IRPF: how to declare assets and income of offshore companies

More and more tax residents in Brazil see the constitution of an offshore as a viable investment option or succession planning, but it is necessary to know that the practice requires some care in relation to accountability to the Brazilian authorities. Keeping up with the legal terms of these transactions requires submitting the Individual Income Tax Declaration (DIRPF) to the Federal Revenue Service.

Understand: Offshore companies: legality, obligations and taxation

"Anyone who invests in offshores must annually inform their investment in DIRPF, regardless of the amount”, guides Augusto Andrade, partner responsible for the Individual department at Domingues e Pinho Contadores.

Still according to the specialist, some important precautions are:

• ensure that offshore accounting is being done based on international rules (IFRS);
• prepare the offshore balance sheet.

“The balance sheet is a good practice that assists shareholders resident in Brazil to prove their position in the company's capital when filling out the income tax return”, he explains.

The total value of shareholders' equity, total assets and liabilities, capital, the reserve and distribution of profits, the result for the year, among other information from the offshore are shown in the balance sheet.

What should be informed in the DIRPF?

The investment must be detailed in the declaration with the information of items, such as: corporate name, equity interest in the company, offshore headquarters country, total amount in national currency, total capitalization in foreign currency, date of capital transfer, transfer amount in foreign currency and exchange rate on that date.

As the company owns the assets and rights, the investor must declare only its participation in it. Only if they belong directly to the investor's individual, real estate, bank accounts and other assets should be declared directly.

Profit distribution must be informed by Carnê-Leão

Whenever the distribution of dividends by offshore is characterized, the investor receiving the credit must declare and collect the tax in Carnê-Leão, based on the progressive table up to the percentage of 27.5%.

“There is no need to calculate the monthly results to pay taxes in Brazil, but only when the shareholder uses the company's resources for personal purposes, characterizing a profit distribution. This is one of the main advantages of using an offshore as an investment vehicle abroad, which is the deferral of the tax on investment results. While investments directly held by the investor need to be controlled monthly for the purpose of collecting IR in Brazil for each realized profit, interest credit, or dividends, the investor holding an offshore does not need to calculate such taxes - as they are income from offshore and not the investor's ”, explains Augusto Andrade. Then, in the annual IRPF statement, the investor must report such income.

The distribution of profits, even if indirect (for example: payment of a credit card owned by the shareholder by the offshore company), constitutes a taxable event in Brazil.

The Carnê-Leão is an anticipation of the annual tax due by the taxpayer and must be calculated on a monthly basis based on the progressive table of PIT in each calendar year. The tax is mandatory and must be paid until the last business day of the month after the income is made.

Other statements

When the total number of assets abroad held by the investor, on December 31 of each year, is equal to or greater than the equivalent of US$ 100 thousand, the tax resident in Brazil is also required to send the CBE (Declaration of Brazilian Capitals Abroad) to the Brazilian Central Bank. This presentation must be annual or quarterly, depending on the volume of assets (assets and rights).

At CBE, it will be necessary to inform the offshore activity, if it has employees, percentage of voting capital and participation held by the investor, total assets, liabilities, equity, distributed and accumulated profits, among other information. Therefore, the help of an accountant qualified to prepare the balance sheet and to prepare the CBE is extremely important to ensure compliance with obligations, minimizing the risk of penalties due to possible questions by the Brazilian authorities.

Specialized guidance for offshore holders

Domingues e Pinho Contadores maintains a team of specialists ready to advise the offshore partners on the best practices of this type of investment and to ensure compliance with the obligations owed by the holders to the Federal Revenue and the Central Bank.

Domingues e Pinho Contadores offers support for accounting based on international rules and preparation of balance sheets for offshore companies, in addition to assisting shareholders in filing and transmitting income tax returns and CBE.