How Are CFC Profits Taxed in Ukraine?

Controlled Foreign Companies (CFCs) play an important role in the international business structures of Ukrainian entrepreneurs and companies. At the same time, Ukrainian legislation establishes clear taxation rules for profits generated by such companies in order to prevent tax avoidance.

What Is a CFC and Who Is a Controlling Person?

A Controlled Foreign Company is a foreign legal entity controlled by Ukrainian tax residents — either individuals or legal entities. Control is determined by:

• ownership of more than 50% of the company;
• ownership of more than 10% if Ukrainian residents jointly own more than 50%;
• actual management or effective control over the company.

A controlling person is a Ukrainian resident who owns or effectively controls a CFC.

How Are CFC Profits Taxed in Ukraine?

Under the Tax Code of Ukraine, CFC profits are taxable in Ukraine at the level of the controlling person, even if such profits are not actually distributed.

Main Taxation Rules

• The controlling person must include their proportional share of the CFC’s profit in taxable income.
• For individuals:
  • 18% personal income tax applies;
  • 1.5% military levy additionally applies.
• For legal entities:
  • 18% corporate income tax applies.
• Taxes are paid based on the annual tax declaration.

Obligations of the Controlling Person

The controlling person must:

• notify the tax authorities about the existence of the CFC;
• submit CFC reporting;
• pay taxes on time;
• maintain financial and corporate documentation supporting calculations.

When May CFC Profits Be Exempt from Taxation?

In certain situations, Ukrainian law provides exemptions from CFC taxation, including:

• when Ukraine has a double taxation treaty with the country of incorporation;
• when the CFC pays taxes abroad at an effective rate meeting statutory requirements;
• when the company carries out genuine economic activity and meets legal criteria.

However, such exemptions require careful legal and tax analysis as well as proper documentation.

Main Risks for CFC Owners

• late reporting;
• incorrect profit calculations;
• lack of proof of actual business activity;
• hidden or informal control;
• failure to comply with tax and currency regulations.

Violations may result in substantial fines and additional tax assessments.

Why Is Legal Support Important?

CFC rules are a complex part of international tax compliance. Errors in ownership structures or reporting may lead to serious financial consequences.

The Ukrainian Bar and Real Estate Association provides comprehensive assistance regarding CFC matters, including:

• analysis of foreign corporate structures;
• preparation of reporting;
• tax consulting;
• support during tax audits;
• protection of business interests in disputes with tax authorities.