Which Companies Fall Under CFC Rules?

Controlled Foreign Company (CFC) rules have become mandatory for Ukrainian tax residents who own businesses or assets abroad. However, many entrepreneurs still do not fully understand which companies qualify as CFCs and what obligations arise from such ownership.

A Controlled Foreign Company (CFC) is any legal entity or non-corporate structure registered outside Ukraine that is controlled by a Ukrainian tax resident.

Which Companies Are Considered CFCs?

A company is considered a CFC if both of the following conditions are met.

1. The Company Is Registered Outside Ukraine

This may include:

• offshore jurisdictions (Cyprus, Belize, UAE, Panama, etc.);
• or any other foreign country (Poland, Estonia, the United Kingdom, etc.).

2. The Controlling Person Is a Ukrainian Resident Who:

• owns more than 50% of the company;
• owns more than 10% if several Ukrainian residents together own more than 50%;
• or exercises actual control over the company by signing documents, managing bank accounts, making key business decisions, or controlling operations.

Important

Even if the company is inactive or “dormant,” it may still qualify as a CFC if effective control is exercised by a Ukrainian resident.

Examples of Companies That Qualify as CFCs

• A UAE company holding foreign real estate owned by a Ukrainian beneficiary.
• A Cypriot holding company used for international trading activities.
• A Bulgarian company established by a Ukrainian entrepreneur to purchase vehicles.
• A Latvian company without employees that maintains bank accounts for a Ukrainian resident.

Which Companies Are Not Considered CFCs?

• Companies not controlled by Ukrainian residents.
• Foreign companies beneficially owned by non-residents of Ukraine.
• Trusts, funds, or partnerships without evidence of control by Ukrainian residents.
• Companies exempt under international double taxation treaties, provided all legal requirements are met.

What Obligations Does CFC Status Create?

Controlling persons are required to:

• disclose the existence of the CFC in their annual tax declaration;
• submit CFC financial reports;
• where applicable, pay taxes on undistributed CFC profits.

Failure to comply may result in substantial penalties starting from UAH 100,000 per violation, even if the CFC generated no profit.

Why Is Legal Analysis Important?

CFC compliance is not only a tax issue but also a significant legal risk. Owners of foreign businesses should proactively determine whether their corporate structure falls under Ukrainian CFC legislation.

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

• analysis of foreign corporate structures;
• corporate control audits;
• preparation of reporting documents;
• international tax planning;
• legal protection of business interests.