On January 01, 2022, Law No. 466-IX of January 16, 2020, which amended the Tax Code of Ukraine and introduced the institution of a controlled foreign company, came into force. Also, Article 392 was supplemented to introduce the concept of a controlled foreign company (CFC).
A controlled foreign company is any legal entity registered in a foreign state or territory, which is recognized as being under the control of an individual or legal entity
- resident of Ukraine.
Controlling person is an individual or legal entity (residents of Ukraine) that is a direct or indirect owner (controller) of a CFC, which - owns a share in a foreign legal entity in the amount of more than 50 percent, or
- owns a share in a foreign legal entity in the amount of more than 10 percent, provided that several individuals – residents of Ukraine and/or legal entities – residents of Ukraine own shares in a foreign legal entity, the amount of which in aggregate is 50 percent or more, or
- individually or together with other residents of Ukraine – related persons exercises actual control over a foreign legal entity.
A share in a foreign legal entity may be corporate rights, rights in an entity without the status of a legal entity, the assets of which include a share in a legal entity, or any other similar rights and/or powers that give a natural or legal person the right
- influence the corresponding share of votes in the supreme management body of the foreign legal entity
- to receive the corresponding part of the profits of a foreign legal entity,
- blocking the decision on the distribution of part of the profits of a foreign legal entity,
- to receive the corresponding part of the assets of a foreign legal entity in case of its liquidation or termination.
At the same time, a person is considered to own a share in another legal entity in the following cases
- possession on the basis of ownership, or
- if the ownership of the relevant share is legally owned by other persons acting in the interests of such person (trust declaration, nominee service agreement).
A person is considered to exercise actual control over a legal entity if such a person has the ability to exercise significant or decisive influence on the decisions of such a legal entity regarding the conclusion of transactions, disposal of assets and profits, termination of activities, regardless of the legal registration of such influence, in particular, but not exclusively, at least one of the following circumstances
- providing binding instructions to the management bodies of a legal entity;
- conducting negotiations by a person on the conclusion of transactions by a legal entity and agreeing on the essential terms of such transactions, which are subsequently only formally approved by the management bodies of a legal entity or executed by the management bodies of a legal entity without further additional approval;
- the person has a power of attorney to make significant transactions on behalf of the legal entity, issued for a period of more than one year, and does not provide for prior approval of such transactions by the management bodies of the legal entity;
- the person performs transactions on bank accounts of the legal entity or has the ability to block transactions on such accounts;
- indication of a person as a founder (beneficiary, actual beneficiary) of a legal entity when opening accounts by such legal entity.
Residents of Ukraine who own a share in a CFC through direct or indirect ownership in another legal entity – a resident of Ukraine, provided that the latter is recognized as a controlling person in accordance with this paragraph and is obliged to tax the adjusted profit of a controlled foreign company, are not controlling persons.
Starting from January 1, 2022, an individual resident of Ukraine or a legal entity resident of Ukraine is obliged to
In case you have any additional questions regarding
– preparation of the Notice on acquisition or termination of participation in CFC;
– preparation of the Report on CFC;
– calculation of adjusted profit of CFC and taxation of such profit,
our colleagues are ready to advise you.
