The information for international business owners about the form and procedure for reporting on the acquisition/disposal of a CFC stake is more relevant than ever. First of all, you need to figure out whether you fall under the CFC rules, and as a consequence, whether you need to report on a foreign company.
Remember that a company is recognized as CFC if it is registered abroad and controlled by a member of Ukraine (individual or legal entity). In addition, such residents must:
- own a share in a foreign company of more than 50% or 10% (50% or more if several residents own such share)
- exercise the actual control on their own or together with other tax residents of Ukraine
However, during the transitional period, the legislator decided to introduce an exemption. Until the end of 2023, the company will be identified as CFC if a Ukrainian resident owns more than 25%, provided that the aggregate share of all residents is over 50%
Earlier in the related article, we talked about cases of actual control. Let us remind you that those are defined as persons specified by the founders when opening a company account, with the ability to perform or block bank transactions on the person’s bank accounts, having a power of attorney for more than a year to enter into material transactions, etc. If you have at least one of these, you will be recognized as a controlling person in relation to the CFC.
The equally important point is that a CFC can be recognized as an entity without the status of a legal entity. That is, if you are the founder of a trust, the owner of the property of a fund, or a participant in a partnership whose assets include your share, and such entities fall under the above rules, then you will be considered a controlling person under the CFC.
So, the first step is to find out whether your company falls under the CFC and whether you are a controlling person in relation to it.
Law No. 466-IX of the CFC Notification
If you do own a CFC, there is an obligation to file CFC reports. The 466-IX Act postpones this obligation until January 1, 2022, and the reporting itself can be filed in 2024 for the previous two reporting years at once. However, from the beginning of 2022, a provision on submission of the Notice of Acquisition/Disposal of a CFC share will come into effect.
According to the draft order of the Ministry of Finance and the Law of Ukraine 466-IX, a resident of Ukraine (an individual or a legal entity) at the place of tax registration must send to the supervisory authority the specified notice in a specific form.
The deadline for this obligation is 60 days from the day:
- of acquisition (commencement of actual control)
- or of alienation of the share (termination of the actual control) of the share in the foreign legal entity, property rights to the share in assets, income or profit of the entity without the status of a legal entity;
- of commencement/termination of actual control over the foreign legal entity.
In this CFC Report, the following information is noted:
- General information about the foreign company (name, tax address and number, state and date of incorporation);
- Amount and date of acquisition/disposal of the interest;
- Persons with whom you jointly own the company (residents) or persons through whom indirect ownership is carried out;
- The circumstances of the actual control;
- Date of foundation/creation/acquisition of property rights and description thereof;
- Date of termination of the de facto control/date of liquidation or alienation of the property rights;
- Additional information, etc.
We recommend that you promptly deal with the issue of the company’s membership in the CFC because failure to notify the controlling person of the beginning or termination of the actual control over a foreign legal entity shall entail liability.
