CFC Report: Who Must File, How to Complete It, and Applicable Penalties

An individual or legal entity that is a resident of Ukraine and controls a foreign company must comply with the rules for controlled foreign companies (CFCs) established by the Tax Code of Ukraine (TCU). First, determine tax residency and check ownership interests and actual authority in the foreign business. Then establish whether the tax authority must be notified of the acquisition or loss of control within 60 days, and prepare a separate annual electronic report for each CFC together with the relevant tax return.

Exemption of CFC profits from taxation does not remove the reporting obligation. If financial statements cannot be prepared or adjusted profits cannot be calculated by the annual tax return deadline, the controller files a simplified report and the full report by the end of the calendar year following the reporting year. Temporary exemption from certain penalties during martial law has defined limits and requires obligations to be fulfilled within six months after martial law ends or is lifted. A separate exemption based on inability to fulfill a tax obligation requires an application, evidence, and a decision by the tax authority.

How to determine tax residency before checking CFC status

This article explains obligations under Ukrainian tax law concerning controlled foreign businesses. Under subparagraphs 39².1.1–39².1.2 of the TCU, a controller may be an individual or legal entity that is a resident of Ukraine. An individual does not have to be registered as an entrepreneur to be a controller.

Under subparagraph 14.1.213 of the TCU, residents include legal entities and their separate units established and operating under Ukrainian law, regardless of whether they are located in Ukraine or abroad. For an individual, the Code requires the following sequential assessment:

1. Place of residence. An individual who has a place of residence in Ukraine is a resident under this criterion.
2. Permanent place of residence. If the individual also has a place of residence abroad, check whether the individual has a permanent place of residence in Ukraine.
3. Center of vital interests. If the individual has a permanent place of residence in both states, determine where the individual has closer personal or economic ties.
4. Presence in Ukraine. If the center of vital interests cannot be determined or the individual has no permanent place of residence in either state, apply the criterion of presence in Ukraine for at least 183 days during the tax year. The arrival date and departure date are counted.
5. Citizenship. If the previous criteria do not determine status, the Code treats a citizen of Ukraine as a resident. For a stateless person whose status has not been determined under the previous rules, international law applies.

The place of permanent residence of family members or the individual’s registration as a business entity is a sufficient, but not exclusive, condition for determining the center of vital interests. Separately, subparagraph 14.1.213 states that independently determining Ukraine as the main place of residence in the procedure established by the Code, or registering as a self-employed person, is a sufficient basis for recognizing an individual as a resident. Acquiring the status of an electronic resident is not, by itself, sufficient to determine the center of vital interests.

Spending more than 183 days abroad does not, by itself, end the assessment of Ukrainian residency. The preceding criteria must also be considered, including housing, family and economic ties, and registration as a self-employed person. Citizenship is also applied in the sequence specified by the Code.

If two states treat an individual as their resident, apply the specific international treaty between Ukraine and the relevant state: check that it is in force, its scope of persons and taxes, and its residency rules. Under paragraph 3.2 of the TCU, treaty rules take precedence where they differ from the Code. The steps and outcome of the treaty assessment depend on the treaty text and the individual’s circumstances; a certificate from a foreign tax authority is assessed together with other evidence.

Subparagraph 14.1.213 also contains a special rule for a citizen of Ukraine who, contrary to law, holds citizenship of another country: for tax purposes, the Code treats that person as a citizen of Ukraine without the right to credit foreign taxes provided by that provision. The applicable international treaty must also be considered in the specific case.

Practical recommendation: Before checking CFC status, collect documents concerning housing, the family’s place of residence, employment and business, border crossings, and foreign tax residency. Record which circumstances support the conclusion for the relevant period. The statutory criteria are set out in subparagraph 14.1.213 and paragraph 3.2 of the TCU.

