Offshore companies are entities that operate outside the country of their registration and as such are primarily established in order to benefit from the registration country’s tax provisions, thus taking advantage of a low or even nil tax rate.
One of the most popular offshore locations is the British Virgin Islands (BVI), whilst others include Belize and Seychelles among others. Most of these offshore locations now require the maintaining of bookkeeping records (including supporting documentation) and in many cases impose fines for failure to do so.
With the anticipated anti-tax-avoidance directive, many jurisdictions -including Russia – have already adopted Controlled Foreign Corporation (CFC) rules, which are rules used to deter profit shifting into low or nil tax countries. As such, CFC rules have or will have a significant impact on companies located in such offshore jurisdictions, which will see their profits being taxed in the country of the beneficial owner. In most cases, taxation will be applied on CFC profits as calculated by the jurisdiction which implements the CFC rules. However, exemptions do exist. For example in Russia, the Federal Law No. 32-FZ “On Amendments to the First and Second Parts of the Russian Tax Code” provides for the use of financial statements when determining the CFC profits of a controlled company registered in an offshore jurisdiction. To be more specific, as per this new law, financial statements can be used for calculating CFC profits in the following cases:
- – Financial statements of CFCs registered in jurisdictions which (per existing tax treaty) exchange information with Russia (audit is not a requirement);
- – Audited financial statements for CFCs not registered in jurisdictions which have signed double tax treaties including clauses for exchanging information with Russia, but which voluntarily prepare and submit audited financial statements in accordance with International Financial Reporting Standards (or equivalent) with no negative auditor comments (i.e. no disclaimers in the audit opinion).
In the absence of the above, tax assessments will be arbitrary and subject purely to the estimation of taxable income by the local tax authorities in the country where the CFC rules are being applied.
Our team has experienced and qualified accounting professionals who have the necessary and specific knowledge for auditing financial statements prepared under IFRS of companies in multiple offshore jurisdictions. Our personalized and customized services based on individual client’s needs are provided through single point of contact and queries are managed regardless of the jurisdiction they arise in.
Maria Nicolaou
Tax Advisor
maria.nicolaou@eurofast.eu