CFC is a controlled foreign company, the owner of which may be an individual and/or legal entity who is a resident of Ukraine.
• a person owns >50% in one company;
• a person owns >10% or >25% (in 2022-2023), provided that other Ukrainians collectively own >50% of this company;
• the person exercises effective control over the company alone or with other participants
The procedure for filling out the Report on Controlled Foreign Companies, the abbreviated form of the Report on Controlled Foreign Companies and submission to the regulatory authority, was approved by Order of the Ministry of Finance of Ukraine dated August 25, 2022 No. 254.
WHAT DO YOU NEED FOR CFC REPORTING (2024)?
• Submission to the State Tax Service on the creation of a CFC, and/or the acquisition of a share, making changes, etc. (period of 60 days from the date of the event)
• You need to order properly certified financial statements for your CFCs.
• If there are old CFCs (those that were registered before 2022 and that are still active), order comprehensive financial statements for them for 2022.
• If you have inactive CFCs (those that you do not use and do not have any financial movements, but they exist on paper and in the register) – this is the best time to file them for liquidation and reduce the volume of reporting in the future.
• Declaration of tax on a CFC and payment (in the case of undistributed profit of a CFC => the amount of tax is equal to the percentage in the authorized capital of the amount of adjusted profit of the CFC * 18% * 1.5%)
*If the CFC’s profit was actually distributed (dividends were paid before the Report was submitted), a rate of 9% is applied instead of 18%.
FOR WHAT PERIOD SHOULD I SUBMIT CFC REPORTS?
The first reporting (tax) year for the Report is 2022, if you registered the company in 2023 – this also means that in 2024, at the same time as filing your annual income and property declaration or corporate income tax return, you must file CFC reports.
According to paragraph 54 of subsection 10 of section XX “Transitional provisions” of the Tax Code of Ukraine, controllers of controlling foreign companies are given a certain transition period for preparing reports, which makes it possible to submit reports for 2022 to the regulatory authority simultaneously with the submission of an annual declaration of income and property status or tax income tax returns (for enterprises) for 2023, that is, in 2024.
DEADLINES FOR SUBMITTING THE REPORT
The report is submitted for each individual CFC, for each individual controller.
The report must be submitted simultaneously with the submission of the annual income and property declaration (for individuals) or the corporate income tax return (for legal entities) for the corresponding calendar year:
– for an individual – until May 1, 2024 for reports on the results of 2022–2023;
– for a legal entity – until March 1, 2024 for Reports on the results of 2022–2023.
Method of submitting a report to the regulatory authority: electronic form (for each controlled foreign company separately).
WHAT REPORT FORM SHOULD I SUBMIT?
The legislation provides for two forms of reporting: full and abbreviated.
• Who files the abbreviated report?
A short form report is filed when the controlling person is unable to ensure that the controlled foreign company’s financial statements are prepared and/or the controlled foreign company’s adjusted profits are calculated by the deadline for filing the annual income and assets return or corporate income tax return.
If the Report was submitted in an abbreviated form, the full Report must be submitted before the end of the calendar year following the reporting (tax) year. If, in accordance with such a report, the total taxable income of the object of taxation with the corporate income tax of the controlling person increases, such person, before the end of the calendar year following the reporting (tax) year, submits a clarifying annual declaration on property status and income or a tax return on tax on enterprise profits. In this case, penalties and interest are not applied.
• Who submits a full CFC report?
This form differs from the abbreviated form “not only in size”, consisting of more than 30 items, but also in the composition of the information that must be provided in this report. The full report should clearly define what type of control, type and ownership structure of the CFC is appropriate for your case.
The report must include duly certified copies of the financial statements of the CFC, confirming the amount of profit of the CFC for the reporting (tax) year. If the deadline for the preparation of financial statements in the relevant foreign jurisdiction expires later than the deadline for filing the annual wealth and income tax return or corporate income tax return, such copies of the financial statements of the CFC are submitted together with the annual wealth and income statement or tax return. on the profit of enterprises for the next reporting (tax) period (subclause 39-2.5.2 of clause 39-2.5 of Article 39-2 of the Code).
*Electronic forms of documents are posted on the State Tax Service web portal under the heading “Electronic reporting / For taxpayers about electronic reporting / Information and analytical support / Register of electronic forms of tax documents.”
WHAT IS THE RESPONSIBILITY FOR FAILURE TO COMPLY WITH THE CFC RULES?
– Failure by the controlling person to provide the Report entails a fine in the amount of 100 times the subsistence minimum for an able-bodied person, established as of January 1 of the tax (reporting) year (in 2023 – UAH 268,400.00).
– Failure to submit the Report on time will result in a fine in the amount of 1 subsistence minimum for an able-bodied person, established by law on January 1 of the tax (reporting) year, for each calendar day of failure (but not more than 50 subsistence minimums for an able-bodied person, established by law on January 1 of the tax year). ) (reporting) period, in 2023 – UAH 134,200.00).
– Failure to submit a Notification of the creation of a CFC, the acquisition of a share or other changes in relation to a CFC within the established period is subject to a fine – 300 times the subsistence minimum for an able-bodied person for each case – UAH 805,200.00.
*At the same time, subparagraph 54 of subsection 10 of section XX of the Code establishes that:
• penalties and interest for violation of the requirements of Article 39-2 of the Code when determining and calculating the profit of a CFC are not applied based on the results of the 2022 – 2023 reporting (tax) years;
• based on the results of the 2022 – 2023 reporting (tax) years, administrative and criminal liability for any violations related to the application of the provisions of Article 39-2 of the Code is not applied to the taxpayer and his officials.
EXEMPTION FROM CFC TAXATION
1. If there is a Double Taxation Convention between Ukraine and the country of registration of the CFC;
2. Any of the conditions are met:
• The CFC actually pays 18% or at least 13% or
• The share of passive income (dividends, interest, royalties) is less than 50% of all enterprise income
*If the income of all CFCs of a person in total does not exceed 2 million euros at the end of the reporting period, this is a basis for exemption from taxation, regardless of the above conditions!!!
*If the profit is exempt from taxation, then there is no need to calculate the adjusted profit!!!
Law firm “ADVICE”
Lawyer Vitaly Kulakov, Ph.D.