What ownership interest or authority makes a person a controller

Under subparagraph 39².1.2 of the TCU, a foreign legal entity is recognized as a CFC if a resident of Ukraine meets at least one of these criteria:

• holds an ownership interest of more than 50%;
• holds an ownership interest of more than 10%, while several individuals and/or legal entities that are residents of Ukraine hold at least 50% in total;
• exercises actual control independently or together with other residents of Ukraine who are related parties.

Illustrative example. Two unrelated residents of Ukraine each hold 25% of a foreign company, and a nonresident holds the remaining 50%. Each Ukrainian participant holds more than 10%, and their combined interest is 25% + 25% = 50%. Under this criterion, both are controllers. The example assumes that the ownership interests and other rights have been checked under Article 39² of the TCU. A separate threshold, stated below, applied to reporting years 2022–2023.

How to account for indirect ownership

A complete ownership structure is needed to check the ownership interest. Subparagraphs 39².1.3–39².1.4 of the TCU take into account voting rights, rights to profits, rights to block profit distributions, and rights to assets on liquidation. If an individual’s voting, profit entitlement, and profit distribution blocking rights differ in scope, the highest relevant value is used to determine the ownership interest.

Within one chain, multiply indirect ownership interests; add together the results from separate chains. At the same time, the Code provides a special rule for calculating indirect ownership: if actual ownership exceeds 50% through one or more chains, the individual is considered to own 100% of the relevant legal entity in the chain. Actual control over the next legal entity is also treated as 100%. The calculation includes the rights of related parties and ownership through persons acting in the interests of the beneficial owner.

Practical recommendation: Draw every ownership chain and record the interests, voting rights, profit rights, and grounds for actual control. Multiplying percentages without checking the special rules may produce an incorrect result.

An exception applies to ownership through a Ukrainian legal entity. A person is not recognized as a controller through such ownership if the relevant legal entity, a resident of Ukraine, is itself a controller and is responsible for taxing the CFC’s adjusted profits. Check any other grounds for control separately.

Subparagraph 39².2.1 separately governs joint ownership or control over an interest of at least 25%. If none of the relevant persons independently identifies themselves as the controller of the entire interest, those persons are recognized as controllers in equal shares, regardless of whether each person’s interest reaches 25%.

How to check for actual control

Under subparagraph 39².1.6 of the TCU, actual control means the ability to exert significant or decisive influence over a company’s transactions, assets, profits, or cessation of operations, regardless of whether that influence is formally documented. It is established, among other things, by the following circumstances:

• the person gives binding instructions to management bodies;
• the person agrees material terms of contracts that management then only formally approves or performs without further approval;
• the person holds a power of attorney for material transactions for more than one year without prior approval from management bodies;
• the person conducts transactions on the company’s bank accounts or can block them;
• when the company opens accounts, the person is named as its founder, beneficiary, or actual beneficial owner. This circumstance does not apply if the company’s assets form part of the assets of a trust, fund, institution, or other arrangement without legal entity status, of which the person is the founder, beneficiary, or actual beneficial owner.

The list is open-ended. We therefore recommend checking powers of attorney, authority over bank accounts, contracts, and the actual decision approval process together with the register of participants.

A director or other officer performing duties under the constituent documents falls within an exception. The exception also covers the professionals listed in the Code in law, audit, accounting, and fiduciary management who act in the company’s interests and comply with professional standards. If they act for and in the interests of an individual and carry out that individual’s binding instructions, the individual is treated as the actual controller. If the tax authority assesses a tax liability or penalty against the individual on this basis, the tax authority must prove actual control; the decision may be appealed.

Trusts, partnerships, and funds: when a separate assessment is needed

Under subparagraph 39².1.1 of the TCU, foreign arrangements without legal entity status are treated as CFCs in the cases specified by law. These may include partnerships, trusts, funds, and other arrangements entitled to receive income for the benefit of participants, founders, or other beneficiaries. Whether an arrangement has legal entity status is determined under the law of the relevant foreign jurisdiction.

