Law No. 14,754/2023 and its impact on accounting offshore companies

Recent requirements have increased the complexity and time needed to ensure compliance

By Marluci Azevedo

Law 14,754/2023 introduced significant changes regarding the taxation of offshore companies, which must be understood by those who hold this type of business.

This legislation redefined guidelines on how offshore companies should calculate taxable income in Brazil, with an emphasis on compliance with both international and national accounting standards.

Investors in foreign entities are responsible for ensuring accounting aligned with these standards and new requirements. Given the complexity of the task, it is necessary to have updated and qualified accounting support to correctly handle the taxation of financial assets and manage the intense flow of demands.

Accounting classification for offshore companies

Proper classification is essential, as it can affect the method of determining the net profit for the fiscal year that will be subject to taxation in Brazil.

The financial assets held may be measured by three methods authorized by IFRS 9 / CPC 48 – Financial Instruments:

• Fair value through profit or loss
• Fair value through other comprehensive income
• Amortized cost

This means that the offshore company will need to adopt an accounting methodology consistent with these standards, which may require adjustments in how financial results are recorded and reported.

The choice of measurement method directly impacts the offshore company’s balance sheet and, consequently, the calculation of taxable profit. To avoid tax risks, it is crucial to determine the most appropriate method, considering the characteristics of the financial assets and the business objectives.

Incorrect classification of a transaction, asset, or liability can result in improper taxation, affecting finances. In this process, Accounting is vital to ensure that the reported profit reflects the company’s reality, preventing costs or issues with the tax authorities.

Individualized accounting and accrual basis

As also required by law, the accounting of offshore companies must be individualized and carried out on an accrual basis. This means that revenues and expenses, as well as assets and liabilities, must be recognized in the period in which they occur.

The accrual basis provides a more accurate view of the financial situation, as it reflects the operations of the period without being influenced by cash flow issues. Thus, accounting must always be up to date, with all financial events properly recognized at the right time.

Points of Attention

One important aspect to highlight is the requirement for financial statements signed by a qualified accountant in the adopted accounting standard. The use of the international accounting standard – IFRS, or the Brazilian accounting standard – BR GAAP, is permitted for entities controlled abroad. However, for entities in “tax havens,” BR GAAP is mandatory.

Starting January 1, 2024, with the enforcement of provisions from Law No. 14,754/2023, more detailed and recurring obligations regarding the accounting of offshore companies have come into effect, such as:

These changes have increased the complexity and time involved in the activity to ensure full compliance with legal and tax regulations with safety and quality.

Accounting and tax compliance

With proper accounting and tax management, your offshore company can operate efficiently and in full alignment with the rules, avoiding tax vulnerabilities and ensuring the efficiency and profitability of the business. Count on DPC for this specialized support: dpc@dpc.com.br.