Accounting and financial reporting duties of foreign (including offshore) companies

In the context of increasing international oversight and demands for transparency in corporate structures, accounting and financial reporting have become even more relevant, including for companies registered in offshore jurisdictions. Let us look at how the requirements in this area have changed and what this means for your business.

What are accounting and financial reporting?

In business and legal practice, the terms accounting and financial reporting are often used together. However, there is an important difference between them.

Accounting is the process of systematically recording and processing information about a company’s financial and business activities. This includes tracking:

• income and expenses,
• assets and liabilities,
• cash flow,
• settlements with counterparties,
• sources of funding for business activities, and
• other transactions that show the current state of the business.

Financial reporting, on the other hand, is a set of documents that show a company’s financial position at a specific date, prepared based on accounting records. Standard financial reports include:

• a balance sheet,
• a profit and loss statement,
• a cash flow statement, and
• explanatory notes (if required by relevant law).

So, accounting is an ongoing process within the company, while financial reporting is usually done once a year. In many jurisdictions, even if formal financial reporting is not required, keeping accounting records is mandatory for most companies. Only a few companies may be exempt from this or allowed to keep simplified records.

Accounting and financial reporting for offshore companies

For many years, one of the main features (and benefits) of an offshore company was the lack of any requirement to keep accounting records or prepare and submit financial reports to local authorities. However, in recent years, the laws in most offshore jurisdictions have changed significantly.

Among other things, these changes have affected the obligations of offshore companies to:

• keep records of their financial transactions,
• store related documents, and
• (in some cases) provide them upon request to local authorities.

Because of this, accounting services for overseas companies are becoming more important.

Let us look at how these obligations are regulated in some of the most popular offshore jurisdictions:

Jurisdiction	Accounting and Record-Keeping Requirements
British Virgin Islands (BVI)	A BVI company must: Keep its accounting records and supporting documents at the office of its registered agent or another location inside or outside the BVI. Retain these documents for at least 5 years from the date of the transaction or the end of the business relationship to which they relate. Provide these documents to the registered agent immediately upon request. Records must be kept in a way that explains the company’s transactions and shows its financial position at any time. From 2023, BVI companies must submit an Annual Return to their registered agent. This is a brief financial summary, including a simple balance sheet and profit and loss statement. Audit and filing with government authorities are not required.
Seychelles	Amendments to corporate law in 2021 require Seychelles companies to keep accounting records at the registered agent’s office in Seychelles. Records must be kept for 7 years. If records are stored outside Seychelles, companies must send them to the registered agent at least every six months. In addition, a Seychelles company must keep a financial summary at the registered agent’s office, prepared within 6 months after the financial year ends. This summary is not financial reporting and does not need to be filed with authorities. Holding companies with annual income (including from assets or shareholdings) below 50,000,000 Seychelles rupees (about 3.7 million USD) are exempt from the financial summary requirement.
Marshall Islands	Marshall Islands companies must keep proper and complete accounting records that show the company’s financial activities. These records must: Explain company transactions, Show the financial position at any time, Allow financial statements to be prepared on request. Primary records may be kept outside the Marshall Islands but must be provided to authorities on request. Preparation and submission of financial statements are not required.
Belize	Under 2023 amendments, Belize companies must keep accounting records at the registered agent’s office in Belize. Records must be kept for at least five years after closing an account, completing a transaction, or ending a business relationship. Accounting records include: Financial statements, Main and supporting ledgers, Receipts, Contracts and invoices, Documents on assets, liabilities, incoming and outgoing funds, purchases, sales, and all financial transactions. Belize companies must also file a business tax return with the Belize Tax Services. Financial statements must be attached if the company: Conducted income-generating activities, and/or Had assets or liabilities on its balance sheet (if there was no income, a list of assets and their market value can be provided instead). In some cases, an audit of financial statements may be required.

From this analysis, we can draw the following conclusions:

• Offshore companies must keep proper accounting records that are enough to prepare financial statements.
• These records must be stored at the registered agent’s office or provided to them on request.
• In some cases, submitting financial statements may be required.

It is also important to note that most types of companies in non-offshore jurisdictions face stricter rules. For example, keeping accounting records in the UAE is mandatory for both local companies and free zone companies. Similarly, keeping accounting records, preparing, and submitting financial statements are legal requirements in countries such as:

• Cyprus,
• the United Kingdom,
• Hong Kong,
• Singapore, and
• several others.

Why does an offshore company need financial statements?

Financial statements may be needed by a foreign, including offshore, company during its regular business activities and common transactions, such as:

• when signing contracts with partners,
• when selling assets owned by the company,
• when selling company shares or stakes during business restructuring,
• when opening a bank account,
• to meet tax requirements in the country where the company’s owner is a resident.

The last two points are the most common reasons why any foreign company, offshore or not, must prepare financial statements. Let us look at these in more detail.

Financial statements when opening a bank account

In recent years, opening a bank account for an offshore company has become more challenging. Banks have tightened their compliance requirements and now ask for many documents about both the company and the individuals involved.

Financial statements are one of these key documents. They are needed to prove:

• the legal origin of funds,
• the legality of the company’s transactions,
• that the company is genuinely operating as claimed, and
• that the company meets its tax or corporate obligations (depending on the country).

Without financial statements and clear accounting records, the account opening process can be delayed or even refused. On the other hand, having financial statements, even if not required by the company’s home country, helps build trust with the bank.

Conclusion

Owners and controllers of foreign, including offshore, companies are advised to:

• make sure financial records are properly kept and stored, following the rules of the company’s jurisdiction,
• arrange for timely preparation of financial statements, especially if you need to open a bank account, and
• provide an audit report on financial statements if this is required by the company’s home country laws.

Taking these steps helps you stay compliant and avoid delays or issues with banks and authorities.