Consultations on Controlled Foreign Companies (CFC)

Do you have a foreign company or business interests abroad? If so, it is important to determine whether you have obligations under the rules on controlled foreign companies (CFCs).

Owning a foreign company or exercising actual control over it can affect tax liabilities and the requirements for filing notifications and annual CFC reporting in Ukraine.

Maira Consult provides advice on CFCs, helping to determine controlling person status, the scope of tax obligations, and the required documentation.

Controlled foreign companies (CFCs) in Ukraine: what you need to know

Since January 1, 2022, the Tax Code of Ukraine has contained rules on controlled foreign companies (CFCs).

A controlled foreign company is a legal entity registered in a foreign state or territory that is under the control of an individual resident of Ukraine or a legal entity resident of Ukraine in accordance with the criteria established by the Tax Code of Ukraine.

Who is considered a controlling person of a CFC?

A controlling person of a CFC can be an individual or legal entity resident of Ukraine that meets the control criteria established by law.

In particular, the determination of control takes into account whether:

• an individual or legal entity resident of Ukraine holds a share of more than 50% in a foreign company;

• an individual or legal entity resident of Ukraine holds a share of more than 10%, provided that several individuals and/or legal entities resident in Ukraine jointly hold shares in a foreign legal entity totaling 50% or more;

• it exercises actual control over a foreign legal entity, either alone or together with other Ukrainian residents who are related parties.

Actual control means the ability to influence a company's decisions, such as entering into agreements, disposing of assets or profits, or terminating operations.

Main obligations of a CFC's controlling person

1. Submitting a CFC notification to the State Tax Service on the acquisition or termination of control over a CFC in the cases provided for by law, in particular in connection with the acquisition or disposal of a share, or the commencement or termination of actual control. Where required by law, the CFC notification must be submitted within 60 calendar days.

2. Submitting annual CFC reporting within the time limits established by the Tax Code of Ukraine for the relevant category of controlling person. The CFC's financial statements must be attached to the report in the cases and manner provided for by law.

3. Paying the taxes on CFC profits established by Ukrainian law, where a corresponding tax liability arises based on the calculation. The law also provides for cases in which CFC profits are exempt from taxation under specified conditions.

What a CFC consultation includes

During the consultation, we analyze your specific situation and business structure to determine which CFC obligations arise and what actions need to be taken.

As part of the consultation, we:

• determine whether you have controlling person status based on your ownership structure;

• check whether an obligation to submit a CFC notification has arisen and whether the established 60 day deadline has been missed;

• assess the possible tax burden, taking into account the exemptions from CFC profit taxation provided for by law;

• assess the risks for previous periods if notifications or reports were filed late or not filed at all;

• provide recommendations on further steps, whether handling matters yourself, engaging Maira Consult for support, or, if necessary, restructuring.

CFC penalties

• Violating the rules on controlled foreign companies can result in significant financial penalties.

• In particular, failure to submit the CFC notification required by law results in a fine of 300 subsistence minimums for able-bodied persons, as established by law as of January 1 of the relevant tax (reporting) year, for each such instance.

• The amount of penalties for violating CFC obligations depends on the type of violation and the circumstances of the specific situation.

At the same time, missing the 60-day deadline alone does not automatically trigger this fine: liability depends on the type of violation and the specific circumstances.

How can Maira Consult help with CFC matters?

Given the high penalties and liability for violating the law, correctly preparing all documents and fulfilling obligations on time are critical for your business.

If you have a foreign company or are planning to establish one, it is important to determine in advance whether you will have obligations as a CFC controlling person.

• Analyze the structure and identify potential tax risks.

• Provide advice on liquidating or restructuring your CFC.

• Prepare and submit the CFC notification.

• Prepare financial statements for the foreign company.

• Calculate tax liabilities and ensure their fulfillment in accordance with current legislation.

Thanks to years of experience and a deep understanding of tax matters, Maira Consult will help you avoid penalties and ensure your business complies with the requirements of tax legislation.