Obligations and Tax Rules

The season for fulfilling obligations related to offshore companies has begun. These entities are commonly used by individuals who are tax residents in Brazil as vehicles for holding assets abroad, including financial investments, real estate, aircraft, vessels, and more.

Increased Oversight of Offshore Companies

In recent years, the use of such entities has been increasingly monitored by both legislators and tax authorities.

The first major change came with the enactment of Law No. 13,254/2016, which allowed the repatriation of assets and funds held abroad under the Special Exchange and Tax Regularization Regime ("RERCT"). This repatriation program was later extended in 2017 and 2024 with the enactment of Laws No. 13,428 and 14,973, respectively.

More recently, Law No. 14,754/2023 introduced new taxation rules for offshore companies, which were later regulated by Brazilian Federal Revenue (RFB) Normative Instruction No. 2,180/2024 and further clarified through an official Q&A document issued by the RFB.

Declaration of Brazilian Capital Abroad (DCBE) Deadline

The DCBE filing period began on February 5, 2025, and will end on April 5, 2025.

All individuals residing in Brazil who held assets abroad exceeding USD 1,000,000.00 in 2024 are required to submit the DCBE.

Importance of Offshore Company Financial Statements

The financial statements of offshore companies are essential for compliance with both legislative and tax authority requirements. They also help assess the tax implications for individuals and must be prepared in accordance with International Financial Reporting Standards (IFRS).

Many individuals have been using offshore companies to pay for personal expenses without considering the tax consequences of such practices.

According to the new rules, offshore company profits will be deemed automatically available to individuals, regardless of actual distribution, triggering income tax liabilities upon the submission of the Annual Income Tax Return ("DAA").

To ensure compliance, the proper allocation of costs and expenses, disclosure of accumulated profits from previous years, annual earnings, and advance profit distributions must be meticulously documented in a well-structured financial statement, which may be required by tax authorities.

Tax Reform and Succession Planning

With the approaching tax reform, it is also important to consider succession planning mechanisms to mitigate the impact of the Estate and Gift Tax (ITCMD).

New Compliance Requirements in Offshore Jurisdictions

The jurisdictions where offshore companies are incorporated have also implemented new regulations that taxpayers must comply with, including:

• Financial statement registration

• Shareholder registration

• Ultimate beneficial owner registration

• Economic substance declaration

Failure to comply with these obligations may result in significant penalties, including monetary fines in the respective jurisdictions.

Final Considerations

Taxpayers must ensure proper compliance with all obligations related to maintaining assets abroad to avoid scrutiny from both Brazilian tax authorities and the authorities of offshore jurisdictions.