CFC Rules in Ukraine as New Tax Reality

CFC Rules in Ukraine as New Tax Reality

On 16 January 2020, the Parliament of Ukraine passed the Law “On Amendments to the Tax Code of Ukraine Purposed to Improve the Administration of Taxes, Eliminate Technical and Logical Inconsistencies in the Tax Legislation” (“Anti-BEPS Law”).

Whom does it concern?

  • Ukrainian residents (individuals and legal entities) holding or controlling foreign companies
  • Ukrainian residents who purchase or dispose shares of foreign companies

According to the new Law, individuals or legal entities which are residents of Ukraine and hold at least 50% (or in some cases, 10%) or actually control a foreign company, shall pay tax in Ukraine in relation of Controlled Foreign Corporation (CFC) profit.

What is a CFC?

A legal entity qualifies as a CFC if it is registered in a foreign state (territory), and is controlled by an individual who is a resident of Ukraine. In some cases, trusts, partnerships, funds and other entities lacking legal personality may also qualify as CFCs.

Who is considered a controller?

An individual who is a resident of Ukraine is considered the controller of a CFC if he/she:

  • holds 50% or more of the shares in a CFC; or
  • holds 25% in a CFC and, jointly with other Ukrainian residents, holds 50% or more of the shares in a CFC; or
  • solely or with other Ukrainian residents exercises de facto control over a CFC (inclusive of control by virtue of Power of Attorney, control of bank accounts, etc.)

What are controller’s liabilities?

1

From now on, residents of Ukraine will be obliged to notify the Ukrainian tax authorities about their purchase or disposal of shares in foreign companies, in cases where, based on the results of such transactions, they become or cease to be “controlling” persons. They are also obliged to notify about establishment or liquidation of a CFC without legal entity status.

2

Individuals or legal entities are responsible for calculation of taxable CFC profit which should be calculated in accordance with respective provisions of the Tax Code of Ukraine. Thereafter individual and legal entities shall submit an annual CFC report, which must be accompanied with certified financial statements of CFC and pay tax.

M. Target tax professionals will keep monitoring and analysing the news on the subject topic, while remaining available for relevant professional comments concerning the changes and/or how they may affect your business.
Please do not hesitate to contact us for any clarifications.

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