Currently, entrepreneurs face numerous questions regarding the compilation and submission of CFC reports. After all, the first reporting stage will begin in 2024 (for 2022 and 2023), and there is less and less time for preparation and delving into the nuances.
As of May 25, 2023, the Tax Code of Ukraine establishes two forms of CFC reporting: a full and a simplified form. However, with the adoption of Law No. 8137, the simplified reporting form will be abolished, as the controlling person will have an additional year to submit the report.
Who submits the CFC report?
On our YouTube Finevolution channel, there are already several videos about CFCs, and many users ask: Should an individual entrepreneur (FOP in Ukraine) submit such a report and a notification about the CFC.
Let’s repeat the answer here: if you are an individual entrepreneur (FOP) and have no connection to a company (LLC and similar ones abroad) – CFC does not concern you.
But if you own a company or have a share in a foreign company that is recognized as controlled, and you are the controlling person (whether physical or legal) – you are obliged to submit a CFC report (regardless of whether it’s the full form or the simplified one) along with the annual property and income declaration or the corporate profit tax declaration.
Simplified CFC Report Form
The simplified form of the report is submitted when the controlling person is unable to ensure the compilation of the financial statements of the controlled foreign company and/or the calculation of the adjusted profit of the controlled foreign company by the deadline for submitting the annual property and income declaration or the corporate profit tax declaration.
In case of submitting a simplified form – the full one must be submitted by the end of the calendar year.
The CFC report for 2022 and 2023 must be submitted in 2024. However, if Law No. 8137 is adopted – the CFC report for 2023 will need to be submitted in 2025.
The report and the simplified report are submitted for each controlled foreign company and each controller separately.
The report must be submitted using electronic communication in electronic form, complying with the requirements of the law on electronic document management and a qualified electronic signature.
What documents to submit along with the CFC report
Copies of the financial statements of the controlled foreign company, duly certified, confirming the amount of profit of the controlled foreign company for the reporting (tax) year, must be attached to the report on controlled foreign companies.
At the moment, the State Tax Service of Ukraine does not have a clear position on what copies should be considered properly certified. Some representatives of this controlling body believe that copies need to be notarized and apostilled.
If you have copies of documents in a foreign language – we recommend that you translate them right away, even though there is no such requirement in the legislation currently. It will appear only after the adoption of Law No. 8137. For now, the Tax Code of Ukraine requires the provision of translated documents only during the inspection.
What changes await Ukrainian CFCs in the Draft Law No. 8137
Full CFC Report Form
The full form of the CFC report and the procedure for its completion are specified in the Order of the Ministry of Finance of Ukraine No. 254 dated August 25, 2022.
It differs from the simplified one not only in size – it consists of more than 30 items. But also in the composition of the information that needs to be provided in this report.
In the full report, it is necessary to correctly determine which exact type of control, type, and structure of CFC ownership corresponds to your case.
What to pay attention to in the full CFC report
- Great attention should be paid to the section about the CFC’s financial results
You need to correctly indicate: the amount of income, profit, the amount of profit actually paid out, the weighted average official rate of the National Bank of Ukraine for the reporting (tax) period, and much more. The “Income” column should include income from the sale of goods, property, services, royalties, interests, premiums, and any other amounts.
Of course, you also need to determine whether you have grounds for exemption from CFC taxation and indicate this in the report.
- List all CFC operations
A very important nuance of the full report, probably one of the most complex ones – you need to list the operations of the controlled foreign company with non-residents, the organizational-legal form of which is included in the list approved by the Cabinet of Ministers of Ukraine in accordance with sub-item “g” of item 39.2.1.1 of item 39.2.1 of item 39.2 of Article 39 of Section I of the Tax Code of Ukraine.
Fines for not submitting a CFC report
Penalties for CFC (calculated based on the subsistence minimum for 2023, which is 2589 UAH):
- If no CFC report is submitted – 268,400 UAH;
- If the report is submitted late – 2584 UAH for each calendar day of delay, but no more than 134,200 UAH;
- Failure to identify all CFCs in the report, as well as all operations with countries from the 2 lists of the Cabinet of Ministers – 3% of the CFC income amount, or 25% of the adjusted profit not identified in the report, but no more than 2,684,000 UAH;
- Failure to submit a CFC report within 30 calendar days following the final deadline for paying fines – 13,420 UAH for each day of non-submission of the report.
The topic of CFCs is full of penalties of incredible proportions. But if you prepare in advance and submit the report within the deadline specified by law, this topic will no longer have such a dark background.
Our recommendation is not to postpone preparing the report until January 2024.
- First, all tax teams will be booked.
- Secondly, you may not physically have time to collect all the information and prepare it for the reporting form required by the tax authorities.
- Thirdly, we strongly advise against preparing a CFC report unless you are a tax lawyer or an international financial reporting specialist.
If you need advice on submitting a CFC report or a CFC notification, please contact our team, which has been assisting CFC owners for over 5 years. Send a request through the form below or a message on Telegram/Viber, Whatsapp for consultations. Our working hours are 9:00-19:00 from Monday to Friday.
