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"title": "Brazil CFC Rules & Offshore Companies: 2026 Guide",
"excerpt": "Brazil CFC rules now tax offshore profits every year at 15%, even if undistributed. Learn how Lei 14.754/2023 affects your foreign company in 2026.",
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"content_markdown": "You set up an offshore company in a tax‑friendly jurisdiction, perhaps to hold investments or run a digital business. You move to Brazil, become a tax resident, and assume that as long as you leave the profits outside Brazil, no tax is due. Then you discover the **Controlled Foreign Corporation (CFC) rules**—and that Brazilian law now taxes those profits every single year, even if you never send a cent to your Brazilian bank account.\n\nThis isn’t a hypothetical risk. Since January 1, 2024, **Lei 14.754/2023** has imposed automatic annual taxation on foreign entities controlled by Brazilian residents. In 2026, full enforcement leaves no room for delays, excuses, or ignorance. Penalties can reach 75 % of the tax due, and willful non‑compliance can escalate to criminal charges. This guide explains exactly how the rules work, how to calculate what you owe, and how to stay safe.\n\nLeia também:\n[How to Declare Foreign Income Brazil: 2026 Tax Guide](https://www.ribeirocavalcante.com.br/declare-foreign-income-brazil-2026/)\n\nThroughout the article we refer to the **Receita Federal (Brazilian IRS)** and use Portuguese terms with English translations. You’ll also find real numbers—like the R$ 6,20 exchange rate to the US dollar—so you can run your own simulation.\n\n\n## Brazil CFC rules: What Is Brazil’s CFC Rule?\n\nBrazil’s CFC rule is a domestic anti‑deferral measure. Prior to 2024, many Brazilian residents could postpone tax on offshore profits until those profits were actually distributed to them. The law now treats the annual net profit of a controlled foreign entity as if it were earned directly by the Brazilian individual or company that controls it.\n\nIn plain English: if you control a foreign company, **its profits are taxed in Brazil every 31 December**, whether or not you take the money out. The tax rate is a flat **15 %** on the entity’s net profit for the calendar year. There is no minimum threshold—even a modest profit triggers the obligation.\n\nLeia também:\n[Brazil Foreign Company Tax for Residents 2026 Guide](https://www.ribeirocavalcante.com.br/brazil-foreign-company-tax-residents-2026/)\n\nThe legal foundation is [Lei 14.754/2023\r\n\r\n](https://www.planalto.gov.br/ccivil_03/_ato2023-2026/2023/lei/l14754.htm), which overhauled the old CFC regime and brought Brazil closer to OECD base erosion and profit shifting (BEPS) standards. It applies equally to individuals and legal entities resident in Brazil.\n\n\n## Brazil CFC rules: Who Is Subject to CFC Taxation?\n\nYou fall under the rules if you are **a Brazilian tax resident** (whether by nationality or because you spent more than 183 days in the country during any 12‑month period) and you **control a foreign entity**. Control means:\n\n- you own, directly or indirectly, more than **50 % of the voting capital**; or\n- you have the power to elect the majority of the entity’s directors or managers.\n\nThe test applies to the individual and also aggregates holdings of other Brazilian tax residents who are “related” (family members, partners in the same business group). So if you and your spouse together own 60 % of a foreign company, you are both caught.\n\nThe rules cover **all types of foreign entities**: corporations, limited liability companies, partnerships, and—important new for 2024 onward—**foreign trusts** and certain transparent vehicles that are effectively controlled by the Brazilian resident. If you hold assets through a trust, you should review the structure carefully; this guide mainly focuses on companies.\n\n\n## Which Offshore Structures Trigger the CFC Rules?