CFC in Ukraine. Controlled foreign companies. Taxes for CFC. CFC rules

Controlled foreign companies in Ukraine - the President of Ukraine did sign Law 466-IX “On Amendments to the Tax Code of Ukraine”, also known as Draft Law 1210. Law 466-IX introduces a package of amendments to legislation aimed at bringing Ukrainian legislation into compliance with the BEPS / MLI agreements, to which Ukraine is also a party. Read more about BEPS in Ukraine in our review.

It should be noted that in 2026 none of the proposed amendments actually works in full force; as a rule, either certain forms have not been approved, or the inspection procedure has not been developed, or the authority responsible for implementation has not been determined, or the effective period and application of the amendments has not yet arrived. In general, in 2026 there are so far no changes for beneficiaries from Ukraine compared with previous years, but in 2-3 years the situation may indeed change.

Aggressive tax planning aimed at the lawful “erosion” of the tax base and shifting profits to low-tax jurisdictions, or in English Base Erosion and Profit Shifting (BEPS), became the reason for updating tax legislation in many countries because multinational enterprises exploit gaps and mismatches between the tax systems of different countries. The higher dependence of developing countries on corporate income tax means that they suffer disproportionately from BEPS. As part of this package, among other things, controlled foreign company (CFC) rules have also been introduced into Ukrainian legislation.

The controlled foreign company rules in Ukraine introduced by Law 466-IX are in many respects similar to CFC rules in most other countries.

The tax legislation of many countries, including the United States, usually does not tax a shareholder (owner) of an enterprise until profit is distributed as dividends. Before the first US CFC rules appeared, companies listed on a stock exchange used an optimisation scheme by creating foreign subsidiaries in offshore zones and transferring profit to those subsidiaries. Such conduit income included investment income (interest and dividends) and passive income (rent and royalties), as well as income from sales and services involving related parties. Tax on this profit in the United States was not applied until the tax-haven country paid dividends to the American joint-stock company. Dividend payments could be delayed indefinitely by issuing a loan to the shareholder instead, without an actual dividend payment, because interest on loans can be deducted and such interest payments would not be treated as income. As a result, Subpart F appeared in US CFC tax legislation, and then similar controlled foreign company rules arose in the tax legislation of other countries. In 2026, Ukraine’s turn also came.

Under the draft law, any foreign company is recognised as controlled if it is controlled by a Ukrainian tax resident (either an individual or a legal entity) by 50% or more. A company will also be treated as a controlled foreign company in Ukraine if the ownership share in it exceeds 10, if the aggregate ownership share of Ukrainian beneficiaries exceeds 50%, and if the de facto controllers are Ukrainian residents. De facto controllers include, in particular, persons who give binding instructions to the foreign management of the company, persons who use an internet-banking token, and other persons.

Such controlling persons are required to submit to the Ukrainian tax authorities a notification of the fact that they control a foreign company. The CFC notification is submitted by the taxpayer at the same time as the declaration of income and property. Along with submitting the notification, Ukrainian residents are required to submit unconsolidated tax reports of the foreign company prepared in accordance with IFRS, regardless of whether the laws of the company’s country of registration require their preparation. If the tax inspectorate doubts the correctness of the reports prepared, the tax inspectorate has the right to request an auditor’s report on such reports, and the conclusion must not contain a qualification (qualified opinion) or a refusal to issue an audit opinion.

Already now we can recommend preparing for the fact that companies controlled from the territory of Ukraine will have to undergo an audit at the initiative of the tax authority. Taking into account the fact that many structures were created a very long time ago, conducting an audit of previous periods can be extremely problematic, and if the auditor cannot confirm balances included in the current period, the auditor will automatically make the corresponding reservation in the conclusion, which will allow the cost of such an audit for the Ukrainian taxpayer to be reduced to zero.

Submission of a notification to the tax inspectorate and submission of reports is mandatory for all controlling persons in respect of all controlled companies and structures without legal-entity status (for example, trusts and certain funds). After the notification with reporting is submitted, the profit of the foreign company is included in the tax base of the controlling person - an individual or legal entity that is a Ukrainian tax resident.

