A controlled foreign company (CFC) is a legal entity registered in a foreign country or territory recognized as being controlled by a natural or legal person – a resident of Ukraine (controlling person).
A foreign company is recognized as a CFC if the controlling person:
You can check whether your company is recognized as a controlled entity, draw up a CFC Notification and Report, and find the grounds for exemption from CFC taxation with the help of Kreston Ukraine specialists.
If your company is a CFC by the terms of this law, then you have certain liabilities to the tax authorities of Ukraine:
The Notification is submitted within 60 days after the occurrence, change or termination of direct (indirect) control.
Submission of the report to the supervisory authority occurs simultaneously with the request of the annual income tax declaration for controllers-legal entities and the order of property status and income for individuals for the corresponding calendar year:
for a legal entity controller – until March 1, following the reporting year.
for an individual controller – until May 1 of the year following the reporting year.
Even if the foreign company did not need to prepare financial statements before that, it would be necessary to prepare them because the duties of the controlling person include the calculation of the adjusted profit of the CFC based on its financial statements (that is, adjusted for certain expenses or income that are not related to its core activity). The tax office may also require the provision of an audit report on the financial statements of the CFC under IFRS.
! If, as at March 1 (or May 1) of the year following the reporting year, the controlled foreign company has not yet prepared financial statements, it is possible to submit a simplified report without financial indicators and by December 31 of the following year to submit a full report on the CFC with information about financial indicators.
In the absence of grounds for exemption from taxation of the CFC, the controlling person must pay tax (18% income tax for legal entities, 18% personal income tax + 1.5% military levy for individuals) on a part of the adjusted profit, which is proportional to the share that this the person owned at the end of the reporting period.
Profit of the CFC may be exempted from taxation if:
- conducts active work (provides services, manufactures goods, bears relevant risks, and the share of its passive income - from royalties, dividends, interest on deposits – does not exceed 50% of total income.
- or pays income tax in the country of registration that is not less than the basic rate of corporate income tax in Ukraine (18%) or less than such rate by no more than 5% (that is, not less than 13%).
However, the exemption from taxation does not exempt from the need to submit a Notification and a Report on CFCs.