If an arrangement’s assets include an interest in a company, subparagraph 39².1.5 generally treats the following as the owner of that interest: the founder of a trust, the owner of an interest in the property of a fund, institution, or other arrangement, and a participant in a general or limited partnership.

For a founder of a trust, institution, or other arrangement, subparagraph 39².1.5.1 provides an exception if all of the following conditions are met:

• the founder has no right, directly or indirectly, to direct the payment of income for the founder’s benefit;
• the founder has no right, directly or indirectly, to dispose of the arrangement’s income;
• the founder has no right to the return of transferred property while the arrangement exists or upon its liquidation or termination;
• the founder has no right to terminate the arrangement independently or jointly with other beneficiaries or recipients of benefits;
• the founder does not exercise actual control.

Subparagraph 39².1.5.3 allows evidence that these conditions are met to be submitted together with the notice of establishment of the arrangement. The Code provides three alternatives: a notice from the trustee; an extract from the trust deed; or a legal opinion addressed to the founder under the law of the country where a discretionary irrevocable trust was established.

The trustee’s notice must confirm that the founder lacks the relevant rights and that the trustee is regulated or licensed. If the trustee is not regulated or licensed, information is required about its administration by a regulated or licensed administrator. The trust deed extract must include information about the founder, trustee, protector, and beneficiaries, if appointed, and confirm that the founder lacks the rights specified in the provision.

The legal opinion for a discretionary irrevocable trust must be provided by a law firm or another person entitled to provide legal or attorney services and subject to mandatory licensing or regulation. For each alternative, the Code establishes requirements for notarization of the relevant persons’ signatures and proper legalization of the document. Each year the trustee provides the founder with written confirmation that the conditions continue to be met; the confirmation is then kept for submission to the tax authority upon request. The tax authority must prove that the founder does not meet the conditions.

A person who is not the founder may also be considered the owner of an interest. Under subparagraph 39².1.5.2, one of the following grounds is sufficient: a legal or actual right to demand that income be accrued and paid; a right to dispose of property directly or indirectly; a right to receive property upon liquidation or termination, except where receipt results from termination without that person’s expression of intent; or actual control.

For an arrangement without legal entity status, actual control includes exercising or being able to exercise decisive influence over decisions by asset managers, the right to decide on replacing managers, and exercising or being able to exercise decisive influence over decisions concerning the distribution of profits under the law or constituent documents of the arrangement.

Separately, check subparagraph 39².5.7. It requires separate financial statements for the arrangement under international standards and calculation of its adjusted profits, but provides two exceptions: the controller personally acquired the relevant property rights and reports income received through the arrangement in their own tax return; or the direct owner is a CFC that already accounts for the arrangement’s profits in its financial statements.

If, under subparagraph 39².5.7, the controller must prepare separate financial statements for the arrangement, the arrangement is treated as a CFC for tax purposes. Before preparing the annual report, determine whether this obligation arises, taking both exceptions into account. Check the obligation to notify about the arrangement separately.

When and how to file a notification within 60 days

A notification under subparagraph 39².5.5 of the TCU relates to a specific event. For a foreign legal entity, it is required when acquiring a direct or indirect interest, or beginning actual control, makes a resident a controller. A notification is also required when disposal of an interest or cessation of actual control results in the loss of that status.

For an arrangement without legal entity status, the provision separately covers its establishment or creation, acquisition of property rights to a share in its assets, income, or profits, liquidation, or disposal of such rights. The notification is sent to the tax authority within 60 days from the date of the relevant event. An exception applies to a public CFC that meets subparagraph 39².4.2.2, subject to the exchange and listing requirements explained in the section on profit exemption.

The notification form and filing procedure are approved by Order No. 512 of the Ministry of Finance of Ukraine dated 22.09.2021. Under paragraphs 6–8 of the Procedure, an individual or legal entity that is a resident sends the notification electronically to the tax authority where it is primarily registered. If an event concerns interests or rights in multiple foreign entities, a separate notification is filed for each.

