Should One Keep Books and Records of an Offshore Company?

In certain countries, in particular, in classic offshore jurisdictions, there is no obligation to submit the accounting reports. But this does not mean that it is unnecessary to keep books. 

No taxes, so no accounting is needed, this is an old misconception. Today, book-keeping is not always about taxes. What is it about then?

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Why Would an Offshore Company Need to Keep Books?

Firstly, even those classic offshore jurisdictions that do not require filing of any reports, still have a requirement that companies must maintain accounting books and records and notify the registrar of where all the documentation is located. Certain countries require that documentation explaining the company’s operations be kept at the place of incorporation. 

Indeed, bookkeeping is a requirement. The fact is that at any moment, the regulators may decide to arrange for verification of your offshore due to some client or suspicious transaction. Such a request may come even five years and more after the transaction. Even after your company gets closed. Therefore, accounting books and records should be maintained and stored for at least several years after the offshore company closure. Otherwise, you could get a substantial fine.

But the books and records should be maintained not only in case of inspection by the Government agencies. Accounting statements will also be required in the following cases:

  • opening of a bank account;
  • making of large deals;
  • sale or merger of a company;
  • sale of immovable property that is off-shore.

Why would bank employees need your company’s accounting reports? Firstly, they will require them when opening a corporate account to make sure that the company does not engage in illegal activities. Nowadays it is a common practice since banks are not willing to lose their licenses because of allegations that they have contributed to money laundering, financing terrorism or tax evasion, so they scrutinize each client’s business. It is almost impossible to open an offshore account without books and records, even with the payment systems or neo-banks. 

If you have not been maintaining books and records, you will have to urgently look for an accountant should you need to open a bank account. It is no secret that urgently required services are always more expensive. 

Also, books and records are needed to obtain a loan. Banks will study it to understand the financial standing of your company, its resources, business efficiency and other factors affecting the decision whether to grant a loan or not. 

If the bank blocks your offshore account because of a suspicious transaction, it will need the financial statements yet again. Unfortunately, cases of account blocking have only become more frequent in recent years. Thanks to the availability of financial statements, the bank will be able to study the company’s operations, in particular, the legality of its transactions.

Of course, maintaining books and records for a small company registered in a classic offshore is much easier than for a large onshore or mid-shore company. The latter are required not only to keep books and records, but also to undergo the annual audit. 

Accounting statements of your offshore company are required not only by Government agencies, banks and contractors, but they will be of use to you. First of all, you will be able to assess how efficiently your company’s resources are used, how much money was spent on establishing a real presence (substance) in the country of registration, and see other expenses on doing business. This will help you see what needs to be changed to achieve greater results. 

After all, the availability of financial statements means your peace of mind and confidence. You will be able to report immediately to the regulators upon request, thus avoiding issues in working with banks and foreign partners, and quickly answer any questions from tax authorities. All that means you will avoid fines and maintain an ideal reputation of your offshore company. 

Remember that you need to keep not only the financial statements per se, but also all of your contracts, correspondence with contractors, as well as documents confirming them:

  • purchases and sales of goods;
  • all cash amounts received and spent by the company;
  • offshore assets and liabilities.

Records and documents should be kept in a form that would explain the offshore company transactions and demonstrate its financial standing. 

In difficult cases, when book-keeping has not been carried out for years, sometimes it is better to close the company if it is not active and has no open bank account. After opening a new company, it will be easier to maintain books and records from the very beginning. The cost of our accounting services for offshore companies can be found here. 

Do you want to be sure that the financial statements of your offshore company are kept in accordance with all rules and standards? Would you like to learn using the available resources effectively? Then do not hesitate to contact the Offshore Pro Group experts. We have vast experience in providing services to both European and Asian companies, as well as classic offshore companies. In order to contact us, please leave your contact details above or email us at info@offshore-pro.info or send us a message in the online chat. 

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