\n\nAlmost every common offshore structure is caught if it meets the control test. This includes:\n\n- **British Virgin Islands (BVI) business companies**\n- **Cayman Islands exempted companies**\n- **Panama foundations** (treated as controlled vehicles)\n- **US LLCs** (if controlled by a Brazilian resident and not taxed as a corporation in the US)\n- **Luxembourg SOPARFIs, Irish companies, Maltese holding companies**\n- **Singapore or Hong Kong private limited companies**\n- **Any entity, regardless of jurisdiction**, that is not a publicly traded corporation with widely dispersed ownership.\n\nLocation does **not** matter. A BVI company is no different from a Delaware corporation for these purposes. What matters is *who controls* the entity and *where the controlling person lives*.\n\nIf you want a deeper overview of how Brazil taxes foreign companies in general, see our guide on [Foreign Company Taxation Brazil 2026](https://www.ribeirocavalcante.com.br/foreign-company-taxation-brazil-2026/).\n\n\n### Decision Tree: Does the CFC Rule Apply to You?\n\n- **Step 1:** Are you a Brazilian tax resident?\n→ Yes: continue to Step 2.\n→ No: the CFC rules generally do not apply (though other reporting may be required).\n- **Step 2:** Do you, alone or with related residents, control more than 50 % of the voting rights or have the power to elect the majority of the board of a foreign entity?\n→ Yes: continue to Step 3.\n→ No: the CFC profit‑attribution rule likely does not apply, but you might still need to report the asset if its value exceeds the [DCBE](https://www.gov.br/receitafederal/pt-br/assuntos/orientacao-tributaria/declaracoes-e-demonstrativos/dcbe) threshold.\n- **Step 3:** Does the entity generate a net profit for the calendar year?\n→ Yes: you must include that profit in your Brazilian tax base and pay 15 % tax by the deadline.\n→ No (loss): no tax is due for that year, but you still must report the entity and its results.\n\n\n## How Are Foreign Subsidiary Profits Calculated and Taxed?\n\nThe law uses a straightforward method: **the adjusted net profit of the foreign entity**. You do not wait for a distribution. Every year you must:\n\n- obtain the entity’s financial statements (balance sheet and income statement) prepared according to internationally accepted accounting standards,\n- translate the figures into Brazilian Reais using the **official selling rate** published by the Central Bank on 31 December,\n- make adjustments required by Brazilian tax law—for example, disallowing certain expenses that are not deductible in Brazil,\n- arrive at the **adjusted net profit**.\n\nFor individuals: the total adjusted net profit is taxed at a flat **15 %**, regardless of the amount. There is no progressive rate and no lower limit.\n\nFor Brazilian legal entities (companies): the same adjusted profit is added to the corporate income base and taxed at the combined rate of **34 %** (IRPJ 15 % + surcharge 10 % + CSLL 9 %). This is a heavy burden, and careful planning is essential. See our detailed analysis in [Brazil CFC Rules 2026: How Controlled Foreign Corps Work](https://www.ribeirocavalcante.com.br/brazil-cfc-rules-2026/).\n\n\n### Real‑World Simulation: How Much Tax Will You Pay?\n\nLet’s assume you are a Brazilian tax resident who wholly owns a holding company in the BVI. In the 2026 fiscal year, the BVI company earns a net profit of **US$ 100,000**. The Central Bank’s dollar rate on 31 December 2026 is **R$ 6,20**.\n\n\n*What Is Brazil’s CFC Rule? — Foto: Nataliya Vaitkevich*\n\n- Adjusted net profit in BRL: US$ 100,000 × R$ 6,20 = **R$ 620,000**\n- Tax at 15 %: R$ 620,000 × 0,15 = **R$ 93,000**\n\nIf the BVI company paid **US$ 5,000** (5 %) in local income tax, you can claim a foreign tax credit. Convert the foreign tax to BRL using the same exchange rate: US$ 5,000 × R$ 6,20 = R$ 31,000. The credit cannot exceed the Brazilian tax due on that same income. So your net Brazil tax becomes:\n\n- R$ 93,000 – R$ 31,000 = **R$ 62,000**\n\nIf you later distribute the profit, no further tax is due—the CFC taxation already settled that layer. However, if you hold the profit inside the entity and the entity’s assets themselves generate future income, those new profits are taxed again in the year they arise.\n\n\n## Is There a Tax Credit for Foreign Taxes Paid?