Practical recommendation: When ownership changes, record the event date, supporting document, interest before and after the change, actual authority, and conclusion about whether a notification is required. If the contract is signed and the rights transfer on different dates, determine the legally relevant date from the transaction documents. Complete the approved form, sign and send it electronically, then retain the document and receipts.

Paragraph 10 of Procedure No. 512 lists grounds for refusing to accept a notification: the controller is not registered with the tax authority; information is received about state registration of the termination of a legal entity or the individual’s business activity; or the tax number of the controller who signed the notification has been closed due to death. If a refusal is received, check the stated ground and the registration data on which it is based.

A notification and an annual report are separate obligations. After notifying the tax authority of acquiring control, arrange annual reporting. Filing the report does not remove the obligation to notify about the relevant event.

Annual report deadlines for individuals and legal entities

Under subparagraphs 39².5.1–39².5.2 of the TCU, the report is filed electronically at the same time as the controller’s relevant annual tax return. The reporting period is a calendar year or another CFC reporting period ending during a calendar year. A separate report is prepared for each CFC.

Paragraph 49.20 of the TCU moves a tax return’s final filing date to the next business day if it falls on a weekend or public holiday. Paragraph 11 of Section I of the Procedure approved by Order No. 254 provides a similar rule for reports. Record the reporting period and the year of actual filing separately in your work calendar.

When to file a simplified report

If, by the tax return deadline, the controller cannot arrange preparation of the CFC’s financial statements and/or calculation of adjusted profits, subparagraph 39².5.4 of the TCU provides for a simplified report. It contains identifying information about the company, the controller’s ownership interest, and the indirect ownership structure.

After filing a simplified report, the full report must be filed by the end of the calendar year following the reporting year. If the full report increases an individual’s total taxable income or a legal entity’s taxable base, an amended annual tax return must also be filed by the end of that same year. In this case, subparagraph 39².5.4 provides for non-application of penalties and/or interest. This rule is available to both categories of controller.

Illustrative example of the deadline. A controller filed a simplified report for 2025 by the deadline for the relevant annual tax return. The full report must be filed by December 31, 2026. If the full calculation increases the declared taxable income or taxable base, the amended tax return must also be filed by December 31, 2026.

Subparagraph 170.11.2 of the TCU separately allows an individual to apply to extend the tax return deadline until December 31 of the year following the reporting year due to a lack of properly prepared documents confirming foreign income and foreign tax paid. That provision has its own conditions. If CFC financial statements or calculations are missing, check the special rule in subparagraph 39².5.4.

What to consider for reports for 2022–2023

If you are filing or correcting reports for these periods, apply paragraph 54 of subsection 10 of Section XX of the TCU:

• the first reporting year is 2022; if the financial year differs from the calendar year, it is the period beginning in 2022;
• controllers were entitled to file the report for 2022 together with the annual tax return for 2023 and include the relevant taxable adjusted profits in that return without penalties and/or interest;
• for the criterion requiring residents to hold at least 50% in aggregate, the individual threshold in 2022–2023 was 25% or more;
• adjustments under subparagraphs 39².3.2.1–39².3.2.4 apply to reporting periods beginning on or after January 1, 2023;
• for 2022–2023 results, penalties and interest do not apply to violations of Article 39² in determining and calculating CFC profits.

Paragraph 54 also provides for non-application of administrative and criminal liability for violations related to Article 39² for those years. Information and documents obtained for those years have restricted access, are not subject to requests or transfer to law enforcement authorities under the procedure specified in the provision, and cannot be evidence in criminal proceedings. These rules must be considered together with paragraph 72; they do not cancel the obligation to prepare proper reports.

When CFC profits are exempt from taxation

Practical recommendation: Begin checking for an exemption with the total income of all CFCs of one controller. Under subparagraph 39².4.2.1 of the TCU, an exemption applies if the aggregate income from all sources of all the controller’s CFCs, according to financial statements, does not exceed the equivalent of EUR 2 million at the end of the reporting period. Compare the companies’ income, not only the share of income proportional to the controller’s ownership interest.

