In recent years, offshore companies, legal entities established in foreign jurisdictions, have played a significant role, offering opportunities not only for the corporate structuring of companies, but also for individuals with substantial resources for the purposes of tax optimization, expansion of operations, asset protection beyond Brazilian borders and diversification of investments.
However, with recent changes to the Brazilian legal system, the future of offshores is being rethought and many Brazilians have restructured their strategies.
At the end of last year, Law No. 14.754/23 was enacted, providing in particular for taxation, as of January 1, 2024, at a rate of 15% on profits and income from financial investments, trusts and entities controlled abroad by individuals resident in Brazil. Recently, the Federal Revenue Service issued RFB Normative Instruction 2,180 in order to regulate the new tax rules.
More recently, the National Council of Justice (CNJ) amended its National Code of Internal Affairs Rules by means of Provision No. 161/2024 with the aim of improving the reporting of operations and proposals for operations suspected of money laundering, terrorist financing and the proliferation of weapons of mass destruction.
With the CNJ’s new rule, notary and registry services, as well as consular authorities with notary and registry attributions, are obliged to report to the Council for the Control of Financial Activities (Coaf), within the scope of their services and users, any operations, proposed operations or situations which they conclude that, due to their characteristics, may constitute evidence of money laundering or the financing of terrorist practices or related offenses.
Among the situations that can be reported to Coaf are operations related to a legal entity domiciled in a tax haven, i.e. in one of the countries or dependencies with favored taxation and privileged tax regimes listed by the Brazilian Federal Revenue Service (RFB Normative Instruction No. 1,037/2010).
It is very common for Brazilians to have already chosen jurisdictions to establish their offshore companies in the British Virgin Islands (BVI), the Bahamas, Panama, the Cayman Islands, Nevis (more fashionable these days), which means, in practice, that as of May 2 this year, when the CNJ’s new rule comes into force, any transaction subject to distribution and/or registration with extrajudicial registry offices (for example, exchanges, donations, purchases and sales of real estate, structuring of real estate ventures, etc.) that relate to such offshores will be subject to tax. ) related to such offshores will be the subject of in-depth investigations by Coaf.
Coaf is a financial inspection and intelligence body with the indispensable mission of monitoring suspicious financial transactions, with the aim of curbing any practice of money laundering, terrorist financing and the proliferation of weapons of mass destruction. It is therefore one of the Brazilian government’s actions to strengthen its institutions and regulations, as well as to contribute to global security efforts and the fight against international organized crime.
However, the perception is that Brazilian resistance to Coaf is explained by distrust of the entity, fueled by cases of data leaks and misuse of information that have occurred since its creation in 1998, as well as excessive bureaucracy and slow processes, which end up generating frustration among citizens and companies. In addition, businesspeople fear being the target of unfounded investigations or political persecution, while ordinary individuals worry about the criminalization of commonplace practices. In short, an investigation by the Coaf is almost synonymous with an invasion of privacy and a hindrance to the free exercise of economic activity.
Therefore, given this feeling, it is natural that being investigated by Coaf becomes at least uncomfortable and undesirable for most of the Brazilian partners of these offshores, even if they prefer the uprightness of legality in their operations.
In view of the changes in the taxation of offshores and the increased vigilance on the part of the Brazilian authorities, Brazilian partners in offshores have been seeking out their advisors and lawyers more intensively in recent weeks, with the aim of revisiting their strategies and possibly reorienting their businesses.
Correct technical guidance in this or any other direction should not be based solely on the aim of avoiding Coaf inspection or seeking a way out of paying the new tax. The mantra that should be the beacon is that clients should be guided to run their businesses in strict accordance with the law, in order to contribute as citizens to building a fairer, more prosperous and safer society.
