With European governments needing to increase their tax collection, the Organisation for Economic Co-operation and development ("OECd") and other organisations are looking to standardise the reporting and filing of annual financial statements for companies across the world. For offshore jurisdictions, this is leading to the reporting and filing of annual accounts for companies increasingly becoming mandatory and more onerous.

In the major onshore high-tax jurisdictions there are often stringent penalties in the event that a company does not file annual accounts. For instance, in the United Kingdom, a company has to file accounts with a central registry (Companies House) within 9 months; otherwise penalties are levied starting at £150 for being a day late up to £1,500 for being six months late. After more than six months, a director is liable to criminal prosecution.

In Gibraltar, which has recently become onshore, there is a requirement to file a balance sheet with Companies House within 13 months but no penalties are currently levied for late filing, although provision for charging penalties exists in local legislation. However, the Gibraltar government has recently been consulting on implementing legislation to enact OECd recommendations regarding preparation of full financial statements (including a profit and loss account), retaining full accounting records for at least five years and imposing financial penalties for non-compliance.

In other offshore jurisdictions such as the Isle of Man, there is no obligation of file financial statements with a central registry, however financial records must be sufficient to show and explain, at any time, the financial position of the company. Normally, the local agent will require financial statements to be submitted to them annually otherwise they refuse to provide domiciliation services.

In a similar situation, the British Virgin Isles introduced the BVI Business Act 2004, which came into effect from 1st January 2007 which states that companies shall keep financial records that are sufficient to show and explain the company's transactions and will at any time enable the financial position of the company to be determined with reasonable accuracy. A company which contravenes this accounting requirement commits an offence and is liable on summary conviction to a fine of US$10,000 per occurrence.

To avoid falling subject to existing and future penalties from offshore jurisdictions, Fiduciary strongly recommends the production of financial statements. In offshore jurisdictions where there is no central registry, these financial statements would be retained by Fiduciary and the local agent and only disclosed to the Jurisdiction Authorities upon their formal request.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.