Illustrative example. After properly converting the figures to their euro equivalents, the first CFC has income of EUR 1.3 million and the second has income of EUR 0.9 million. Together, this is EUR 2.2 million. The aggregate income criterion is not met, so other exemption grounds must be checked for each company.

Treaty with a foreign jurisdiction and tax rate or income structure

Under subparagraph 39².4.1 of the TCU, a double taxation treaty or tax information exchange treaty must be in force between Ukraine and the CFC’s jurisdiction. At the same time, at least one of the following conditions must be met:

• the CFC actually pays corporate income tax at an effective rate no lower than the basic Ukrainian rate under paragraph 136.1 of the TCU, or no more than five percentage points below it;
• passive income accounts for no more than 50% of all CFC income.

The effective rate is calculated from the financial statements: divide corporate income tax expense by profit before tax for the relevant calendar year and multiply by 100%. We recommend obtaining a breakdown of tax expenses and proof of actual payment; the nominal rate in the foreign country alone does not confirm that the full condition is met.

If passive income exceeds 50%, it is treated as active income if both of these requirements are met: the company actually performs significant functions, bears risks, and uses assets in the operations generating the relevant income; and the company has the necessary resources—qualified personnel, fixed assets owned or used by it, and sufficient equity. The treaty condition under subparagraph 39².4.1 also remains applicable to this exemption ground.

How to check the public company exemption

Subparagraph 39².4.2.2 of the TCU provides a separate exemption ground for a public CFC whose shares or ownership interests are traded on a recognized stock exchange. To apply this provision, two requirements must be met: the exchange is on the government-approved list, and the company’s shares or ownership interests are listed on that specific exchange. The list and listing requirement are set out in paragraphs 1–2 of Resolution No. 1275 of the Cabinet of Ministers of Ukraine dated 16.12.2020.

Practical recommendation: Check the exchange’s exact name against the approved list and retain proof that the specific company shares or ownership interests were listed during the relevant period. Since the exception to the 60-day notification requirement refers to the same category of public CFC, both requirements must also be checked for that purpose. Calling a company public is not enough to support this conclusion.

The exemption also covers all CFCs included in the consolidated financial statements of that public CFC and other related foreign companies with respect to dividends derived from it. If a CFC exempt under this rule pays dividends to another CFC that is not public, the recipient includes them in its adjusted profits under the general rules. Whether the exemption extends to a group company must be checked against that company’s specific exemption ground; this alone does not establish that the company is public for the notification exception.

Charitable companies and obligations after an exemption

Subparagraph 39².4.2.3 provides a separate exemption ground for a CFC that conducts charitable activities under the law of its jurisdiction and does not distribute income to founders or participants. Both the nature of the activities and the restriction on income distributions must be checked.

Under subparagraph 39².4.3, exemption of profits removes the obligation to calculate adjustments under subparagraph 39².3.2. At the same time, the controller files an annual report, states the exemption ground, and attaches financial statements, subject to the special rule for a later foreign deadline for preparing them. The controller may voluntarily waive the exemption by filing an application in free form together with the report.

An individual separately determines tax on foreign dividends actually received: exemption of a CFC’s adjusted profits does not, by itself, exempt that payment. For foreign dividends, subparagraphs 170.11.1 and 167.5.4 provide for personal income tax (PIT) at a rate of 9%; the military levy is determined under the rules for the relevant period.

The exemption conditions are set out in paragraph 39².4 of the TCU. We recommend preparing a calculation of the selected ground and a list of supporting documents for each company.

What financial statements to prepare

The starting point for the calculation is profit before tax from the CFC’s unconsolidated financial statements. If the financial year differs from the calendar year, use periods ending in the relevant calendar year. Prepare the statements under the standards used by the CFC and taking into account the deadlines established in its jurisdiction.

