Up to a certain point, offshore companies were not required to keep records. Most offshore companies worked only with the source documents which they were obliged to store in a certain place, the storage address was reported to the registered agent. Since the new rules were introduced by the OECD, FATF and other international organizations that regulate international taxation and anti-money laundering, offshore companies were required to prepare their financial statements. Certain low-tax jurisdictions require submission of the annual financial statements that are backed by the opinion of an independent auditor.
An offshore company with duly kept accounting records is able to meet all the requirements of tax and corporate laws of both countries at once: one where the company was incorporated, and the other where it has the status of a tax resident.
If your accounting books are in order, your offshore company will enjoy maximum credibility with the banks, supervisory and regulatory authorities, as well as potential partners.
Our experts provide comprehensive accounting support to the offshore companies and perform audits should the need arise. If you wish to sign up for a consultation or order our services, please feel free to email us at firstname.lastname@example.org.
What Does an Accountant Do in the Offshore Jurisdictions?
Accounting is the systematization of documented data about your company’s assets, liabilities, financial standing, income, expenses, and sources of financing. You will not find any record-keeping requirements in most countries that are on the list of classic tax havens. Your business is completely autonomous in what refers to choosing the jurisdiction of record storage according to your preferences.
However, rapid changes to the legislation of different jurisdictions gradually introduced the concept of financial statements that must be filed annually within the prescribed time frame. Does an offshore company need to keep records? Yes, we recommend systematizing your business operations in advance to avoid the possible negative consequences when the new rules are introduced in a particular country. We would also like to note that it is not uncommon that companies do not have enough time to get their accounting records in order. Most often it can be explained by the time-consuming and complex procedure.
Is it worth postponing accounting and reporting? As early as tomorrow, an offshore company may lose credibility and trust, and get a variety of restrictions imposed just because it does not keep records and does not file the reports.
Let’s take a closer look at the offshore company accounting obligations in the most popular zero- and low-tax jurisdictions:
- British Virgin Islands. The IBC records are not subject to registering with the state authorities, but the company source documents must be stored for at least 5 years, which includes the date of termination of business. The storage address to be reported to the registered agent.
- The Seychelles. Preparation and filing of financial statements is not mandatory here, but the companies registered in this offshore jurisdiction have the right to file their reports voluntarily. The records should be kept in such a manner that would allow the IBC to explain their operations, confirm their financial standing at any given moment, as well as get prepared for opening corporate bank accounts.
- The United Kingdom. The country’s legislation suggests mandatory filing of reports and book-keeping.
- Cyprus. Companies must perform audits and submit the auditor’s opinion along with the statements for the previous tax year, as well as for the current accounting period. So, your books and records must be in order. компании должны проводить аудит и подавать заключение вместе с отчетностью за предыдущий налоговый год, а также текущий отчетный период. Соответственно, бухгалтерия должна быть в порядке.
- Belize. Director of the Belize IBC is in charge of the record storage. These records include all the source documents such as invoices, tax invoices, consignments, receipts, contracts and any other financial documents to confirm the assets and liabilities of the company. Such storage may be organized anywhere for no less than 5 years starting from the financial transaction date. The storage address to be reported to the registered agent.
- Latvia. Book-keeping and reporting are mandatory for all the companies incorporated in this country.
- Singapore and Hong Kong, similarly to Cyprus and Latvia have envisaged in law the obligation of all legal entities to file their audited reports with the authorities, and duly keep their books and records.
It is still possible to register an offshore company to save on audits, although low-tax jurisdictions have already introduced mandatory auditing requirements. It is important to keep in mind that this is not a fad, but a specific obligation of a certain country, non-compliance with which is considered a major violation and leads to the negative consequences and penalties.
In what case do I need to file the financial statement?
First of all it should be noted that despite the lack of requirements for submitting the reports in many jurisdictions, any company must record all of its financial transactions. It would be a mistake to think that it is possible to register an offshore company and completely leave the accounting out. At the very least, a legal entity must have all the documents necessary for the preparation of its financial statement.
In this case, your offshore company will be able to confirm its active status at any given time, document its proper financial standing, and deal with many other corporate matters.
Today, we are not considering the situations of standard business practices where it comes to providing documents to your contractors who need a confirmation of the actual solvency of your company.