\n\nYes. Brazil’s double taxation treaties and domestic law allow a credit for income tax actually paid abroad by the controlled entity, **provided** the foreign tax corresponds to the same income that Brazil is taxing. The credit is limited to the Brazilian tax that would be due on that same income (the “credit limit”). You must keep documentary proof of the foreign payment.\n\nEven without a treaty, the credit is available under domestic rules. For example, if a Cayman entity pays no local corporate tax (a typical zero‑tax jurisdiction), there is no credit. That’s why many offshore structures held by Brazilian residents now face a net 15 % annual effective tax, with no offset.\n\n\n## What Are the Penalties for Non‑Compliance?\n\nFailing to report and pay the CFC tax can lead to severe consequences:\n\n- **Late filing fine:** 1 % per month on the tax due, limited to 20 %.\n- **“Isolada” penalty (failure to report):** 75 % of the tax owed if the omission is considered intentional, or 20 % if the tax is declared but not paid.\n- **Automatic assessment (arbitramento):** if you do not provide the entity’s financial statements, the Receita Federal can estimate the profit based on available data—often far higher than reality.\n- **Criminal prosecution:** for willful tax evasion of significant amounts, under the crime of “sonegação fiscal” (tax evasion).\n\nThe [Receita Federal’s cross‑checking systems](https://www.gov.br/receitafederal/pt-br/assuntos/orientacao-tributaria/declaracoes-e-demonstrativos) receive an ever‑increasing flow of data from international agreements (FATCA, CRS). In 2026, it’s no longer a matter of “if” the Brazilian tax authorities will discover an undeclared offshore company, but “when.”\n\n\n## How Does This Interact with FATF/CRS Reporting?\n\nBrazil participates in the **Common Reporting Standard (CRS)** and has bilateral agreements that automatically exchange financial account information. If your offshore company holds a bank or brokerage account, that account’s details are reported to the Brazilian Receita Federal. The same applies to trusts and foundation structures.\n\n[\n\n\n\n](https://www.ribeirocavalcante.com.br/web-stories/brazil-cfc-rules-offshore-companies-2026-guide/)\n\n⚡ Web Story\n[Brazil CFC Rules & Offshore Companies: 2026 Guide](https://www.ribeirocavalcante.com.br/web-stories/brazil-cfc-rules-offshore-companies-2026-guide/)\n[Ver história visual ›](https://www.ribeirocavalcante.com.br/web-stories/brazil-cfc-rules-offshore-companies-2026-guide/)\n\n\nTherefore, the CFC rules align with global transparency. Failing to declare the offshore entity not only triggers tax liability but also raises red flags for money laundering and financial crimes enforcement. The days of secret offshore accounts are over—especially for residents of Brazil, where digital nomads are becoming a focus of enforcement. For a look at how these rules affect location‑independent workers, read [Digital Nomad Taxes Brazil 2026](https://www.ribeirocavalcante.com.br/digital-nomad-taxes-brazil-2026/).\n\n\n## What Changed in 2026?\n\nLaw 14.754/2023 took effect on 1 January 2024, but 2024 and 2025 were transitional years with some uncertainties and the opportunity to use the one‑time offshore amnesty program (*declaração de regularização*), which expired in 2024. By 2026, the regime is fully consolidated:\n\n- **No more amnesty.** You can no longer regularize past undeclared offshore assets with reduced penalties.\n- **Full mandatory reporting.** All controlled foreign entities must be disclosed in the annual income tax return (DIRPF for individuals, ECF for companies) and, if applicable, in the [DCBE (Declaração de Capitais Brasileiros no Exterior)](https://www.gov.br/receitafederal/pt-br/assuntos/orientacao-tributaria/declaracoes-e-demonstrativos/dcbe).\n- **Electronic invoicing integration.** The broader tax reform (CBS/IBS) introduced split‑rate electronic invoices for certain goods and services, but the CFC reporting requirements are now embedded in the digital accounting ecosystem, making omissions harder to hide.\n- **Transparency on trusts.** For the first time, explicit rules force Brazilian residents to attribute trust income annually, regardless of distributions.\n\nIf you have not yet regularized your offshore structure, 2026 is the year to act before a routine audit triggers back‑taxes, interest, and penalties.