Author: Olena Andriyko, lawyer at F&P
Introduction
In 2025, Ukrainian residents who have stakes in or control over foreign companies will be required to file reports on controlled foreign companies (CFCs). This is part of the government’s efforts to combat tax evasion and ensure transparency in international business. Given the changes in legislation and increased scrutiny by tax authorities, it is important to know how to properly prepare for a tax audit in the area of CFCs. (tax.gov.ua)
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Who is obliged to submit a CFC report?
According to the Tax Code of Ukraine, individuals and legal entities-residents of Ukraine who:(Law firm “Pravova Dopomoga”)
- own more than 50% of a share in a foreign company;
- own 10% or more if the total shareholding of Ukrainian residents in the company exceeds 50%;
- have actual control over a foreign company.
Starting from 2024, the ownership threshold has been reduced to 10%, which expands the range of persons required to report.
- Reporting deadlines in 2025
For individuals:
- by May 1, 2025, together with the declaration of property and income.(ck.tax.gov.ua)
For legal entities:(Law firm “Pravova Dopomoga”)
- by March 1, 2025, together with the corporate income tax return.
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Penalties for violation of CFC rules
The following fines apply in 2025:(Victoria)
- Late submission of the report: 1 subsistence minimum (SM) for each day of delay, but not more than 50 SM (maximum UAH 151,400).
- Submission of inaccurate or incomplete information: 3% of the CFC’s income or 25% of the adjusted profit, whichever is higher, but not more than 1000 PM (approximately UAH 3.028 million).
- Failure to notify of acquisition or termination of control: 300 PM for each fact (over UAH 900,000) .
It is worth noting that during the period of martial law, there is a temporary suspension of fines for violations committed since January 1, 2022, provided that the reporting is submitted within 6 months after the lifting of martial law.Victoria)
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Preparing for a tax audit
To avoid problems during a tax audit, it is recommended:
- Ensure timely and complete submission of CFC reporting.
- Prepare financial statements of the CFC certified in accordance with the requirements of the law.
- Keep all documents confirming control over the foreign company and its financial performance.
- Seek expert advice to verify the correctness of the reporting and compliance with legal requirements.
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Recommendations for business
- Assess the ownership structure of foreign companies and determine whether they fall within the definition of a CFC.
- Check the availability of all necessary documents to confirm the control and financial performance of the CFC.
- Ensure timely submission of CFC reports and notifications.
- In case of doubt or difficulties, seek professional legal assistance.
Conclusion
In 2025, compliance with the reporting requirements for controlled foreign companies is critical to avoiding significant fines and ensuring business transparency. Timely preparation, proper execution of documents and consultation with experts will help you successfully pass a tax audit and ensure the stability of your business in the face of changing legislation.
Contact our law firm for professional support in matters related to CFCs and tax legislation.
