CFC Reporting for Residents of Ukraine
What We Offer
Consultations on determining the tax residency status of individuals, identifying the need for CFC reports, and tax obligations.
Consultations regarding report preparation, tax base determination, exemption possibilities, and providing recommendations.
Analysis and appropriate preparation of documents required for CFC report submission.
Preparation of notifications regarding the purchase/sale of shares in a foreign business by a Ukrainian.
Preparation of all types of CFC reports and declarations of assets and income.
What We Offer
Consultations on determining the tax residency status of individuals, identifying the need for CFC reports, and tax obligations.
Consultations regarding report preparation, tax base determination, exemption possibilities, and providing recommendations.
Analysis and appropriate preparation of documents required for CFC report submission.
Preparation of notifications regarding the purchase/sale of shares in a foreign business by a Ukrainian.
Preparation of all types of CFC reports and declarations of assets and income.
How We Work
- Initial Consultation
Familiarization with the specific structure of the enterprise and determination of the need for report submission. - Survey
A brief questionnaire for a more detailed analysis of the foreign business and preparation for the next stage. - Consultation with Experts
Selection of the optimal solution for the taxation of CFC income. - Submission of Financial Documentation
Provision of incorporation documents and documentation regarding controlled transactions. Verification and notarized translation of the documents required for report submission. - Preparation of Notification or CFC Report.
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The concept of “Controlled Foreign Companies” (CFC), according to international standards, has become relevant for Ukraine relatively recently, following the amendments made to the Tax Code in 2020.
The provisions of Law No. 466-IX came into force on January 1, 2022, and Ukrainian residents who own companies abroad have encountered several questions regarding the procedures and rules for submitting CFC notifications to the regulatory authorities, reporting documentation, and other related aspects.
What is CFC
CFC stands for “Controlled Foreign Company” (CFC)
- which is not physically located within the territory of Ukraine but is controlled by individuals who are Ukrainian residents. This applies whether the controllers are individuals or legal entities.
- CFC can be not only LLC,LTD … but also:
- trusts
- funds
- partnerships
- and other forms.
A controller is considered to be a Ukrainian citizen who, either directly or indirectly (from a legal perspective), controls the company by owning its assets.
Control over a foreign company can be of two types: legal and factual.
Legal control is based on owning shares in the company. These can include stocks, corporate rights, or other instruments that provide voting rights and a share in profits.
Factual control refers to the ability to influence key company decisions. For example:
- asset management
- income distribution
- contract signing
- and other actions.
Factual control may also include having power of attorney to act on behalf of the foreign company for more than a year or performing operations on the company’s bank accounts (provided that the person is not a member of the company’s board).
Since 2022, individuals who own foreign companies are required to submit reports on foreign business to the regulatory authorities.
Who submits the CFC report according to the law
According to Article 39-2 of the Tax Code of Ukraine, reports on CFC must be submitted by all Ukrainian citizens who have control over foreign companies. This applies to both individuals and legal entities.
Specifically, this obligation applies to those who:
own 50% or more of the business;
own more than 25% of the business if the company has more than one owner, and together those owners hold more than 50% of the company’s assets (since 2023, the maximum share of one Ukrainian resident is 10%);
independently or together with partners control a foreign business.
Should reports be submitted for all companies controlled by a Ukrainian citizen?
Reports should be submitted for all types of activities:
active/operating
inactive/dormant
profitable/loss-making
If a Ukrainian citizen stays abroad for more than 183 days, must they submit a CFC report in Ukraine?
In Ukraine, there is no procedure for losing tax residency status. Therefore, the State Tax Service (STS) does not have information about a person’s place of residence. If you have a Ukrainian passport, the tax service will expect the CFC report. If it is missing, inquiries may be sent or penalties imposed.
To avoid such situations, it is recommended to contact the STS for an individual consultation and submit the necessary documents.
Deadlines for submitting CFC reports
Individuals controlling CFCs are required to adhere to strict deadlines for submitting reports:
Individuals
by May 1st of the year following the reporting year.
Legal entities
by March 1st of the year following the reporting year.
Additionally, any changes in the foreign business (e.g., registration, liquidation, change of owner, or changes in structure) must be reported no later than 60 days from the date of these changes.
Penalties for ignoring CFC reporting rules
Failure to comply with the CFC controller status law results in a fine of 908,400 UAH, according to Article 120.7 of the Tax Code of Ukraine.
If the report is not submitted at all, the penalty will be 302 800 UAH. A delay in submitting the document results in a fine of 151 400 UAH. Incomplete information about the business in the report will lead to a fine of 3% of the value of all transactions not included in the documents.
Although penalties are not applied during the period of martial law and for six months after it, violating these rules only leads to a deferral of the penalty, not its cancellation.
CFC Report and Notification Form
The notification of changes in the participation in a foreign company must be submitted in several cases. It should be filed when:
- starting a business;
- purchasing a share;
- selling a share;
- liquidation of the company;
- starting/ending control.
This applies to events that occurred after January 1, 2022. The notification is submitted online through the taxpayer’s electronic account and must include basic information about the company and the controller.
Reports about foreign companies are used by control authorities to determine the adjusted income of the company and include this amount in the income of the controller, which is subject to taxation.
There are two formats for the mentioned reporting:
Short-form
used when it is not possible to prepare the company’s financial report by the income declaration submission deadline. However, the full report must be provided by the end of the year following the reporting year.
Full-form
prepared separately for each company. It includes information about the company, the controller, the adjusted income, and is attached to the certified copy of the foreign company’s financial report.
How CFC Income is Taxed
In our country, the taxation of CFC income depends on the status of the controller and the size of their profit:
18%
Standard rate
of the adjusted income, proportional to the share or control.
9%
Reduced rate
applies if the income was paid to the controller before the report was submitted.
1,5%
Military tax
The tax amount can be reduced by the amount of a similar tax paid for the foreign company, proportional to the controller’s share of income.
Can CFC Be Exempted from Taxation
Yes. For example, if there is a country with which our state has signed an agreement on the exchange of tax data between the controlling authorities of both countries or on avoiding double taxation.
However, exemption is possible only if:
- The company operates with a tax rate of 13% or higher.
- The percentage of passive income of the company is less than 50% of the total.
Tax exemption is also available in the case of:
-
- Charitable organizations that do not distribute profits among the founders.
Joint-stock companies whose shares are not listed on the official stock exchange.
Foreign companies controlled by a Ukrainian resident whose annual income does not exceed 2 million euros.
