All about international accounting

International accounting is one of the essential pillars for companies wishing to operate in global markets. With globalization, understanding the different accounting standards and tax legislation of other countries is crucial to avoid problems with taxestaxes and financial reports.

In this article, we'll explore everything you need to know about international accounting, from the basics to calculations and taxes, to help entrepreneurs keep their operations compliant and optimize their financial management.

What is international accounting and why is it important?

International accounting is the application of accounting rules and principles that allow for the standardization of financial reports in different countries.

It is essential for companies operating in several markets, as it guarantees the comparability of financial information and facilitates decision-making by investors, managers and regulatory bodies.

Main benefits of international accounting

• Transparency and reliability: Helps the company to present clear and reliable data.
• Facilitates International Investments: With standardized reports, foreign investors have a better understanding of the company's financial situation.
• Legal ComplianceEnsures that the company complies with the tax and accounting requirements of different countries.

IFRS and US GAAP: the most widely used accounting standards in the world

When we talk about international accounting, we need to understand the two main standards:

1. IFRS (International Financial Reporting Standards)Adopted by more than 140 countries, including Brazil, the European Union, Japan and Canada. It is a more flexible system based on principles.
2. US GAAP (Generally Accepted Accounting Principles)Predominant in the United States, it is a more detailed and rigid set of rules.

Practical example:

Imagine that a Brazilian company, which uses IFRS, bought a machine for R$ 500,000. For IFRSUnder US GAAP, this machine can be valued at fair value or at cost less depreciation. Under US GAAP, this machine would generally be valued at historical cost, which can generate significant differences in the balance sheets.

Taxes in international accounting: what they are and how to calculate them

Companies operating in different countries face a series of taxes that can have a direct impact on their results. Let's take a closer look at the main taxes levied on international operations.

Main taxes:

• Corporate TaxIt varies from country to country and can be quite different. In the USA, the average tax rate is 21%, while in Brazil it can be as high as 34%.
• Transfer of Goods and Services Tax (VAT and Sales Tax)Tax on the movement of goods. In the European Union, VAT can vary from 5% to 27%, depending on the country.
• Withholding TaxThis tax is levied on royalty, interest and dividend payments to foreign companies, with rates ranging from 10% to 30%, depending on the country.

Read also: Accounting for foreign trade companies?

Tax comparison table

How to calculate tax on international profits

Let's use a practical example to calculate the profit tax of a company operating in Brazil and the USA.

• Operating Profit in Brazil: R$ 1.000.000
• Income Tax Rate: 34%

Calculation: 1,000,000 times 0.34 = R$ 340,000

• Operating profit in the USA: $500,000
• Tax rate on profits in the USA: 21%

Calculation: 500,000 times 0.21 = $105,000

The company will pay R$ 340,000 in income tax in Brazil and R$105,000 in the US, considering that there is no agreement to avoid double taxation between the two countries.

Common questions

1. How to Avoid Double Taxation?

Double taxation occurs when profits are taxed in two countries. To avoid this, it is important to check whether the country has a double taxation agreement with the other country of operation. For example, Brazil has agreements with countries such as Portugal, Japan and France.

2. How to deal with exchange rate differences?

Exchange rate variations directly affect the balance sheet and financial results of companies operating internationally. It is essential to adopt practices such as currency hedging to protect against these variations.

3. What is the best method for consolidating financial statements?

Companies that have subsidiaries in other countries must consolidate their financial statements. The most widely used consolidation method is the equity method, which adjusts the parent company's results based on the percentage of interest in the subsidiary.

Essential steps for registering an international company in Brazil

• Company registrationThe first step is to register the company with the Board of Trade of the state where the operation will take place. This process formalizes the company's existence and allows it to operate legally in Brazil.
• Obtaining a CNPJThe National Register of Legal Entities (CNPJ) is the company's identification number with the Federal Revenue Service and must be requested immediately after registration with the Board of Trade.
• Obtaining State and Municipal RegistrationFor operations involving the sale of products, state registration is mandatory. For the provision of services, municipal registration must be obtained.
• Licenses and permitsDepending on your line of business, you will need to obtain specific licenses and permits to operate legally. This can include environmental, health or operating licenses.
• Opening a bank accountIt is compulsory to open a business bank account with a Brazilian bank in order to manage the company's business transactions.
• Compliance and Regulations: The company must ensure that its operations comply with all local regulations, whether in relation to the environment, labor rights or other sector standards.
• Paying TaxesCompanies must comply with all tax obligations in Brazil, which include paying federal, state and municipal taxes, such as Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).
• Financial and tax reportsKeeping accurate financial records and submitting them to the Brazilian authorities on time is essential. This includes submitting balance sheets, tax returns and other tax reports.
• Accounting ResponsibilityInternational companies in Brazil must adopt IFRS (International Financial Reporting Standards) accounting practices, which are accepted globally, and ensure that their records are compatible with Brazilian tax requirements.
• Anti-corruption compliance: It is mandatory to adopt compliance policies that ensure transparent business practices in line with Brazil's anti-corruption legislation.
• Labor Laws and Hiring EmployeesThe Consolidation of Labor Laws (CLT) regulates all aspects of the relationship between employers and employees in Brazil. Foreign companies must follow these rules when hiring employees.
• Occupational Health and Safety ResponsibilityImplementing occupational health and safety measures in accordance with Brazilian regulations is essential to avoid penalties.
• Data Protection: Complying with the General Data Protection Act (LGPD) is mandatory for companies that handle personal data, ensuring that customer and employee information is protected.
• Transparency in OperationsInternational companies need to maintain transparency in their operations and communications with stakeholders, ensuring that all financial data and business decisions are clear and easy to understand.

How international accounting can optimize your financial management 

Efficient management of international accounting makes it possible:

• Cost reduction: By identifying tax opportunities in different countries.
• Facilitating Access to Investment: Standardized financial reports facilitate the entry of foreign investors.
• Improved decision-makingAccurate and standardized financial data helps with performance analysis and strategic planning.

Why rely on CLM Controller?

A CLM Controller is a specialist in international accounting and offers all the expertise needed for companies wishing to operate in global markets. With a highly qualified team, we ensure that your company complies with international accounting standards, offering customized solutions and complete support at every stage of the process. From the preparation of financial reports to guidance on taxes and regulations, we are your ideal partner for achieving success on the international stage.