Accounting and reporting are essential for examining the company’s current financial standing. The records are usually required by investors who intend to make a contribution to the equity capital.
Here is the list of situations where financial statements of an offshore company are extremely necessary:
Compliance with the legal provisions of the jurisdiction where the company is registered.
Compliance with the rules of the country of residence of the person controlling the offshore company.
Official confirmation of the reportable profit for tax purposes in the country of tax residency of the CFC beneficial owner.
Compliance with the national tax rules of the country of residence regarding the controlled foreign companies.
Bookkeeping and financial reporting is carried out either in accordance with the laws of the country where the owner has chosen to register an offshore company, or according to the international IFRS standards. If the jurisdiction requires submitting the auditor’s opinion, your IBC must obtain one from a certified auditor. The auditor’s report and opinion are prepared either according to the international auditing rules or according to the regulations of the particular country.
The list of documents presented by an offshore company for the financial statement preparation
Updated legal requirements of many countries including offshore jurisdictions suggest comprehensive record-keeping and timely filing of financial statements. The rules apply to all IBCs outlined by your national law as controlled foreign companies.
When planning to register an offshore company, investors and business persons should know what set of documents should be submitted when ordering accounting support services. Here is the complete list of those:
- copies of the Memorandum and Articles of Association (or their equivalent), together with the details of any changes thereto;
- copies of all Registers of Officers, including Directors, and Shareholders;
- copies of the Certificate of Incorporation of the legal entity;
- copies of all invoices issued by the offshore company and received by it during the reporting period;
- details of all payments made on behalf of the company to the third parties, together with the receipts;
- details of the company’s business purpose;
- copies of all bank statements and brokerage statements, if any;
- copies of any cash books, master ledgers, and subsidiary ledgers the company may have (in certain cases, the list may be incomplete);
- details of all accounts payable at the beginning and the end of the year;
- details of all accounts receivable at the beginning and the end of the year.
Important note! When ordering the services of a qualified accountant for a company registered offshore, we must be informed about the storage place of your records.
Services of our professional accountants include the following:
- Proper keeping of records and related documents on an ongoing basis.
- Timely preparation of financial statements of a foreign company.
- Depending on the jurisdiction, the offshore company audit (to be paid against a separate rate).
Proper execution of accounting obligations will allow you to prove the solvency and profitability of your company at any given time, to optimize operating costs, find and eliminate any problems in the source documents. It is quite possible that in the near future classic offshore jurisdictions will also introduce accounting requirements to the list of mandatory ones, which has already been done by such low-tax jurisdictions as Cyprus and Malta.
In fact, you can register an offshore company and immediately start operating in full compliance with all the rules. Nowadays it is virtually impossible to open a shell company. Firstly, your business will have to pay taxes somewhere. If the offshore tax rate is 0%, then it will be in the country of residence in accordance with the laws of this country. Secondly, having your books and accounts in order will allow your company to stay in compliance with the law if the requirement is introduced at the official level. Your company will not need any transitional period and lengthy procedures to systemize its accounts.
Offshore company book-keeping for banking services
A powerful argument in favor of the international business is the possibility of opening a corporate account for an offshore company. It is well known that EU member states no longer open bank accounts to businesses registered in classic tax havens. But accounting is what could currently help a lot with resolving the issue of corporate accounts. The bank will see the real financial standing of the company, its business operations, assets and liabilities, and based on that it will draw a conclusion on the physical (real-life) operations.
As a rule, financial institutions request the basic company documents such as the profit and loss statements, and the balance sheet.
It is possible to register an offshore company with opening an account at once, but at the annual renewal you will have to be in compliance. This is where the accounting records will contribute to the credibility of your company for the banks.
You can be saving money on the audit for the time being, but it should be taken into account that in the near future the rule of mandatory reporting will be stipulated in the legislation of many countries.
Support of our professionals is a full-fledged work with the source documents in accordance with IFRS or requirements of a particular country. We serve both existing and newly-established companies, and we are ready to provide a competent expert for working with the offshore companies in a particular jurisdiction. If you have the documents from the above list in place, and notify our representative on the place of storage of your records, your business will be fully protected from the possible changes to legislation under the rules of the OECD, FATF and other international organizations.
You can get any detailed information at the consultation.