Information regarding controlled foreign companies
Within implementation of BEPS action plan new provisions regarding controlled foreign companies were introduced in tax legislation of Ukraine (in particular, paragraph 392 of the Tax Code of Ukraine).
According to Ukrainian legislation controlled foreign company (CFC) is a legal entity registered in a foreign jurisdiction or territory, which is considered as one that controlled by individual – resident of Ukraine or entity – resident of Ukraine according to the rules, defined in the Tax Code of Ukraine. Formations without entity status (e.g. partnerships, trusts, funds etc.) are also considered as CFCs.
Controlling person is individual or legal entity – residents of Ukraine, who are direct or indirect owners (controllers) of controlled foreign company.
Legislation stipulates that part of the CFC profit may be taxed under the provisions of Ukrainian tax legislation.
However, not all the CFC profit is taxable, but part of the profit according to the accounts of unconsolidated financial statements of CFC for the appropriate reportable year. If there is no requirement to prepare financial statements in jurisdiction of CFC, controlling person, however, is obliged to ensure drafting of financial statements of CFC according to International Financial Reporting Standards. Adjusting of taxable CFC profit is carried out according to provisions of the Tax Code of Ukraine.
Tax rate applicable for the taxation of CFC profit may be 5%, 9% or 18% (depending on the reportable period, specifics of profit payment and its distribution).
Tax legislation of Ukraine contains obligation of the controlling person to file notification and report about CFC. First reporting period in relation to CFC is year 2022. At the same time Tax Code of Ukraine establishes certain “transition period”, in particular there is an option to file CFC reports (for year 2022) simultaneously with filing of annual tax return about property status and income (for controllers who are individuals) or tax return on income tax of enterprises (for controllers which are legal entities) for year 2023, i.e. in 2024.
It is also worth to mention that fines and penalties for violation of CFC reporting requirements are quite high and some of them may be up to $70 000 (plus amount of unpaid taxes which should also be paid by a controlling person). However, current edition of the Tax Code of Ukraine (clause 54 of subparagraph 10 of section ХХ of the Tax Code of Ukraine) says that fines and penalties for the reporting years 2022-2023 are not applied. But again, there are certain nuances (e.g. there is uncertainty in respect of penalties for not filing notification on CFC).
