CFC rules in Ukraine will become effective as of January 1, 2021. What is there to know about them?
CFC and Controlling entity
A Controlled Foreign Company is:
any non-resident legal entity or foreign transparent entity (including partnerships, trusts, foundations, etc.), controlled by an individual resident or legal entity resident in Ukraine.
Controlling entities are:
Taxation of Controlled Foreign Company
Object of taxation
The adjusted annual profit of CFC, which was not declared as income of controlling entity, shall be included to the annual taxable income of the controlling entity and shall be taxable at the following effective tax rates:
Profit of CFC is not included to the annual taxable profit, if:
CFC is exempt from taxation if:
Income is considered as active, if the following conditions are simultaneously met:
Reporting requirements for CFC
Penalties
Failure to submit report on CFC 100 subsistence incomes for working people (“SIWP”) (as of 01.01.2020 – 210 200 UAH)
Failure to submit CFC report on time 1 SIWP for each day of delay, but no more than 50 SIWP (as of 01.01.2020 – 105 100 UAH)
Omission of CFC in CFC report 3% of CFC’s profit or 25% of corrected income of CFC (no more than 1 000 SIWP, as of 01.01.2020 – 2 102 000 UAH)
Failure to notify tax authorities on acquisition or start of actual control within a specified period 300 SIWP (as of 2020 – 630 600 UAH)
Failure to submit documentation at the request of tax authorities 3% of CFC profit, but no more than 1 000 SIWP (as of 2020 – 2 102 000 UAH).
Important: Fines and penalties for violations with respect to calculation of CFC’s profit do not apply to 2021-2022 reporting years.
Reporting requirements will apply as of January 1, 2021.
Place of effective management
Law on BEPS introduces place of effective management and control rules.
Foreign companies effectively managed from Ukraine are taxpayers of corporate profit tax in Ukraine.
Foreign company can voluntarily register with Ukrainian tax authorities as a taxpayer of corporate profit tax as well.
Foreign entity registered as a taxpayer in Ukraine:
The provision on place of effective management will apply as of January 1, 2021.