A controlled foreign company in Ukraine, Controlled Foreign Corporation (CFC or КИК), is a foreign company whose shares are owned by tax residents of that country. A CFC is a legal structure applied by tax authorities of different countries and describing a legal entity that operates in one country (jurisdiction) but is owned or controlled by tax residents of another country (jurisdiction). Controlled foreign company legislation was introduced in many countries to prevent tax avoidance by offshore companies created in jurisdictions with minimal taxation, for example in tax havens. Of course, there is nothing unlawful about owning a share in a foreign legal entity, but the governments of many countries require the owner (beneficiary) of such a company to declare the existence of such companies and pay taxes on them. Controlled foreign company legislation (in combination with a double-taxation agreement or a tax-free jurisdiction) sometimes means that a company is taxed in only one jurisdiction. If the controlling person of a foreign company is an individual resident of Ukraine, such person will be required to pay personal income tax on the adjusted income of the controlled foreign company at a rate of 9% / 18% and a defence levy at a rate of 1.5%. Personal income tax at the rate of 9% is paid if the income is received as dividends from the foreign company into an account opened by the controlling person with a Ukrainian bank. If the profit remains undistributed, personal income tax must be paid at the rate of 18%. Thus, if a controlled foreign company, 100% of which belongs to an individual who is a Ukrainian tax resident, at the end of 2026 (the first reporting period) retained profit of USD 3,000,000 (, the beneficiary of such company, having reported the CFC, will have to pay USD 585,000 in taxes to the Ukrainian budget unless he proves that such income should be exempt from taxation in Ukraine. More precisely, it will probably have to be proved later, at the expense of future periods - practice shows that the tax authority usually immediately assesses the tax amount, and in the event of disagreement the taxpayer has the right to defend his interests in a Ukrainian court - because the practice of many other countries, for example taxation of dividends in Malta, is similar: the taxpayer is given the right to a refund of 5/6 of the tax paid if he proves that such profit qualifies for benefits. But first the full amount is paid. A European principle. There are quite a lot of “theoretical” grounds for exemption of CFC profit from taxation in Ukraine. The key one is payment of significant taxes on the controlled company’s profit in the country of its tax residence, as well as the amount of profit being below the thresholds established by law. Nevertheless, the obligation to submit a notification and reporting remains. It should also be noted separately that there is a possibility of recognising a foreign company as a tax resident of Ukraine if the company is controlled and managed by residents of Ukraine from the territory of Ukraine. Failure to comply with the provisions of the law concerning submission of CFC notifications in the future (from 2026) provides for penalties; in particular, for failure to submit a CFC notification, a penalty in the amount of 100 minimum wages is provided for each controlled foreign company or structure without legal-entity status, and concealment of a controlled structure in a CFC notification may result in a penalty of up to 1,000 minimum wages.

It is important to note that CFC legislation and taxation rules apply only to tax residents of Ukraine

Determination of Ukrainian resident status for CFC purposes

In accordance with subparagraph 14.1.213 of paragraph 14.1 of Article 14 of the Tax Code, for tax purposes a non-resident is an individual who is not a resident. An individual — resident — is an individual who has a place of residence in Ukraine.

If an individual also has a place of residence in a foreign state, the individual is considered a resident if such person has a permanent place of residence in Ukraine; if the person also has a permanent place of residence in a foreign state, the person is considered a resident if he or she has closer personal or economic ties (centre of vital interests) in Ukraine. If the state in which the individual has the centre of vital interests cannot be determined, or if the individual has no permanent place of residence in any of the states, the individual is considered a resident if present in Ukraine for at least 183 days (including the day of arrival and the day of departure) during a period or periods of the tax year.

At the same time, in accordance with subparagraph 34.1.4 of paragraph 34.1 of Article 34 of the Tax Code, it is clearly established that the tax period is, in particular, the calendar year.

Also, according to subparagraph 14.1.213 of paragraph 14.1 of Article 14 of this Code, a sufficient (but not exclusive) condition for determining the location of an individual’s centre of vital interests is the permanent place of residence of members of his or her family or his or her registration as a business entity.

If it is impossible to determine the resident status of an individual using the preceding provisions of this subparagraph, the individual is considered a resident if he or she is a citizen of Ukraine.

If, contrary to law, an individual who is a citizen of Ukraine also has citizenship of another country, then for purposes of taxation with this tax such person is considered a citizen of Ukraine who is not entitled to credit taxes paid abroad as provided by the said Code or the rules of international agreements of Ukraine.

If an individual is a stateless person and the provisions of the first to fourth paragraphs of this subparagraph do not apply to him or her, the status is determined in accordance with the rules of international law.

A sufficient ground for determining a person to be a resident is the person’s independent determination of his or her principal place of residence in the territory of Ukraine or registration as a self-employed person - a business entity (individual entrepreneur, FOP).

In accordance with subparagraph “c” of subparagraph 14.1.213 of paragraph 14.1 of Article 14 of Section I of the Tax Code of Ukraine No. 2755-VI (hereinafter – the TCU), an individual - resident - is an individual who has a place of residence in Ukraine. If an individual also has a place of residence in a foreign state, the individual is considered a resident if such person has a permanent place of residence in Ukraine; if the person also has a permanent place of residence in a foreign state, the person is considered a resident if he or she has closer personal or economic ties (centre of vital interests) in Ukraine. If the state in which the individual has the centre of vital interests cannot be determined, or if the individual has no permanent place of residence in any of the states, the individual is considered a resident if present in Ukraine for at least 183 days (including the day of arrival and the day of departure) during a period or periods of the tax year. A sufficient (but not exclusive) condition for determining the location of an individual’s centre of vital interests is the permanent place of residence of members of his or her family or his or her registration as a business entity. If it is impossible to determine the resident status of an individual using the preceding provisions of this subparagraph, the individual is considered a resident if he or she is a citizen of Ukraine.