\n\n\n## Step‑by‑Step: Reporting Foreign Subsidiary Income in 2026\n\nHere’s how a Brazilian tax resident individual must comply in practice:\n\n- **1. Gather financial statements.** Obtain the entity’s balance sheet and income statement for the year ended 31 December 2026, prepared in English or Portuguese, signed by the director. Convert all amounts to BRL using the 31 December Central Bank rate.\n- **2. Calculate adjusted profit.** Deduct allowable expenses, add back non‑deductible items. If you are unsure, consult a Brazilian accountant or lawyer—mistakes are costly.\n- **3. Complete the “Demonstrativo de Bens e Direitos no Exterior”** within the DIRPF (annual individual income tax return). Declare the entity’s equity value and the profit subject to CFC taxation.\n- **4. Pay the tax.** The 15 % CFC tax is collected via DARF, usually coded “0220” (for individuals). The payment deadline coincides with the DIRPF due date—normally the last business day of April (for the previous year).\n- **5. File DCBE if required.** If your offshore assets (including the company’s share value) exceed US$ 1 million in total, you must file the DCBE electronically by the deadline (usually 30 June). This is an informative declaration, not a tax payment.\n\n\n## Required Documents to Comply with CFC Obligations\n\n- Certified copy of the entity’s articles of incorporation (contrato social / estatuto) showing your ownership and control.\n- Board resolution or equivalent documenting the appointment of directors/administrators.\n- Financial statements (balance sheet, income statement, notes) for the year in question.\n- Proof of any foreign tax payments (receipts, tax assessments, bank transfers).\n- Evidence of the exchange rate used (Central Bank bulletin).\n- If applicable, the trust deed or similar instrument for structures involving trusts.\n\n\n## Pitfalls That Can Make Your Tax Bill Explode\n\n- **Forgetting that a US LLC is a controlled entity.** A single‑member LLC owned by a Brazilian resident is treated as a controlled foreign corporation. Its annual profit is taxed at 15 % in Brazil, even if no US federal corporate tax is due.\n- **Not filing the DCBE.** The DCBE is not a tax form but the penalty for not filing can be up to R$ 250 000. Moreover, the Receita Federal can presume unreported foreign income.\n- **Failing to convert profits correctly.** Using a different exchange rate (e.g., the buying rate) can trigger a discrepancy audit.\n- **Ignoring passive income inside an operating company.** If a foreign trading company also holds a portfolio of bonds, the passive income is fully subject to the CFC rule.\n- **You cannot offset foreign losses against Brazilian income.** A loss in one offshore entity cannot reduce the tax on Brazilian‑source salary or business profit; the CFC tax applies only to the foreign entity’s profit years.\n\n\n## Comparison: Individual vs. Company Subject to CFC Rules\n\n| Taxpayer Type | Tax Rate on CFC Profit | Reporting Form | Tax Credit Allowed? | Exemption Threshold |\n| --- | --- | --- | --- | --- |\n| Individual resident | 15 % flat | DIRPF (annual return) | Yes, limited to Brazilian tax | None |\n| Brazilian legal entity (LTDA/SA) | 34 % (IRPJ+CSLL) | ECF (corporate tax return) | Yes, but more complex rules | None |\n| Expat who is not a Brazilian tax resident | Generally not subject | May need to file exit declaration | N/A | Depends on residency |\n\n\n## Frequently Asked Questions\n\n\n### 1. I own a BVI company that has only investment assets and no active business. Does the CFC rule still apply?\n\nYes. The rule applies regardless of whether the company is active or passive. Even a pure holding company is taxed annually on its net profit (rentals, dividends, interest, capital gains). The jurisdiction of incorporation is irrelevant.\n\n\n*What Is Brazil’s CFC Rule? — Foto: Mohamed_hassan*\n\n\n### 2. I am a digital nomad who just became a Brazilian tax resident in 2026. Do I need to pay CFC tax for the whole year?