With the signing of the law on CFC, deoffshorization reached Ukraine. Or not?
In recent years, many articles have been devoted to the subject of CFC (Controlled Foreign Companies). The answers to the questions about whether the CFC rules are needed in Ukraine or not, in what form they should be adopted, what this may lead to – have now been found.
Law No. 1210 on amendments to the Tax Code of Ukraine, leading to the emergence of legal regulation of CFC in Ukraine, was, among others, adopted by the mono-majority in the Parliament of Ukraine (Verkhovna Rada) even in winter. Even then, the business community reacted extremely negatively to it and hoped to the last that the President would not sign this law. Nevertheless, the law has already been signed and business (and especially its owners) should seriously prepare for the moment when the law on CFC in Ukraine will fully work.
Who will be affected by the legislation on CFC in Ukraine?
Among other things, with the signing of the law, it became finally clear what approach will be applied to the definition of CFC (Controlled foreign Companies) in Ukraine. In general, the CFC will include not only foreign legal entities, but also, in certain cases, partnerships, trusts, foundations and other "entities without the status of a legal entity."
Thus, if you use foreign companies and structures in your business, you should already turn to specialized specialists for qualified advice on the disclosure of information about CFC and tax obligations for these companies in Ukraine.
In addition to persons who are already owners or beneficiaries of foreign companies, partnerships, trusts and foundations, the norms of the legislation of Ukraine on CFC should be taken into account by those entrepreneurs who only plan to use foreign structures in their business activities.
Reporting and taxes on CFC in Ukraine
It should be recognized that Ukrainian legislators have done an excellent job – Ukrainians will have to report on the presence of CFC in the vast majority of cases, but in general the situation is not so terrible.
Firstly, there are still pleasant exceptions to this rule for discretionary funds and trusts. In fact, provided that your discretionary structure (fund, trust or other similar entity) has a real independent manager, such a business may become an exception from the category of CICS.
Secondly, even in cases where it is necessary to disclose information about CFC (including funds and trusts), this does not automatically mean that Ukrainian taxes are charged on the income of such a business. The Ukrainian legislator has provided at least two basic rules that exempt your KIKi from taxes:
1) If you are the owner of small KIKI, then you will not be able to pay Ukrainian tax from them. This rule applies in cases where the total income of all the CICS of one person will not exceed 2 million euros per year.2) If most of the income of your CFC is active income, and the CFC itself does not belong to offshore companies.
In addition, there are many other ways to avoid paying taxes on CFC in Ukraine, including for companies receiving passive income. Do not delay the issue of the CFC and contact Antwort – our experts will help you to properly plan a foreign business structure and optimize the tax burden on the CFC.
What else can I expect from a CFC in Ukraine?
The signing of the law on CFC in Ukraine has left several more important issues open. It is worth starting with the fact that together with the signing of the law, the President sent his proposals for its further revision. This suggests that by the time the CFC rules finally come into force in Ukraine, they may have changed somewhat.
In addition, two important questions remain unanswered for the time being:
1) When and with whom will the automatic exchange of tax information with other countries work?
Without this most important tool, the tax service remains blind and will not be able to properly monitor the implementation of laws on CFC. A lot of articles have already been written about how automatic exchange works, and it is obvious to any specialist that it will not be easy to adjust the operation of this mechanism
2) Will there be any transition period and tax amnesty?
Such important changes in the rules of taxation will require great responsiveness from business. Moreover, if Ukraine does not have time to launch the automatic exchange of tax information with other countries, there is a high probability of a repeat of the Russian scenario – most businessmen will simply ignore the new rules and will not disclose data about their foreign structures. Both of these factors leave the aforementioned question open.
Considering all of the above, we can draw an unambiguous conclusion – the rules of the CFC in Ukraine have been adopted, and they need to be taken into account. Nevertheless, the rules themselves, despite the external strictness, are quite humane and give businessmen a chance not to leave the country as part of business emigration. Nevertheless, those persons who are more interested in the confidentiality of ownership of certain assets than the possibility of additional taxation should remember that in most cases they will still have to report on the CFC in Ukraine. For other entrepreneurs, it's time to turn to qualified tax consultants – and Antwort always has the right answer!