax authorities.

In addition to keeping offshore accounting within IFRS and ensuring that accounting records and financial statements are kept up to date, holders should be scheduled to:

- Prepare the balance sheet;

- Report the offshore in Individual’s Income Tax (IRPF);

- Submit a Statement of Brazilian Capital Abroad for Legal Entities (CBE) - in cases where the market value of all its assets (including equity or offshore market value) exceeds the equivalent of US$ 100 thousand as of December 31 of each year.

The importance of the balance sheet

The balance sheet is the document that enables the investor to state its position in the capital of the company for income tax purposes and to present the data requested in the CBE, such as the total value of the shareholders' equity, the total assets and liabilities, the profits reserves, the revenue for the year, among other information.

Domingues e Pinho Contadores' taxes consultancy manager, Augusto Andrade, explains that the practice of preparing monthly balance sheets contributes to the presentation of a more accurate periodic balance sheet. "By dedicating to a monthly control, the preparation of the annual financial balance sheet becomes more agile, since it will only be necessary to consolidate the information bases raised during that year," he explains.

The expert also explains that keeping the accounts organized is important for proving the offshore information before the IRS and the Central Bank. "Inconsistencies in the provision of information can lead to severe fines and penalties," he warned.

The preparation of the annual balance sheet is essential for the taxpayers residing in Brazil to keep up with the fulfillment of their obligations in the country. The information provided in this document is essential to feed the personal income tax return and the CBE, as well as serve as a basis for proving the data.

"The financial statement gives the shareholder a detailed view of the investments by relating the company's possible liabilities, its capital, the reserve of retained earnings, the distribution of profits, among other information," Andrade points out.

This document can be prepared both in the country of origin of the offshore and by a qualified Brazilian accountant, provided that the international accounting rules are observed.

Specialized consultancy to reduce costs and avoid penalties

Over the last decades, Brazilians have been choosing to set up offshore companies as a form of asset protection, succession planning or tax planning. A favorable aspect to the option was the implementation of the Brazilian Voluntary Disclosure Program (Regime Especial de Regularização Cambial e Tributária - RERCT), which allowed the regularization of assets held abroad and not yet declared to the Brazilian tax authorities.

With the growth of adhesion to offshore companies, the fulfillment of obligations in Brazil has also become more complex. Therefore, having a consultancy to assist in the negotiations related to this type of business may be fundamental to avoid operations that result in unplanned costs or penalties in the collection of taxes due in Brazil.

Domingues e Pinho Contadores has a team specializing in accounting services and the preparation of balance sheets for offshores for the full attendance to the Brazilian authorities. With integrated performance to the individual area, this assistance, which can be continuous or punctual, presents guidelines to the investor so that he remains within the legality, up to date with his obligations to the Federal Revenue and to the Central Bank and enjoying the most profitable tax burden.