Submission of reports on CFC

CFC reporting in Ukraine is an annual obligation for individuals and legal entities that control a foreign company. For now it’s a new practice for both company owners and State Tax Service of Ukraine. Consequently it is possible that the legislation in this regard will be further amended and finalized.

Such reposting is important for ensuring the transparency of taxation in Ukraine. It allows the controlling authorities to ensure that the profits of CFCs controlled by ukranian citizens and companies are taxed in the country of registration or in Ukraine according to the law. Specifically for these purposes such a burdensome requirement was introduced.

The first CFC reporting must be submitted for the 2022 financial year (it was possible to submit it in 2023 or 2024 at the request of the controller). Starting from 2023, the reports should be submitted annually for the previous financial period equal to one year. In other words, the reporting period for submitting reports is one calendar year, or any other period ending in a calendar year (if the reporting period differs from the calendar year).

The general deadlines for submitting the CFC Report depend on who controls the foreign company:

• If a CFC is controlled by an individual, the CFC’s report should be submitted with the annual declaration of property status and income, as well as duly certified copies of the CFC’s financial statements – by May 1 of each year following the reporting year.
• If a CFC is controlled by a legal entity, the CFC’s report should be submitted with the annual corporate income tax return, as well as as duly certified copies of the CFC’s financial statements - by March 1 of each year following the reporting year.

Thus, if the financial statements for your foreign company have already been prepared and submitted by March 1/May 1, you are obliged to submit the Full CFC Report for the previous year by this deadline. If the financial statements are not yet ready by the specified deadline, then a Short CFC Report is submitted by this deadline, and the Full CFC Report is submitted by the end of the calendar year (by December 31).

The abbreviated report contains only general information about the company, the reporting period and the data of the controlling person.

The full report, in turn, is already formed with additional information about the CFC, the size of the controlling person's share, the share ownership structure, information on income, calculation of the CFC's adjusted profit, information on the grounds for exemption from taxation of the CFC's profit, the amount of dividends and is formed with Applications:

• Duly certified copies of the CFC’s financial statement;
• Application for waiver of tax exemption on profits of a controlled foreign company (to be submitted in any form if the controlling person voluntarily waives tax exemption on profits of a CFC). This application is submitted if necessary;
• Application K (adjustments), Annex TC (independent adjustment of the price of a controlled transaction) and Annex CP (securities). These annexes are submitted if necessary.

The CFC report is submitted together with the Declaration on property and income or income tax (depending on who is the controller).

RESPONSIBILITY FOR FAILURE TO SUBMIT THE CFC REPORT

Failure to comply with the requirements of the legislation on controlled foreign companies may result in fines. The amounts of fines for CFC violations are quite significant and increase every year, as they are determined based on the minimum subsistence level (the amounts are based on the subsistence level of UAH 3,028 for the period of 2024):

• Failure to submit a CFC report - 100 subsistence minimums (UAH 302,800).
• Late submission of the CFC report - 1 subsistence minimum for each day of delay, but not more than 50 subsistence minimums (up to UAH 151,400).
• Failure to submit a CFC report within 30 days after the deadline for payment of fines - 5 subsistence minimums for each day of delay, but not more than 300 subsistence minimums (up to UAH 908,400).
• Failure to report information on CFCs - 3% of the amount of unreported CFC transactions or 25% of the amount not reflected in the adjusted profit of the CFC, but not more than 1000 subsistence minimums (up to UAH 3,028,000).

However, taking into account the significant mistakes made in the first reporting campaign of the CIC, the legislators decided temporarily, for the period of martial law and six months after it, not to apply all of the above fines, which is provided for by Law of Ukraine No. 10168-2 "On Amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding the improvement of foreign economic operations for the export of certain goods". That is, please note that this measure is temporary and does not cancel responsibility after the end of the specified period. Therefore, we still recommend that you take care of submitting correctly completed reports to KIK in advance.

The penalty for failure to submit the CFC report is imposed on the individual controller, who is liable for the penalties with the property.