CFCs in Ukraine: What you need to know about controlled foreign companies and how we can help

 

 

Who is recognized as a CFC controller?

Tax residents of Ukraine are required to submit reports on controlled foreign companies (CFCs) if at least one of the following conditions is met:

  • Direct or indirect ownership of shares:
    • more than 50% in a foreign company;
    • more than 10%, if the total share of all residents of Ukraine is ≥ 50%.
      In case of indirect ownership, the calculation is carried out by adding up the shares along the chain.
  • Actual control, even without formal ownership:
    • issuing mandatory instructions to the governing bodies of the CFC;
    • negotiating transactions and agreeing on their terms;
      availability of a power of attorney for significant transactions for a period of more than one year;
    • management of CFC bank accounts or the ability to block transactions;
    • indication of a person as a beneficiary when opening accounts.

Persons who act solely as employees or professional consultants (lawyers, accountants) are not considered controllers, even if they formally have signs of control.

 

Main responsibilities of a CFC controller

Each controller is obliged to:

  • submit a notification of the presence of a CFC;
  • present a CFC report together with the individual’s income tax return;
  • pay tax on the undistributed profits of the CFC, if no exemption applies.

 

Benefits and exemptions

The adjusted profit of a CFC does not increase the tax burden if:

  1. the total income of all CFCs of the controller is under 2 million euros;
  2. CFC is a public company (shares are admitted to stock exchange listing);
  3. CFC has the status of a charitable organization.

Also, profit is not subject to additional taxation if:

  • there is a double taxation avoidance agreement in force between Ukraine and the country of registration of the CFC, and
  • one of the conditions is met:
    • CFC pays tax at an effective rate of ≥ 13%;
    • the share of passive income is ≤ 50% (important: substance requirements are taken into account for recognizing income as active).

 

Taxation of CFC profits

Tax rates depend on the timing of profit distribution:

  • 18% – when distributed after the end of the second calendar year following the reporting year;
  • 18% – if distributed before this date, but with recalculation at a rate of 9% through an amended declaration;
  • 9% – if the profit is distributed before filing the CFC report.

The controller may refuse the benefit and choose taxation under the CFC rules, which is sometimes more economically advantageous.

Report submission deadline: before May 1 of the year following the reporting year (e.g., for 2025 – by April 30, 2026). Mandatory appendix – company financial statements.

 

Audit report and checks

If the tax authority has doubts about the accuracy of a CFC’s reporting, it has the right to request a written report from a foreign audit firm. This is possible no earlier than 15 months after the reporting period.

Requirements:

  • the report must be prepared by an audit firm authorized in the relevant jurisdiction;
  • it cannot contain a negative conclusion or refusal;
  • during an audit, the auditor is required to provide copies of the CFC’s primary documents upon request (within one month). Translation of the documents into Ukrainian is not required.

 

Responsibility and fines

Significant penalties are imposed for violation of the CFC legislation – from 7,000 to 65,000 euros. Their application will begin in 6 months after the end of martial law.

 

How we can help

We support clients at all stages:

  • analysis of the ownership structure and determination of the need to submit a CFC report;
  • preparation of notifications, reports and financial appendices;
  • calculation of the taxable base taking into account benefits;
  • interaction with partners in Ukraine to submit documents and obtain audit reports;
  • consultations on minimizing tax risks and choosing the optimal taxation model.

 

📌 Conclusion Ukrainian CFC legislation requires residents to take serious responsibility, and failure to comply can result in fines of tens of thousands of euros. We help businesses prepare for the new requirements and avoid risks.