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Offshore: 5 questions about accounting, taxation, and IRPF report
Offshore investors must pay attention to the accounting and tax-related obligations pertaining this investment modality
Offshore companies are those located in favored taxation countries (also known as “tax havens”), with no need to employ workforce or to perform productive activities.
Establishing an offshore is a practice adopted by those who wish to pay fewer tributes or even to maintain their confidentiality as investors. As long as the source of the money is licit and that accounting and tax-related are complied with, there is no hindrance for this type of business.
“There is a certain amount of prejudice when an offshore company is mentioned, but it is important that people know that they are an extremely useful tax, property and estate planning tool for individual taxpayers, besides helping in the protection against the exchange fluctuation of the Brazilian real in regard to international currencies”, Augusto Andrade, member in Domingues e Pinho Contadores, clarifies.
Next, check out 5 questions about accounting, taxation and IRPF reports pertaining offshore companies:
1. Is there any type of offshore taxation in Brazil? And abroad?
The individual taxpayer only pays taxes on their revenue when they take resources off the offshore either directly (cash or cash equivalents withdrawal), or indirectly (payment of personal expenses through the company’s account, for instance).
Depending on where the tax haven the company is, taxes might have to be paid, but the tax rate is small in comparison to the one due in Brazil.
2. How does it work to invest in an offshore?
In Brazil, offshore tax is collected when there is one or more of the following: profit distribution, loans, or repatriation of resources. The tax rate may vary between 15% and 27.5%.
“Results originated from investments made through offshore companies are not characterized as taxable events, in Brazil, for individual taxpayers, thus the profit made by the company abroad is not subject to taxation. Taxation only occurs when the investor withdraws resources from the company, and then it is necessary to evaluate the way those resources are being withdrawn, whether it is by the means of profit distribution, share capital reduction or, simply, taking a loan from the company abroad”, the specialist comments.
3. What are the tax-related obligations for an offshore company shareholder in Brazil?
The investor must inform their assets abroad on the Individual Taxpayer Income Tax Report, regardless of the amount.
The investment in an offshore company must be stated on their IRPF by the acquisition cost, i.e., by the whole amount of capital the investor has put into the company.
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As the assets and rights belong to the company, the investor must only state their share in it. On the report, more specifically, on the “Bens e Direitos” (Assets and Rights) card, the investment must be detailed with every item information, such as: trade name, shares held in the company, country where the offshore is located, total value in national currency, total capital in foreign currency, date of capital transfer, value of transfer in foreign currency, and exchange rate on said date. |
Besides, in greater detail, an individual taxpayer who is a resident in Brazil is obliged to also present the Brazilian Capital Abroad Statement (CBE) to the Central Bank of Brazil, when they have:
Annual CBE |
USD 1 million, or the equivalent in other currencies, on December 31 of each base year. |
Quarterly CBE |
USD 100 million, or the equivalent in other currencies, on March 31, June 30, and September 30 of each base year. – Quarterly CBE. |
These amounts might be assets, rights, financial instruments, cash and cash equivalents in foreign currencies, deposits, real estate property, shares in companies, stocks, bonds, trade credits etc.
“The Central Bank wants to know what the company’s equity is, what the results of that accounting period were, whether there are profit or accumulated losses, what the voting percentage of the declarant is, amongst other points”, Andrade alerts.
- Know more about CBE here.
4. What financial statements or accounting controls should an offshore keep?
Tax havens do not usually require accounting records from offshores, but individual taxpayers who are residents in Brazil must keep the company’s accounting in compliance with the IFRS.
Having Financial Statements of the offshore done is necessary, and they must include:
- Balance Sheet;
- Statement of Income and Comprehensive Income;
- Statement of Owner's Equity;
- Statement of Cash Flows;
- Explanatory Notes.
| The balance sheet assists the shareholder in certifying their position in the company’s capital share to the Federal Revenue Office when the IRPF is to be filled. The balance also serves as a support in the CBE preparation, as it is where information regarding the company’s equity and the results of the accounting period are collected. |
Understand it
The balance sheet may be prepared either in the offshore’s country of origin, or by a qualified Brazilian accountant, as long as the international accounting rules are observed.
5. What are the attention points to keep the offshore legality?
Control and organization are key aspects. The investor must keep all bank statements and financial documents pertaining the offshore, and they should always register foreign exchange activities and numbers with Bacen and pay attention to the credit expenses made on the offshore’s account. This last item, for instance, usually causes some property mix, what makes the tax collection by the individual in Brazil enforceable and required.
Offshore tax-related compliance
DPC has a team prepared to advise the offshore investor in regard to the accounting and tax-related obligations required in this modality. Contact us: dpc@dpc.com.br.
How may DPC help your company?
Domingues e Pinho Contadores has specialized team ready to assist your company.
Contact us at the e-mail dpc@dpc.com.br
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