Controlled foreign companies: legal consulting by Interlegal

Interlegal regular client filed a request concerning, inter alia, controlled foreign companies (CFCs).

Rules on CFC taxation in Ukraine entered into force on January 1, 2022. CFC is a foreign company either owned or managed by the Ukrainian resident. In such cases, tax legislation of Ukraine provides for taxation on its adjusted profit in Ukraine, not in registration state.

Also, in accordance with Tax Code of Ukraine, the Ukrainian resident who owns or manages CFC shall be treated as its controlling entity. While gaining such a status, the Ukrainian residents shall bear such liabilities as submission of CFC reporting, notifying Tax Service of Ukraine on gaining/losing control over CFC etc.

Interlegal experts drafted a legal advice indicating why the Client’s company shall be deemed as CFC and the Client itself shall have a status of controlling entity, jointly with detailed procedure for filling-in and submitting CFC report. Special attention was drawn to the issue of notices on CFC in case of corporate restructuring the Client’s group of companies.

Interlegal associate attorneys Marta Sverdlykivska & Alyona Remenyak, lawyer Dmytro Bondar and partner Irina Voyevodina led the project.

Special attention should be drawn to the issues of CFC reporting in Ukraine because Tax Code of Ukraine stipulates serious penalties for non-compliance or violation of such procedure. For instance, for non-submission of CFC report by controlling entity, Tax Service of Ukraine may impose fine amounting to 268,400 UAH, while failure to notify Tax Service on acquiring share in CFC or on share transfer to another entity, as well as failure to notify on gaining/losing control over CFC, shall entail fine amounting to 805,200 UAH per each fact.

Interlegal Corporate&Tax department provides consulting upon controlled foreign companies and helps to fill-in and to submit CFC reports and notices. Legal advice and assistance by Interlegal lawyers may prevent large fines in case of using foreign companies in your own business.