Submission of CFC reporting

Since gaining its independence, Ukraine has always sought to be one of the most developed European countries.

This is evidenced by the long-term population survey and the general vector of the country’s development, which is directed towards Europe.

However, it is not easy for the post-Soviet state to achieve immediate success in all areas of its functioning in general, and therefore the only solution that helps to change the country from the middle is an effective reformation of existing institutions in society.

As a result, the Law of Ukraine was adopted in 2020 No. 466-IX, which entered into force only on January 1, 2022, and was introduced by him as concept controlled foreign company.

What is the CFC, what is its main purpose, why was it created in Ukraine, and how to correctly submit the CFC report – this is what we will talk about in this informative article.

What should be understood by a controlled foreign company? 

Controlled foreign companies (English Controlled Foreign Corporations or Companies) are legal entities registered on the territory of foreign countries, but their ultimate owner (controlling person) is a tax resident of Ukraine.

The controlling person can be as physical, as well as legal, or personal.

Foreign companies, which are registered on the territory of other countries, are subject to the legislation of the CFC  if their owner:

• owns a share of 50% or more in a foreign legal entity;
• owns a share of 25% or more in a foreign legal entity, but under one condition – if the company counts other co-owners who have tax residency in Ukraine and the total share of their ownership in the percentage ratio is more than 50%;
• has documentary evidence that he exercises control over the foreign company by the company(for example, gives instructions and orders that management bodies are obliged to follow companies, approves the signing of contracts, manages corporate accounts, etc.).

What is the main purpose of the legislation on controlled foreign companies?

The legislation on CFC in Ukraine was introduced with the sole purpose of preventing tax evasion using various offshore companies that were established in jurisdictions with a minimal tax burden.

Implementation of CFC rules is a consequence of the adoption of the so-called BEPS Plan (Base Erosion and Profit Shifting), which was developed by the OECD, and its main purpose–opposition blurring of the tax base and withdrawal of income from taxation.

That is, in combination with the relevant provisions in the treaties on the avoidance of double taxation, the CIT legislation obliges to pay taxes in the country where the business activity of the legal entity is carried out or where the ultimate owners of the business live.

What are the features of reporting on a controlled foreign company in Ukraine?

First of all, it should be noted that starting from January 1, 2024, in Ukraine, all individuals and legal entities that have registered foreign companies and are their controllers are required to submit reports on CFC.

Importantly! If individuals and legal entities did not submit reports on CFC for 2022, then in 2024 they must submit such reports for the previous years 2022 and 2023.

The deadlines for submitting a report on CFC are:

• If the report is submitted by an individual– until May 1 of the year following the reporting year. In addition, it is also necessary to submit an annual declaration on the property status and income of individuals. The report on CFC is attached to declarations about the property status and income of individuals.
• If the report is submitted by a legal entity– until March 1 of the next year following the reporting year. In addition, you also need to file a corporate income tax return.

There are two forms of submission of the CFC report:

• Full – contains a detailed description of the foreign company’s business activities and may include:

1. information on received income from CFC ;
2. calculation of the company’s profit before taxation;
3. the number and amount of dividends received by the foreign firm from legal entities registered in Ukraine;
4. complete information on the available staff of the company and the number of employees on the relevant reporting date;
5. complete information about the profit received from entrepreneurial activities;
6. if there are grounds for exemption from taxation, it is necessary to provide an appropriate package of documents confirming them;
7. information about the income received by the controlling person;
8. information on financial transactions and settlements with non-residents of Ukraine;
9. other financial statements from CFC.

• Abbreviated – contains basic data on the CFC and is submitted only if, at the time of reporting, all the necessary documentation has not yet been completed in the relevant foreign jurisdiction.

May include:

1. the full name of the foreign company and its actual place of registration;
2. company registration number in the state tax authorities;
3. if there are several co-owners in a foreign company, it is necessary to indicate their share of ownership in percentage ratio;
4. the amount of the share owned by the controlling person, a tax resident of Ukraine.

Importantly! If reporting on CFC is submitted in an abbreviated form, the full report must be submitted by December 31 of the following year following the reporting year.

Where should reporting on controlled foreign companies be submitted?

Reporting on CFC is submitted only by filling out an electronic form with a mandatory digital signature through the created personal tax office.

It should be submitted to the controlling tax authority at the main place of registration of a natural person or legal entity – a tax resident.

Is there liability for failure to submit reports on controlled foreign companies?

For complete non-submission of the report – 302,800 hryvnias, for late submission – up to 151,400 hryvnias, for failure to display complete information about the CFC – a fine of 3% of the income of the CFC or 25% of the profit.

All calculations are calculated as of January 1, 2024.

If you still have questions about the correct submission of CFC reporting, then in this case legal assistance from the Prikhodko and Partners law firm will be extremely necessary.

The company’s lawyers will explain complex legal provisions on the submission of CFC reports, as they have excellent knowledge in various areas of Ukrainian legislation and constantly apply it in practice, which in turn allows them to understand the client’s requests and achieve the desired result. Do not delay and come to us for a consultation!