Did you know that a business operating outside of Ukraine can have an impact on your tax liabilities? If you own foreign companies or have business interests abroad, you may have to deal with the concept of CFCs - controlled foreign companies. But what is it, why is it important, and do you have reporting obligations? Let's analyze these issues and reveal how CFCs can affect your financial decisions.
Controlled foreign companies (CFCs) in Ukraine: what you need to know?
On January 1, 2022, the concept of controlled foreign companies (CFCs) was introduced into the Tax Code of Ukraine.A controlled foreign company is any legal entity registered in a foreign state or territory that is recognized as being under the control of an individual resident of Ukraine or a legal entity resident of Ukraine.
Who is the owner of a CFC?
A company is considered to be a controlled foreign company if:
- A natural person or legal entity resident of Ukraine owns a share of more than 50% in a foreign company;
- If the share is 10% or more, and there are several natural persons or legal entities resident of Ukraine who together control the company.
- individually or together with other residents of Ukraine, related parties exercise actual control over a foreign legal entity.
Actual control implies the ability to influence the company's decisions, such as entering into transactions, disposing of assets, profits or terminating activities.
The main responsibilities of CFC owners
1.Notify the tax authorities of the fact of acquisition or loss of control over the CFC, in particular:
- At the establishment/creation of a foreign company;
- At the acquisition of corporate rights/shares of a foreign company or the beginning of the actual control over a CFC;
- In case of alienation/sale of corporate rights/shares of a foreign company;
- In case of liquidation of a foreign company;
2.Submit annual reports on CFCs with the determination of tax liabilities. The reporting is submitted annually, together with the CFC's financial statements and tax return on property status and income.
3. Pay taxes on CFC's profit established by the Ukrainian legislation. The legislation establishes quite different requirements and peculiarities for calculating tax liabilities, as well as provides for cases of exemption from taxation of CFC profits.
CFC Penalties
It is important for CFC owners to comply with the reporting requirements, as violation may result in heavy fines. In particular, the following penalties are provided:
- For failure to submit a report on a CFC - a fine of 100 times the subsistence minimum for an able-bodied person, which is UAH 302,800 as of January 1 of the current year.
- For late submission of the report - a fine in the amount of 1 minimum subsistence level for each calendar day of delay, but not more than 50 minimum subsistence levels.
- For failure to notify the tax authorities of the acquisition of a share in a CFC or the beginning of control - a fine in the amount of 300 minimum subsistence levels, which is currently UAH 908,400.
How can Maira Consult help?
Given the high fines and liability for violating the law, the correct execution of all documents and timely fulfillment of obligations are critical for business.
If you are the owner of a CFC or plan to establish such a company, it is important to contact qualified specialists for advice. Maira Consult provides professional assistance in matters related to working with foreign companies and can help you:
- Analyze the structure and identify potential tax risks.
- Provide advice on liquidation or change of structure of your CFC.
- Prepare and submit notification of CFC.
- Prepare financial statements for a foreign company.
- Calculate tax liabilities and ensure their fulfillment within the current legislation.
With many years of experience and a deep understanding of tax issues, Maira Consult will help you avoid sanctions and ensure that your business complies with tax legislation.