Controlled foreign company legislation in many countries is rather strict and complicates the effective use of non-resident companies in business. The legislation of other countries, aimed at owners of assets abroad in other countries, provides a more flexible approach to controlled companies (especially companies of large multinational companies).

Usually CFC legislation will not apply if a number of participants (as a rule, more than 10) own shares in the company, but the required number differs significantly from country to country. In some jurisdictions a foreign company must have at least 10 owners to be considered independent and to have no controlling persons, whereas in other countries there must be 20 or more such owners. In addition, in some countries, for example, Australia has adopted a list of countries whose companies will be treated as controlled foreign companies regardless of the number of shareholders. As a rule, these are countries in which the company’s profit-tax rate is the same as or lower than in the country of residence of the shareholder (participant) of such foreign company.

In some cases it is beneficial to own a controlled foreign company despite the fact that taxes must be paid in the country of the controlling person. This may be connected with significantly lower costs of creating a foreign company compared with creating a local company, or because a company located in a certain country is considered more professional and bona fide, or will benefit from the use of local resources and the legal system of another country (for example the United Kingdom) compared with the home country of the controlling person.

New principles of tax penalties in Ukraine under Law 466-IX

A letter of the Main Department of the State Tax Service (STS) of Kyiv reports innovations that have applied since January 2026 in connection with the law “On Amendments to the Tax Code of Ukraine Regarding Improvement of Tax Administration Elimination of Technical and Logical Inconsistencies in Tax Legislation” No. 466-IX (also law “1210”).

• Penalties for failure to submit tax reports on time were increased from 170 to 340 hryvnias (Articles 117 and 120 of the Tax Code). For each such repeated violation during the year, a penalty of 1,020 hryvnias is imposed (this rule has applied since 23 May 2026).
• Penalties for late payment of taxes for up to 30 days were reduced from 10% to 5%, and after 30 days - from 20% to 10% of the amount of the debt.
• Separate penalties are introduced in the event of an intentional repeated violation in the amount of 25% of the overdue amount for up to 90 days, and for this period - 50%.
• If there is at least one circumstance mitigating liability, the amount of the penalty is reduced by 50%. Tax notices-decisions will be sent to an email address if there is an application from the entrepreneur or, if no application has been filed, by registered letter to the tax address. If objections to an inspection report are filed, they are considered by an STS commission within 10 business days rather than calendar days as before. The taxpayer is required to pay the assessed amount of the penalty within 10 business days after the day of receipt of the tax notice-decision unless during this period the taxpayer has begun an appeal procedure.

New concept of tax payment in Ukraine from 2026

The most important innovation concerning penalties is a fundamental change in the very essence of taxpayer liability. The new concept provides for mandatory analysis and proof by the tax authorities of the taxpayer's intent and fault when the taxpayer is brought to financial liability, provided that fault exists in the act (except for a small list of exceptions where, in principle, there is no need to establish whether there was intent).

If there were circumstances mitigating liability for the violation, for example, it was committed under coercion, in connection with material, official or other dependence, as a result of a combination of difficult personal or family circumstances, or by the payer who notified about a crime committed against him, the amount of the penalty will be reduced by half.

For example, now, if an entrepreneur delays payment of taxes in the amount of UAH 10,000 by one day, the penalty is UAH 1,000 (10%). From 1 January, a penalty of UAH 500 (5%) will already be imposed for this violation, but if the fiscal authorities prove that it was intentional, the amount will increase to UAH 2,500 (more than 90 days). overdue amount - UAH 5,000). Conversely, if there was no intent and mitigating circumstances are established that did not allow the taxpayer to make the payment on time, for example due to a failure in the banking system, the penalty will be UAH 250 (50% discount).

CFC reporting of controlled foreign companies in Ukraine

In 2026, special CFC reports may be introduced in Ukraine (the form has not yet been finally approved), and there will be the first reporting period for Ukrainian tax residents in respect of such companies (individuals or legal entities) that directly or indirectly own at least 25% or actually control a controlled foreign company - a foreign legal entity or an arrangement without legal-entity status. Based on this rule, two residents of Ukraine each owning 24.99% in a foreign company (49.98% in total) are not required to submit reporting. But it should be noted that the qualifying percentage may change in the coming years based on the experience of other countries, therefore all changes must be monitored carefully after the CFC law was adopted in its basic form.