\n\nGenerally, no. Your liability starts from the date you become a resident. For the part of the year before residency, you are not subject to Brazilian CFC rules. However, the profit of the foreign entity is still reported for the portion of the year you are a resident. In practice, many taxpayers apportion the annual profit; this requires careful documentation. Check our [digital nomad tax guide](https://www.ribeirocavalcante.com.br/digital-nomad-taxes-brazil-2026/) for details.\n\n\n### 3. Can I use a foreign trust to avoid the CFC rules?\n\nNo. Since 2024, trusts controlled by Brazilian residents are expressly within the CFC regime. The income of the trust is attributed to the settlor or beneficiary who holds control. The amnesty period that allowed regularization of trust assets expired in 2024, so full disclosure is mandatory in 2026.\n\n\n### 4. What if my offshore company is in a country that has a double‑taxation treaty with Brazil?\n\nThe treaty does not cancel the CFC rule. However, you can claim a credit for the foreign tax paid. If the treaty country taxes corporate profits at, say, 12.5 %, you reduce the Brazilian 15 % accordingly, often paying only the difference (2.5 %) to Brazil. Proper application of treaty relief requires precise calculation.\n\n\n### 5. I inherited an offshore company in 2026. Do I have to pay tax on all its past profits?\n\nNo. You are taxed only on the profits generated after the date you acquired control. However, you must still value the entity at the time of inheritance and report the asset in your tax returns. The tax on pre‑inheritance profits was the responsibility of the deceased or previous owner.\n\n\n### 6. Is there any exemption for small offshore companies?\n\nNo. The law sets no de minimis exemption. A company with a net profit of R$ 20,000 is taxed just as one with R$ 2 million. The only relief is the foreign tax credit.\n\n\n### 7. What happens if I do not provide the foreign entity’s accounting records?\n\nIf you fail to produce the financial statements, the Receita Federal can resort to “arbitramento”—and estimate a profit based on a percentage of the entity’s assets or gross income. For instance, it may deem a profit of 30 % of the company’s total assets. This often leads to a tax bill far higher than the real profit.\n\n\n## Navigating Brazil’s CFC Rules as a Foreign Investor\n\nDealing with a country’s tax code from abroad is challenging enough; Brazil’s offshore taxation is particularly dense. Since Brazil follows the Civil Law system, court decisions are not binding in the same way as in Common Law countries, and regulations change frequently. A misstep—like not filing the DCBE, or using the wrong tax code—can trigger fines, interest, and unwanted scrutiny.\n\nOur bilingual team at Ribeiro Cavalcante Advocacia regularly assists expats, investors, and Brazilian families with international holdings. We can help you structure foreign entities in a compliant manner, prepare the annual CFC calculation, and represent you before the Receita Federal. We speak plain English—no legalese.\n\nFale agora com um advogado especialista\n[ Falar com Advogado no WhatsApp](https://www.ribeirocavalcante.com.br/ads/wpp.html)\n\n*Disclaimer: This article provides general information and does not constitute legal advice. Every case is unique; consult a qualified Brazilian lawyer to assess your specific situation.*",
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"question": "What are Brazil CFC rules and who do they apply to?",
"answer": "Brazil CFC rules require Brazilian tax residents who control a foreign company (over 50% ownership or management control) to pay 15% tax on its annual net profit, regardless of whether profits are distributed."
},
{
"question": "Do Brazil CFC rules apply to foreigners living in Brazil?",
"answer": "Yes. Any person who becomes a Brazilian tax resident — including foreigners who stay more than 183 days in a 12-month period — is subject to Brazil CFC rules on their offshore companies."
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"question": "How much tax do I owe on my offshore company under Brazil CFC rules?",
"answer": "The tax rate is a flat 15% on the foreign entity's annual net profit, calculated as of December 31 each year, with no minimum profit threshold triggering the obligation."
