Our clients frequently ask: If they did not submit a notification about the establishment of a Controlled Foreign Company (CFC) or changes in company shares that occurred in 2022, 2023, or 2024, will they face penalties during martial law?
Notification of CFC Establishment in 2022
Let’s examine what the Tax Code of Ukraine states regarding this matter. According to subparagraph 39².5.5 of paragraph 39².5 of article 39² of the Tax Code of Ukraine (dated December 2, 2010, No. 2755-VI), a Ukrainian resident individual or legal entity is obligated to notify the State Tax Service of Ukraine about:
- Any direct or indirect acquisition of a share in a foreign legal entity or the commencement of actual control over a foreign legal entity, leading to the recognition of such an individual or legal entity as a controlling person, under this article.
- The establishment, creation, or acquisition of property rights to a share in the assets, income, or profits of an entity without legal entity status.
- Any disposal of a share in a foreign legal entity or termination of actual control over a foreign legal entity, leading to the loss of recognition as a controlling person under this article.
- The liquidation or disposal of property rights to a share in the assets, income, or profits of an entity without legal entity status.
Important note: This notification must be submitted within 60 days after any of the above-mentioned events have occurred.
What happens if you fail to notify about a CFC during Martial Law?
According to paragraph 120.7 of article 120 of the Tax Code of Ukraine, if a Ukrainian resident (individual or legal entity) fails to notify the State Tax Service of Ukraine within 60 days, they will be subject to a fine of 300 living wages (as established by law on January 1 of the reporting year) for each instance of non-compliance.
For example, if you fail to notify the State Tax Service of Ukraine about both the disposal of a share in a foreign company and the commencement of actual control over a foreign legal entity, you will be fined twice, resulting in a total of 600 living wages.
However! Subparagraph 69.9 of paragraph 69, subchapter 10, chapter XX “Transitional Provisions” of the Tax Code of Ukraine (in effect until November 24, 2022) stated that during martial law in Ukraine, all statutory deadlines for taxpayers and tax authorities were suspended, except for:
- Compliance with deadlines for registering tax invoices and making correction calculations in the Unified Register of Tax Invoices
- Submission of tax reports, including those specified in paragraph 46.2 of article 46 of the Tax Code of Ukraine
- Payment of taxes and fees by taxpayers
However, starting from November 24, 2022, if you fail to notify the State Tax Service of Ukraine within 60 days, you are not exempt from liability.
Thus, a controlling person who was required to submit a CFC notification during the period from February 24, 2022, to November 23, 2022, does not bear responsibility if they failed to submit the notification on time during this period.
The same applies to CFC reports. However, we strongly recommend submitting notifications and CFC reports for 2024 in 2025. Why? Some of our clients who registered companies in early 2024 have already received official letters from the State Tax Service of Ukraine reminding them of the obligation to submit CFC reports in 2025 and warning about potential fines for non-compliance.
At the same time, subparagraph 69.1 of paragraph 69, subchapter 10, chapter XX “Transitional Provisions” of the Tax Code of Ukraine (in effect from November 24, 2022) states that if a taxpayer is currently unable to submit reports or notifications on time, they are exempt from liability but must fulfill their obligations within six months after the end of martial law in Ukraine.
This raises the question: How can one prove their inability to fulfill obligations to avoid fines?
The procedure for confirmation and the list of required documents are approved by the Order of the Ministry of Finance of Ukraine dated July 29, 2022, No. 225.
Need assistance with CFC Notifications?
If you have any questions about CFC notifications or require a tax consultation, contact our team — we have been assisting CFC owners for over 5 years. Last year, we submitted more than 152 CFC reports, achieving a 100% acceptance rate from the State Tax Service of Ukraine. None of our clients received any fines or adjustments from tax authorities.
In this material, we will also provide a detailed breakdown of the mistakes that the State Tax Service of Ukraine has identified in CFC reports.
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