Taxation of offshore companies: what is an offshore company and how is it taxed?
When people talk about offshore companies, it's a negative idea at first glance, mainly because of the many reports that offshore companies are involved in money laundering, drug trafficking and other illicit practices.
However, an offshore company is not illegal. On the contrary, they have valid articles of association and comply with the legal criteria of the countries in which they are incorporated. Unfortunately, offshore companies, like other companies, can be used for illicit practices.
An offshore company can be a good investment for business or for protecting the assets of a person or a group of people, as long as it is done with proper planning.
What is an offshore company?
An offshore is a company that is legally registered in a foreign country, i.e. outside the country where it is based. Generally, the foreign country offers tax advantages, as well as less bureaucracy for its incorporation.
Some countries are considered "offshore financial centers", as they have laws that encourage the creation and operation of foreign companies (offshore companies), boosting the local economy.
These "offshore financial centers" are generally considered tax havens.
What is a tax heaven?
It is a country that, in addition to having considerably advantageous tax legislation, has strict legislation regarding the protection of data on companies, partners and financial transactions.
Examples of tax havens
a) Panama;
b) Cayman Islands;
c) Bahamas;
d) Hong Kong;
e) Switzerland.
Because there is strict data secrecy, there is no exchange of taxpayer information with other countries. For this reason, the taxation of income located in tax havens is usually different.
Types of offshore companies
There are three types of offshore companies:
a) Internacional Business Company (IBC);
b) Limited Liability Company (LLC);
c) Trust.
To choose the best option, you need to consider the following points:
a) What would the company's turnover be?
b) Do I want to market a product/service or simply protect my assets?
c) What do I want to market?
d) How much am I willing to spend to have and maintain an offshore company?
Despite the many advantages that offshore companies offer, it is important to consider that opening an offshore company is not simple. In addition to the costs of setting up the company, you will need to obtain legal assistance, especially with regard to tax planning.
If you are interested in hiring professional legal services related to tax planning for opening an offshore company, we are a law firm specializing in the subject. Please contact us via WhatsApp or e-mail: thyanipuppio@gmail.com
Taxation of income earned from offshore companies in Brazil
At the end of last year (2023), Law No. 14.754/23 was enacted, instituting differentiated taxation on individuals' income earned through offshore companies and investment funds.
Under this law, any income earned through offshore companies and investment funds will be taxed at a flat rate of 15%. This rule begins to apply to the 2024 income tax return.
Therefore, if you are a tax resident in Brazil and have income from offshore companies or intend to open an offshore company, it is extremely important to carry out tax planning to avoid tax evasion.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or e-mail: thyanipuppio@gmail.com
Tax evasion alert
Those who own or intend to open an offshore company need to consider the tax issues not only of the country where the company will be incorporated, but also the tax issues of this income in its country of origin, both for the company and for the partners.
It is therefore extremely important to carry out tax planning in order to make the offshore company's activities viable and avoid the crime of tax evasion.
The Internal Revenue Service currently uses artificial intelligence (AI) to monitor and detect any minimal change in the financial transactions of its taxpayers. Even if there is a strict data protection policy in the country where the income is held, the movement of these amounts to accounts outside its jurisdiction will be detected.
If the amounts of income are not properly declared, the taxpayer is committing a crime: tax evasion.
In addition to the criminal problems that tax evasion entails, the tax authorities will be able to demand the tax due on the amounts evaded, plus fines, interest and monetary correction. Tax fines can reach up to 100%.
A single tax execution can be very financially damaging for a company, even making its activities unviable.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or e-mail: thyanipuppio@gmail.com
