What Tax Rates Apply to CFCs?

Controlled Foreign Companies (CFCs) have become an increasingly common business structure for Ukrainian residents operating abroad. At the same time, taxation of CFC profits is one of the key issues affecting owners and controlling persons of such companies.

A Controlled Foreign Company is a legal entity registered outside Ukraine and controlled by a Ukrainian tax resident — either an individual or a legal entity. Ukrainian legislation provides for taxation of CFC profits at the level of the controlling person in order to prevent tax avoidance.

Main Tax Rates Applicable to CFCs

1. Corporate Income Tax

CFC profits are included in the taxable income of the controlling person in Ukraine regardless of whether dividends are actually distributed.

For legal entities, the applicable rate is:

• 18% corporate income tax.

2. Personal Income Tax (PIT)

If the controlling person is an individual, their share of the CFC profit is taxed at:

• 18% personal income tax.

3. Military Levy

In addition to PIT, the following applies:

• 1.5% military levy.

How Is the Tax Paid?

• The controlling person must include CFC profits in the annual tax declaration.
• The taxable amount is calculated proportionally to the ownership interest in the CFC.
• Taxes must be paid within the deadlines established by Ukrainian tax legislation.
• Supporting documents confirming profit calculations and tax payments must be retained.

When Can CFC Profits Be Exempt from Taxation?

In certain cases, CFC profits may be exempt from taxation in Ukraine, including:

• where a double taxation treaty applies;
• if the CFC pays taxes abroad at an effective rate meeting legal requirements;
• if the company conducts genuine economic activity.

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

Why Is It Important to Understand CFC Tax Rates?

Understanding CFC taxation rules helps businesses:

• avoid penalties and tax claims;
• properly structure international business operations;
• minimize double taxation risks;
• ensure timely reporting and avoid financial losses.

Conclusion

CFC taxation is an important part of international tax compliance for Ukrainian residents. The level of taxation depends on the status of the controlling person and the specific characteristics of the foreign company.

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

• analysis of international corporate structures;
• preparation of reporting;
• tax planning;
• support during audits;
• protection of business interests in tax disputes.