Reminder for CFCs: it is necessary to report to the tax authorities

31th of August, 2023

On January 1, 2022, Ukraine adopted a legal rule according to which all Ukrainian owners of international companies must inform the tax service about the purchase of a stake or the liquidation of a company abroad. Martial law is not a reason to cancel such rule.

In terms of the current Ukrainian legislation (Article 39-2 of the PCU), a CFC is a legal entity registered in any other state but controlled by a resident of Ukraine. This resident can be either an individual or a legal entity.

A few clarifications:

  • if you own less than 50% of the company, this law does not apply to you;
  • if you own more than 10% of the company, but together with other Ukrainian resident owners this figure exceeds 50%, you still need to report;
  • if you exercise actual control over a foreign company, the law applies to you regardless of the amount of your share. It means situations when the resident not just invested in the company and gets profit from it, but directly disposes of the company and has a decisive influence on it.

Doubting whether you should contact the IRS? It's better to take the extra precaution. This way you will avoid possible problems in the future.

How to file a notice with the IRS

If you acquired an interest in a foreign company or liquidated it, you have 60 days to notify the IRS. You must send the notification to the supervisory authority at the main place of registration of the individual or legal entity.

There is a simpler option: you can send the notification through the electronic taxpayer's office using a qualified electronic signature.

You can find detailed information about submission of the notification in the Decree of the Ministry of Finance of Ukraine No. 512 dated 22.09.2021.

How a CFC can simplify its life

From a legal and tax point of view, running a business even in one's own country is not the easiest of tasks, let alone doing business abroad. There is a high risk of making a mistake and coming under the scrutiny of the regulatory authorities. To avoid such an unpleasant outcome, you can entrust organizational issues to specialists and contact Intelligent Solution Group (ISG).

  • ISG services can be used by residents of Ukraine:
  • legal entities that control a company/companies abroad;
  • individuals who are beneficiaries of foreign companies or founders.

CFC consulting from ISG includes the following services:

  • determining whether or not Ukrainian residents have CFC status. The client will find out whether he/she needs to report to the tax authorities in Ukraine;
  •  analysis of CFC profit tax rates, algorithm of reporting to the relevant authorities;
  •  legal analysis of prerequisites for CFC tax exemption in Ukraine;
  •  preparation of financial statements in accordance with international standards (IFRS) and support of clients in filing such statements.

In short, Intelligent Solution Group takes care of all tax liabilities in Ukraine. It is important that the assistance of our specialists allows avoiding many mistakes that cost businessmen a lot of money. For example, if a CFC fails to report to the Ukrainian tax authorities on time, an individual or a legal entity will be fined 805 thousand hryvnias.