Offshore: concept, advantages and challenges

*By Marco Antonio Seriacopi

The term “offshore” refers to activities, businesses or investments that are conducted outside the country of residence of the investor or company. Often associated with tax havens and tax evasion, the concept of offshore is much broader, encompassing legal practices and financial planning strategies that can benefit individuals and companies around the world.

In this content we will cover the main concepts related to offshore, its advantages, disadvantages and legal implications. 

Advantages of Offshore

1. Tax Planning: One of the main reasons individuals and businesses consider offshore structures is to reduce their tax burden. Many offshore jurisdictions offer very low tax rates or even complete tax exemptions.
2. Asset Protectors: Offshore structures can offer protection from creditors and litigation. By transferring assets to an offshore company, owners can make it more difficult to access the assets in the event of legal disputes.
3. Privacy: Many offshore jurisdictions guarantee a high degree of privacy, allowing companies to keep their activities and property confidential.
4. Investment Diversification: Creating offshore accounts can facilitate access to global investment opportunities that may not be available in certain countries.
5. Administrative Ease: In many cases, the bureaucracy associated with managing offshore companies is less, which can make managing international businesses easier. 

Challenges and Risks

1. Complex legislation: Offshore jurisdictions have their own laws and regulations, which can be complex. Failure to comply with the rules can result in significant penalties.
2. Negative perception: the association of offshore with tax evasion and illegal activities can result in stigmatization, which can harm the reputation of individuals or companies.
3. Maintenance costs: Despite the tax advantages, maintaining an offshore structure can include administration costs, consultant fees and registration fees.
4. Risk of regulatory changes: Offshore jurisdictions are under increasing pressure to increase transparency and combat tax evasion. Changes in regulations may impact the viability of certain offshore structures.
5. Market access: Some jurisdictions may have restrictions that limit the ability of offshore companies to operate in specific markets. 

Ethical and legal implications

While the use of offshore structures is legal, the ethics surrounding their use are often debated. Some practices, such as hiding income and tax evasion, are illegal and can result in serious legal consequences. Therefore, it is essential that individuals and companies considering going offshore act within the law and seek appropriate legal and financial advice. 

Preparation of Offshore Accounting

It came into force Law 14.754/23 which modifies the income tax on investment funds and on income obtained abroad through offshore companies. It is now mandatory to keep the accounting records of offshore investments up to date, both in Brazil and abroad. It is essential that investors keep their accounting records up to date and always in accordance with Brazilian commercial legislation, in this case, for the year 2024.

For companies based in favorable tax jurisdictions, Brazilian commercial law must still be used for accounting.

Thus, the need arose to carry out annual accounting for companies abroad.

*Marco Antônio Seriacopi is the Compliance Director at Accounting Consulting

Notice: The opinion presented in this article is the responsibility of its author and not of ABES - Brazilian Association of Software Companies