Offshore Companies: How to comply with Brazilian regulations

It is necessary to meet accounting and tax requirements related to offshore operations

By Marluci Azevedo

Offshore companies - entities controlled abroad - are seen as a strategic alternative for investment diversification, tax optimization, and asset protection. However, the complexity of Brazilian regulations demands careful monitoring to avoid risks arising from these operations.

With Law No. 14.754/2023, which amended the tax rules for income and profits from foreign investments, offshore companies must adapt to a new tax regime and increased transparency requirements. This law, together with Normative Instruction RFB No. 2.180/2024, sets guidelines for the taxation of these entities.

The changes aim to enhance transparency and prevent tax evasion, requiring robust accounting and more stringent compliance with tax obligations.

What has changed in offshore taxation

Taxation of offshore companies has become stricter. The changes aim to close gaps in the system differentiating investments in Brazil and abroad, especially with the goal of combating tax deferral.

Profits generated by offshore companies are subject to a 15% tax rate and income tax once a year, on December 31. Taxation occurs when profits are calculated in the balance sheet, regardless of any dividend resolution.

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

How to maintain offshore accounting and tax compliance

Offshore companies need to adopt a set of practices to remain compliant with Brazilian tax requirements, in addition to ensuring that their accounting is in accordance with the rules.

It is necessary to comply with the rules of the Central Bank of Brazil regarding remittances and to pay attention to the required information and declarations:

Statement of Brazilian Capitals Abroad (CBE)

The investment must be reported to the Central Bank (Bacen), in compliance with the legislation, in cases where the following are held:

Brazilian capital abroad consists of the amounts, assets, rights, and any other type of property held outside the national territory by residents in Brazil.

Income Tax Declaration

Investments and operations carried out through offshore companies must be reported annually in the Income Tax Declaration.

In the "assets and rights" section, the profit that has already been taxed annually is declared as "dividends to be received credit."

Regarding Income Tax (IR), there is a classification that must be considered. The subsidiary can have a "opaque" or "transparent" tax treatment.

As the names suggest, the "transparent" treatment option involves declaring all investments through the offshore company, including the value of each asset, with details about the origin and transactions. The earnings are not taxed until they are effectively realized, meaning the receipt of funds.
In the "opaque" treatment, the taxpayer declares the shares of the offshore company without detailing the assets and earnings. The taxation on profits will be 15% on the earnings calculated annually, even if they have not yet been effectively received as income.

Balance Sheet and Income Statement (DRE)

Offshore companies must prepare annual financial statements, such as the Balance Sheet and the Income Statement (DRE).

Law No. 14,754/2023 requires the application of the international accounting standard – IFRS or the Brazilian accounting standard – BR GAAP for foreign subsidiaries not located in a favored tax jurisdiction or benefiting from a privileged tax regime. For the latter, the use of BR GAAP is mandatory. The accountant who signs the balance sheet must be qualified in the applicable standard.

It is important that accounting is properly monitored so that the taxpayer always has accurate information about the offshore company, which also facilitates the annual income tax filing.

Offshore company accounting

The offshore accounting specialists at DPC play a crucial role in ensuring compliance with the new regulations, offering services such as analyzing and classifying transactions, preparing reports and financial statements, and ensuring that all tax obligations are met correctly. Rely on this support: dpc@dpc.com.br.