 1.svg)
CFC services: reporting, taxes, notifications
The global fight against financial fraud and abuse has led to tougher regulation of foreign business.
These toughenings also affected Ukraine with the adoption of international BEPS standards. So, since 2021, in Ukraine the concept of CFC - Controlled Foreign Company has been introduced, and new tax obligations are imposed on the owners of such companies, referred to as controlling persons.
A CFC is a company registered in a foreign jurisdiction, controlled and managed by a resident of Ukraine (total or individual ownership of more than 50%). This concept includes all organizational and legal forms: trusts, funds, partnerships, limited liability companies, which means that each company must be ready for new requirements.
- notify the tax office of Ukraine about the creation of a company abroad or the purchase of a share in it (term - 60 days from the date of change);
- annually submit CFC reporting together with the financial statements of the foreign company and tax return (deadline for individuals – until 01.05, for legal entities – until 01.03);
- if there is no tax exemption, annually pay taxes from the CFC (deadline - until 01.08);
- notify the tax office of Ukraine about the creation of a trust, fund (term - 60 days from the date of establishment);
- notify the tax authorities of Ukraine about the liquidation of the company/trust or the sale of a share in it (the term is 60 days from the date of termination of rights).
These obligations are imposed on each controlling person, regardless of whether it is a company or an individual. You can entrust the preparation, submission and compliance with the regulations of these procedures, including the filling and submission of the CFC notice, to our lawyers, who will ensure the proper implementation of Ukrainian legislation.
- A tax treaty (or CRS Agreement) has been concluded between Ukraine and the country of incorporation of the company and one of the requirements is met: the company pays income tax of 18% or at least 13%, the company's passive income is less than 50% of all income of the controlling person.
- The annual turnover of the controlled company does not exceed 2 million euros.
- CFC shares are listed on a recognized stock exchange.
- CFC is a charitable organization or foundation and does not conduct commercial activities.
At Azola Legal Services, we help clients understand all aspects of CFC taxation in Ukraine, including determining a permanent establishment, correct accounting of profits, calculating tax rates and applying tax treaties.
Our specialists provide advice on optimal solutions in complex situations, help avoid double taxation risks and ensure full compliance with the law. By contacting us, you receive not only the preparation and submission of reporting, but also professional support in all matters of CFC in Ukraine.
Financial Reporting for CFCs
Every foreign company recognized as a CFC in Ukraine is required to report annually to the tax authorities of Ukraine about its financial condition. Thus, controlling persons must submit the annual financial statements of their companies for the previous reporting year.
The CFC report is submitted to the State Tax Service of Ukraine simultaneously with the annual tax return of the controlling person — for individuals, this is the declaration of property and income, for legal entities — the corporate income tax declaration, exclusively in electronic form. Along with the CFC report, properly certified copies of the financial statements of the foreign company (translated and apostilled) must be submitted, confirming the amount of its profit for the relevant year, as well as the corresponding corrective attachments (in particular, K, TC, CP if available). The package effectively includes the controlling person's tax declaration, the CFC report (full or simplified), and the company's financial statements, all submitted as a single electronic package through the taxpayer's electronic cabinet.
We emphasize that the obligation to submit a CFC report arises not when there is a profit, but from the very fact of owning or controlling a foreign company — and it does not matter whether the company was active, “dormant,” liquidated, or even sold; the report must still be submitted.
If a foreign company was established before 2022, the first CFC report had to be submitted for the 2022 financial year, and thereafter — systematically for each subsequent financial year of the company's existence, regardless of activity or results.
Deadlines for submitting CFC reports:
- for CFC controllers who are individuals – by May 1.
- for CFC controllers who are legal entities – by March 1.
Legislation provides for two forms of CFC reporting: full and simplified. The full report is submitted if, by the deadline, the financial statements of the foreign company in the relevant jurisdiction are already prepared. If such statements are not yet ready, the controlling person may submit a simplified report within the same deadline, but with mandatory subsequent submission of the full report after the financial statements are completed — no later than December 31 of the same year. Thus, submitting a simplified report does not release from the obligation to submit the full report but only postpones its submission.
Responsibility (fines) for CFCs
It is important that failure to comply with CFC obligations, incorrect execution, or missing deadlines results in penalties ranging from 100 to 1000 subsistence minimums:
- for failure to submit a CFC report – 100 subsistence minimums;
- for late submission of a CFC report – 1 subsistence minimum per day of delay, but not more than 50 subsistence minimums;
- for failure to submit a CFC report within 30 days after the deadline for payment of fines – 5 subsistence minimums per calendar day of non-submission, but not more than 300 subsistence minimums;
- for not reflecting in the controlling person’s report information about CFCs – 3% of the amount of unreported CFC transactions or 25% of the unreported adjusted CFC profit, but not more than 1000 subsistence minimums;
- for failure to submit a CFC notification – 300 subsistence minimums for each non-submission (one change/event corresponds to one notification).
CFC obligations during martial law
The Verkhovna Rada of Ukraine in May 2024 decided to temporarily cancel liability for violations related to controlled foreign companies (CFCs). This provision applies from January 1, 2022, and will remain in effect during the martial law introduced by the Decree of the President of Ukraine dated February 24, 2022, No. 64/2022, and for six months after the month in which martial law is terminated or canceled.
Specifically, during this period, taxpayers will not be subject to fines for violations provided by paragraphs 1–8 of Article 120.7 of the Tax Code of Ukraine, namely for:
- Failure to submit a report on controlled foreign companies.
- Late submission of such a report.
- Failure to reflect in the report information about existing controlled foreign companies.
- Failure to submit a notification about acquiring or disposing of a share in a foreign legal entity, or about beginning or ending actual control over a foreign legal entity.
Thus, during martial law and six months after its end, taxpayers are temporarily exempt from these fines. However, this measure is aimed at supporting businesses only under martial law conditions, and after the end of this period, fines will be applied in full again, so it is important to fulfill all CFC obligations before the end of this “deferred period.”
Attention: if since the introduction of CFC rules you have never submitted reports for your foreign companies relying on fine exemptions, then before the end of the fine-free period, you must submit all missed reports immediately — starting from 2022 (if the company already existed) and for all subsequent periods in which you had CFCs.
Support in submitting CFC reports
Azola Legal Services provides comprehensive support in submitting reports on controlled foreign companies (CFCs), ensuring a full cycle from document preparation to completing communication with tax authorities. We handle the preparation and submission of the CFC report — full or simplified, the annual tax declaration of the controlling person, translation and apostille of the foreign company's financial statements, as well as preparation of all necessary attachments, including Appendices K, TC, and CP.
In addition to technical document preparation, we support correspondence with the State Tax Service in case of queries or clarifications, assist in justifying the client's position, and ensure obtaining individual tax advice. This approach allows all CFC matters to be handled systematically and without risks, ensuring compliance with deadlines and legal requirements, while reducing the likelihood of fines or disputes with tax authorities.
Do not postpone submitting reports — contact Azola Legal Services today, and we will help you submit all necessary documents in accordance with current legislation.
It is impossible to avoid liability for non-compliance with CFC requirements, since the tax authorities of Ukraine will, in any case, be notified of the existence of a CFC by obtaining information:
- from open registers of beneficiaries of other countries;
- as a result of the exchange of financial information CRS;
- from notifications or reports sent to the tax service;
- as a result of an official request to a taxpayer who owns a CFC;
- from the notification of foreign financial institutions, banks.