CFC reporting will be required in most other cases, but additional tax will have to be paid only out of undistributed CFC profit and subject to many criteria that must be studied in detail (the criteria may also change, as happened, for example, in neighbouring Poland, where the original law established a profit threshold of EUR 200,000 for CFC tax accounting and payment of taxes, and several years later this threshold was reduced to zero), therefore we can consider the threshold of 2,000,000 conditional and applicable for the nearest full budget year, i.e. 2026.

The controlling person becomes the payer of CFC income tax, who will be considered a tax resident of Ukraine, who are direct or indirect owners or controllers of a CFC. In particular:

a) own a share in a foreign legal entity in the amount of > 50%, or

b) owns a share in a foreign company in the amount of > 10%, provided that several individuals and / or legal entities-residents of Ukraine own shares in such foreign company whose aggregate amount is 50% or more, or

c) exercises de facto control over a foreign legal entity.

A foreign legal entity from the point of view of the new law is any legal entity (association) or organisation vested with the right to own assets, have rights and obligations and carry out activities in its own name and independently of founders, participants or form of ownership.

A CFC from the point of view of the new Ukrainian legislation may also, in its form, be a foreign person without legal-entity status (hereinafter referred to as a CFC), which may be any person created on the basis of a transaction or registered in accordance with the legislation of a foreign state without creating a legal entity, which in accordance with legislation and / or documents governing its activities (personal law) has the right to carry out activities aimed at obtaining income (profit) in the interests of its participants, partners, founders, trustees or other beneficiaries.

One of the main sources of uncertainty and contradictions will be the problem of establishing the beneficiary's de facto control over a CFC. A person is considered to exercise de facto control over a legal entity if the person has the ability to exert substantial or decisive influence on the decision of such legal entity to enter into agreements, dispose of assets and profit, or terminate activities independently of the legal entity. Such influence is established on the basis of, in particular but not exclusively, at least one of the following circumstances:

a) provision of binding instructions to the governing bodies of the legal entity;

b) conducting negotiations on the conclusion of transactions and agreeing material terms of such transactions, which are subsequently only formally approved by the governing bodies or are carried out by the governing bodies without additional additional approval;

c) possession of a power of attorney to enter into significant transactions on behalf of the legal entity, issued for a period of more than one year but not providing for prior approval of such transactions by the governing bodies of the legal entity;

d) a person having signing authority over the bank accounts of the legal entity or the ability to block transactions on such accounts;

d) indication of the person as the founder (beneficiary, actual beneficiary) of the legal entity when bank accounts are opened by such legal entity

The indicators of de facto control do not apply to directors (other officers) of a controlled foreign company and specialists (for example, those acting under a power of attorney within contractual relations) in the fields of law, audit, accounting and trust management - that is, all persons acting in the interests of such legal entity in accordance with professional standards.

Penalties for controlled foreign companies in Ukraine

From 2026, if martial law is cancelled, a penalty will apply to Ukrainian tax residents for failure by a controlling person to notify the tax authority within 60 days of the acquisition / disposal of a share or de facto control over a CFC. The amount of the penalty is 300 times the subsistence minimum for an able-bodied person for each such fact. During martial law, penalties for failure to notify about a controlled foreign company within 60 days are not applied - therefore current CFC beneficiaries still have time to determine their tax status and foreign assets.

The current CFC legislation provides that tax residents must notify the supervisory authority:

• About each direct or indirect acquisition of a share in a foreign company or the beginning of de facto control over a foreign legal entity, which results in recognition of a controlling person;
• About the creation, establishment or acquisition of ownership rights to a share in the assets, income or proceeds of an “arrangement” without legal-entity status;
• About each disposal of a share in a foreign company or termination of de facto control over a foreign legal entity, which results in loss of recognition as a controlling person;
• About liquidation or disposal of ownership rights to a share in the assets, income or proceeds of an “arrangement” without legal-entity status

The notification is sent to the supervisory authority within 60 days from the date of such acquisition (beginning of de facto control) or disposal (termination of de facto control). The form and procedure for sending the notification will be approved by the Ministry of Finance of Ukraine. This requirement does not apply only if the CFC is a public company

In the near future Ukrainian business will have to go through a serious transformation that business owners in other countries previously went through as a result of the introduction of CFC legislation. Every Ukrainian company will need to analyse existing international structures as soon as possible; the absolute majority of such companies will have to make changes to them. As practice accumulated while working with Russian CFC legislation shows, the CFC law is a material factor, but work with international structures can continue under its operation by changing the ownership structure of the company; the main thing is to approach restructuring competently and remember that there are no universal solutions because they will be individual for each business.

Additional information and consultations on implementation of CFC rules in relation to Ukrainian enterprises, LLCs, TOVs, private enterprises, PJSCs with foreign founders, and ownership structures of offshore companies can be obtained from our specialists online: