In addition to investments, asset protection, and estate planning, an international company can also be used as an operational vehicle abroad, provided that there is real economic activity and compliance with applicable regulations.
When we talk about an offshore company, the first thought is usually having a company to invest globally in an organized manner, with objectives such as asset protection, estate planning, international diversification, holding interests in foreign companies, owning international real estate, or achieving administrative efficiency.
Have you ever considered that an international company can also be used as an operational vehicle abroad?
It is possible to use an offshore company as an operating company in commodities trading, for example, provided that the company has real economic activity and complies with the laws of the countries involved.
This is different from creating a company solely to reduce taxes on paper, which may be disregarded by tax authorities.
How Can an Operational Offshore Company Work?
A typical arrangement may work as follows:
- You incorporate a company in a jurisdiction suitable for international trade.
- The company opens corporate bank accounts and obtains the necessary licenses, if applicable.
- It enters into purchase agreements with suppliers and sales agreements with clients.
- The company issues invoices, receives payments, and pays suppliers.
- Profits are taxed according to the rules of the company’s jurisdiction and the countries involved, in addition to the rules of your country of tax residence.
What Characterizes an Operating Company
To be considered a legitimate operating company, it usually needs to have elements such as:
- Effective management (directors who actually make decisions).
- Proper accounting records.
- Corporate bank account.
- Commercial agreements.
- Commercial risk management.
- Real economic activity (“economic substance”), which may include offices, employees, or service providers, depending on the jurisdiction and type of operation.
Common Example in Commodities Trading
In an international trading transaction, the company may:
- Purchase soybeans from an exporter in one country.
- Resell those soybeans to a buyer in another country.
- Arrange transportation, insurance, financing, and documentation.
- Receive the difference between the purchase price and the sale price (the commercial margin).
In this model, the company acts as a trader (or re-invoicing company), assuming commercial, credit, transportation, and, in some cases, foreign exchange risks.
Important Considerations
International commodities trading involves several requirements, such as:
- Economic sanctions and export controls.
- Anti-money laundering (AML) rules and know-your-customer (KYC) procedures.
- International trade documentation.
- Transfer pricing rules when related companies are involved.
- Taxation in the countries where the activity is performed.
- “Economic substance” requirements in certain jurisdictions.
In addition, if you are a Brazilian tax resident and control an offshore company, there will be reporting obligations and Brazilian tax rules that may apply to the company’s profits, regardless of where it is incorporated.
Choosing the Jurisdiction
The choice depends on the type of business partners, the markets served, tax treaties, banking availability, and the ease of conducting international operations.
Contact
