Offshore companies: How to ensure compliance with Accounting and Tax rules

Keeping accounting and tax obligations up to date is essential for the proper management of offshore companies

 

Offshore companies, that is, entities controlled abroad, are used as a strategic alternative for investment diversification, tax optimization, asset protection and organization, and estate planning.

However, the complexity of Brazilian law requires careful attention and monitoring of operations to mitigate the risks associated with these structures.

Review the key points in the following questions and answers:

 

What are the legal frameworks applicable to offshore companies?

Law No. 14,754/2023, which amended the tax rules applicable to income from financial investments abroad, introduced new requirements for controlled entities and trusts located abroad that are owned by individuals who are tax residents of Brazil. This law was regulated by RFB Regulatory Instruction No. 2,180/2024, which details, among other aspects, the criteria for characterizing controlled entities, the method for calculating and taxing profits, the preparation of balance sheets, and the option to elect for the tax transparency regime.

The new rules have reinforced the need for proper accounting and tax organization of structures maintained abroad and for combating tax evasion.

 

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

 

How does offshore taxation work?

Subsidiaries located in a country or territory with favorable tax treatment, that benefit from a preferential tax regime, or that have active income constituting less than 60% of their total income are, as a general rule, subject to the Annual Profit Taxation Regime.

Under this regime, profits reported on the balance sheet as of December 31 of each year are subject to individual income tax (IRPF) at a rate of 15%, in proportion to the individual’s ownership interest, regardless of whether the profits are actually distributed.

On the other hand, controlled entities that do not fall under these categories may be subject to the Profit Taxation Regime on the Date of Distribution, subject to the treatment and options provided for in the legislation. In this case, IRPF is levied—also at a rate of 15%—when the profits are actually distributed to the individual.

Therefore, analyzing the entity’s classification is particularly important for determining the correct timing of taxation.

 

How to maintain Accounting and Tax compliance for offshore entities?

To remain in compliance with Brazilian tax requirements, the offshore entities covered by this study must follow a set of procedures and maintain their accounting in accordance with applicable standards.

They must also fulfill their obligations to the Federal Revenue Service and, when applicable, to the Central Bank of Brazil, particularly with regard to the Statement of Brazilian Capital Abroad (CBE).

 

What are the obligations related to offshore accounts with the Central Bank?

Brazilian residents who hold capital abroad may be required to file a Statement of Brazilian Capital Abroad (CBE) with the Brazilian Central Bank.

According to the law, investments must be reported to the Central Bank in cases where the following amounts are held:

Assets	Deadline	Required statement
US$1 million or the equivalent in other currencies	December 31 of each base year	Annual CBE
US$100 million or the equivalent in other currencies	March 31, June 30, and September 30 of each base year	Quarterly CBE

Brazilian capital abroad consists of funds, property, rights, and assets of any kind held outside the national territory by residents of Brazil.

 

What are the income tax obligations for offshore entities?

Equity interests in foreign subsidiaries, as well as the respective profits and other information required under the applicable tax regime, must be correctly reported on the Annual Income Tax Return (DIRPF).

In the case of controlled entities subject to the Annual Profit Taxation Regime, the amounts calculated and taxed annually must be reported on the return as dividends receivable, indicating the respective year of origin. When these amounts are subsequently distributed, they will not be subject to further taxation.

On the other hand, it is necessary to verify whether the taxpayer has opted for the tax transparency regime. If so, the next question and answer apply to this scenario.

 

How does the “transparent” treatment of offshore entities work?

Under the tax transparency regime, the taxpayer is no longer required to report only their ownership interest in the entity but must instead report the assets, rights, and obligations held by the offshore entity as if they were directly owned by the individual.

In this case, income and gains are not taxed until they are actually realized; that is, they are taxed according to the rules applicable to the actual receipt, redemption, amortization, disposal, maturity, or liquidation of the investment.

 

How does the “opaque” treatment of offshore entities work?

In the treatment without fiscal transparency, known as “opaque”, the individual maintains the equity interest in the offshore entity as an asset belonging to that entity, without individually reporting the assets and rights held, as well as their obligations.

 

Are offshore companies required to prepare financial statements?

Yes. For subsidiaries subject to the Annual Profit Taxation Regime, the law requires that earnings be calculated on an individual basis in an annual balance sheet as of December 31.

Law No. 14,754/2023 mandates the application of the International Financial Reporting Standards (IFRS) or the Brazilian Generally Accepted Accounting Principles (BR GAAP) for foreign subsidiaries that are not located in a jurisdiction with favorable tax treatment or that do not benefit from a preferential tax regime. For the latter, the use of BR GAAP is mandatory.

It is important to note that the accountant responsible for signing the balance sheet must be certified in the accounting standard used.

 

Why is it important to keep track of an offshore entity’s accounting?

Proper accounting allows for the accurate identification of the entity’s financial results and is essential for taxpayers to keep the information needed to comply with their obligations to the Federal Revenue Service and, when applicable, the Central Bank of Brazil, organized.

In addition to making it easier to file the income tax return, up-to-date accounting helps ensure the accurate calculation of profits, the tracking of investments, and the reduction of risks arising from inconsistencies or incomplete information.

 

Offshore company accounting

The offshore company accounting specialists at the DPC Private division of Domingues e Pinho Contadores play an important role in ensuring compliance with regulations. Their services include the analysis and classification of transactions, the preparation of reports and financial statements, and compliance with obligations to the Federal Revenue Service and Bacen. Count on this support: dpc@dpc.com.br.