Offshore companies and financial records: what you need to know

Previously, companies registered in ‘classic’ offshore jurisdictions (tax havens) did not have to submit any financial reports. However, in an attempt to follow the recommendations issued by OECD, many offshore jurisdictions have amended their legislations regulating the accounting matters. 

Today, most offshore companies have to keep the books and be prepared to submit the accounting records to the authorities on their request even though regular submission of financial reports is not usually required. These requirements have been put into place in order to combat money laundering and terrorism financing.

Financial statements offshore

What accounting is about

Accounting records are electronic or paper-based documents that reflect all the financial activities that the company is involved in. The information about the company assets, liabilities, expenditures, incomes, sources of capital, etc. is recorded and it serves as the basis for making up financial reports.

Keeping the accounting records is important for several reasons. The main tasks that these helps to perform include the following ones:

  • Creating a full picture of the state of the company’s financial affairs;
  • Supplying the financial information to the fiscal authorities that control the statutory compliance of the company;
  • Identifying the weak points in a timely manner to facilitate problem elimination.

It is important to realize that the company should keep the accounting records not only for the sake of satisfying the fiscal authorities. These records help to analyze the qualitative and quantitative indicators, estimate costs, calculate taxes, find alternative solutions, plan profits, and increase the overall company efficiency.

The accounting records may cover the following items:

  • Material and non-material assets of the company, financial assets, investments, manufacturing inventories;
  • Funds, profits, capitals (charter capital, reserve capital, etc.);
  • Obligations of various individuals and corporate entities within the company;
  • Company obligations in relation to other companies and individuals;
  • Business transactions that have caused certain material changes.

Offshore companies did not have to keep the books nor submit financial reports before. This was one of the main advantages that offshore companies boasted. Today, however, due to the global de-offshorization efforts, many offshore jurisdictions have had to come to terms with the international regulators and introduce accounting requirements. Now offshore companies must keep the accounting records and submit them to the authorities on their request. We have compiled a list of the accounting requirements that are applicable in five most popular offshore jurisdictions. Please see the table below.  

Jurisdiction Requirements to accounting records
British Virgin IslandsCompanies registered in the BVI have to keep the accounting records in the company office, with the registered agent, or somewhere else during five years.The documents to be kept include invoices, contracts, and also the documents reflecting:— incoming and outgoing payments;— sale and purchase agreements;— company assets and liabilities.The information in the accounting records must be presented in an understandable manner so that the fiscal and other authorities could have a clear idea about the company’s financial standings.

The records of any business deals must remain available on request for five years since the date when the deal was made.
Seychelles (IBC)Submitting financial reports is not required but keeping accounting records is mandatory. The records must reflect the transactions that the IBC makes and the state of the company’s financial affairs. All company’s business activities have to be documented.

A Seychelles-registered company shall keep the documents available for seven years since the date when the transaction was made.
Belize (IBC)Submitting financial reports is not required in Belize either but keeping accounting records is mandatory again. All bank slips, cash books, contracts, invoices, and all other documents reflecting the business operations, assets, and liabilities must be kept.

A Belizean-registered IBC has to keep the records available to the authorities for five years. 
Dominica (IBC)There are no requirements as to keeping or submitting financial records in Dominica. The IBC registered there can keep the books voluntarily. If it does, the records must reflect the true state of things as far as the company finances are concerned. There are also requirements related to keeping the Minutes of the Shareholders’ Meetings and the Company Director’s resolutions.   
Nevis A Nevis-registered company also has to keep accounting records that will reflect all the incoming and outgoing payments, all the sale and purchase deals, and other transactions that the company makes. If the authorities request the records, they should be able to clearly understand the financial situation of the company.

The records shall be kept during five years since the date when they were made.

The legislations of each state listed above require that the company submit the reports to the registered agent in case the authorities request this information. 

This means that any offshore-registered company (to be more precise, the person who controls the company and keeps the records) must be able to submit the documents to the registered agent at any time.

Consequently, it is expected that the financial records should be kept in good order and should reflect the company status quo in a way that is understandable to the controlling bodies. 

Please note that if your offshore company fails to keep the accounting records, it may face substantial fines! 

As you can see, even though offshore-registered companies do not have to submit their financial reports to the fiscal authorities on a regular basis, they have to keep the books anyway. This is an important issue to take into consideration when planning to set up an offshore company. 

Financial reporting in onshore jurisdictions

Companies registered in onshore, that is, high-tax jurisdictions have to keep the financial records and file annual reports. Let us take English-registered companies as an example. They have to meet the following requirements:

  • Keep accounting records;
  • Have audits (if required by law);
  • File annual financial reports;
  • Declare the income and pay the taxes.

Small English companies have to file only the profit and loss statement and the balance sheet. Even the so-called ‘sleeping companies’ that are not engaged in any business activities must report zero profits. The same rules apply in the vast majority of high-tax jurisdictions. 

Conclusion

Offshore company owners have to be aware of the fact that they have to keep the accounting records and make them available for inspection to the fiscal and other regulating authorities on their request. The official bodies must have an opportunity to assess the state of the company financial affairs at any moment. However, offshore-registered companies do not have to file annual financial reports. As far as onshore-registered companies are concerned, they must file their financial reports on a regular basis.

If you require accounting support for your company registered in an offshore or an onshore jurisdiction, please apply for our assistance in the matter by writing to info@offshore-pro.info. We provide top-level professional services.

Why does an offshore company have to keep accounting records?

First of all, fiscal bodies in the country where the company is registered must have access to the financial records of the company as this is required by law. Besides, keeping accounts can help you analyze the efficiency of your company operations, optimize your business activities, and eliminate undesirable costs.

What will happen if the offshore company fails to keep accounting records?

If the offshore company owner ignores the requirement to keep the financial records and make them available to the authorities, he or she will face a serious fine. The fine in Nevis, for example, is US$ 5,000 and the fine in the BVI is US$ 10,000. Therefore, we highly recommend that you should comply with these requirements.

What reports would I have to file if I registered a company in Europe?

All companies registered in high-tax onshore jurisdictions must necessarily file all the annual reports that are required in the specific country. Small-scale companies face more relaxed requirements in comparison to large corporations but they have to submit the reports every year without fail anyway.

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