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"question": "Does Brazil tax offshore profits even if I don't transfer money to Brazil?",
"answer": "Yes. Since January 1, 2024, Brazil taxes offshore profits annually on a deemed-distribution basis — you owe tax on December 31 even if the money stays entirely outside Brazil."
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"question": "What are the penalties for ignoring Brazil CFC rules in 2026?",
"answer": "Penalties can reach 75% of the tax due for non-compliance, and willful evasion can escalate to criminal charges under Brazilian law."
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"level": 2,
"text": "Brazil CFC rules: What Is Brazil’s CFC Rule?",
"anchor": "brazil-cfc-rules-what-is-brazils-cfc-rule"
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"level": 2,
"text": "Brazil CFC rules: Who Is Subject to CFC Taxation?",
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"level": 2,
"text": "Which Offshore Structures Trigger the CFC Rules?",
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"level": 3,
"text": "Decision Tree: Does the CFC Rule Apply to You?",
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"level": 2,
"text": "How Are Foreign Subsidiary Profits Calculated and Taxed?",
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{
"level": 3,
"text": "Real‑World Simulation: How Much Tax Will You Pay?",
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{
"level": 2,
"text": "Is There a Tax Credit for Foreign Taxes Paid?",
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{
"level": 2,
"text": "What Are the Penalties for Non‑Compliance?",
"anchor": "what-are-the-penalties-for-non-compliance"
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{
"level": 2,
"text": "How Does This Interact with FATF/CRS Reporting?",
"anchor": "how-does-this-interact-with-fatf-crs-reporting"
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{
"level": 2,
"text": "What Changed in 2026?",
"anchor": "what-changed-in-2026"
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{
"level": 2,
"text": "Step‑by‑Step: Reporting Foreign Subsidiary Income in 2026",
"anchor": "step-by-step-reporting-foreign-subsidiary-income-in-2026"
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{
"level": 2,
"text": "Required Documents to Comply with CFC Obligations",
"anchor": "required-documents-to-comply-with-cfc-obligations"
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{
"level": 2,
"text": "Pitfalls That Can Make Your Tax Bill Explode",
"anchor": "pitfalls-that-can-make-your-tax-bill-explode"
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{
"level": 2,
"text": "Comparison: Individual vs. Company Subject to CFC Rules",
"anchor": "comparison-individual-vs-company-subject-to-cfc-rules"
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{
"level": 2,
"text": "Frequently Asked Questions",
"anchor": "frequently-asked-questions"
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"level": 3,
"text": "1. I own a BVI company that has only investment assets and no active business. Does the CFC rule still apply?",
"anchor": "1-i-own-a-bvi-company-that-has-only-investment-assets-and-no-active-business-does-the-cfc-rule-still-apply"
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"text": "2. I am a digital nomad who just became a Brazilian tax resident in 2026. Do I need to pay CFC tax for the whole year?",
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"level": 3,
"text": "3. Can I use a foreign trust to avoid the CFC rules?",
"anchor": "3-can-i-use-a-foreign-trust-to-avoid-the-cfc-rules"
},
{
"level": 3,
"text": "4. What if my offshore company is in a country that has a double‑taxation treaty with Brazil?",
"anchor": "4-what-if-my-offshore-company-is-in-a-country-that-has-a-double-taxation-treaty-with-brazil"
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"level": 3,
"text": "5. I inherited an offshore company in 2026. Do I have to pay tax on all its past profits?",
"anchor": "5-i-inherited-an-offshore-company-in-2026-do-i-have-to-pay-tax-on-all-its-past-profits"
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"text": "6. Is there any exemption for small offshore companies?",
"anchor": "6-is-there-any-exemption-for-small-offshore-companies"
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"level": 3,
"text": "7. What happens if I do not provide the foreign entity’s accounting records?",
"anchor": "7-what-happens-if-i-do-not-provide-the-foreign-entitys-accounting-records"
},
{
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