If foreign law does not require financial statements, the controller must arrange for them to be prepared under International Financial Reporting Standards (IFRS) under subparagraph 39².3.1 of the TCU. The absence of a local requirement does not remove the need to obtain financial figures for the Ukrainian report.

The full report must include properly certified copies of the financial statements. This requirement is set out in subparagraph 39².5.2 of the TCU and paragraph 2 of Section IV of Procedure No. 254. The Procedure does not establish a separate universal process for certification. We recommend determining in advance, with the professional handling the filing, the proper method for preparing the specific copies and retaining the corresponding originals.

If the deadline for preparing financial statements established by the foreign jurisdiction is later than the Ukrainian annual tax return deadline, subparagraph 39².5.2 allows those copies to be filed together with the tax return for the next reporting period. This rule extends the deadline for attaching financial statements. If information needed for a full report is unavailable, subparagraph 39².5.4 on the simplified report applies separately.

An audit opinion is not a mandatory attachment to every report. Under subparagraph 39².3.1, if the tax authority has doubts about the reliability of financial statements, it may request one no earlier than 15 months after the end of the relevant period. The opinion must be provided by an audit firm authorized to conduct audits in the relevant foreign jurisdiction and must not be adverse or contain a disclaimer of opinion.

During an audit, subparagraph 39².6.4.3 also allows the tax authority to request an audit opinion if it has doubts about the reliability or completeness of documents, or if a complete set has not been provided. A proper opinion confirming the CFC’s financial results is sufficient to determine profit before tax and calculate adjusted profits. In that case, additional documents to confirm profit before tax are not required.

How to calculate adjusted profits

If no exemption applies, check accounting profit before tax under paragraph 39².3 of the TCU. For the working calculation, we recommend preparing a table with the financial statement figure, legal basis for the adjustment, amount of the adjustment, and supporting document.

Separate rules apply to the following transactions and expenses:

• Securities and corporate rights. The result from their disposal is calculated separately. A negative result is carried forward to relevant transactions in subsequent periods; a positive result is included in the financial result under the established rules. The Code also excludes specified losses and write-down results.
• Non-current assets. Write-down expenses are recognized upon sale or disposal of assets, or upon an upward revaluation, up to the amount of that upward revaluation.
• Interest. Debt interest expense is taken into account up to 30% of the sum of profit before tax, financial expenses, and depreciation and amortization for the relevant period.
• Provisions and receivables. Expenses on forming and income from reversing specified provisions are not included. Writing off bad debts is permitted if they meet the criteria in subparagraph 14.1.11 of the TCU.
• Transactions with specified nonresidents. Income and expenses are checked under the arm’s length principle, taking into account the terms that independent parties would have applied in comparable transactions.

Special exceptions apply to interest. The portion of expenses exceeding independent market terms is checked under subparagraph 39².3.2.4; the 30% limit applies to the portion that meets those terms. Another exception covers interest on a foreign borrowing specified by the Code for subsequent lending to a related party that is a resident of Ukraine: the specified borrowing source is required, and the difference between the interest rates must not exceed 50 basis points, that is, 0.5 percentage points. The source may be the placement of debt securities on a foreign stock exchange from the relevant government list or a loan from an unrelated person.

Under subparagraph 39².3.2.4, income is increased by the difference between the market level and income understated in the relevant transaction. If expenses exceed the market level, adjusted profits are increased by the difference. If the counterparty is another CFC, it is entitled to the proportional reduction in financial results provided by this provision.

Also check income from participation in another CFC of the same controller and dividends from it, profits from a permanent establishment in Ukraine, and income from participation in Ukrainian legal entities. Subparagraphs 39².3.2.5–39².3.2.7 provide separate reductions for these items.

Adjusted profits are calculated separately for each CFC. A loss of one company does not reduce another company’s profits, but may reduce that same company’s profits in future years. The controller’s taxable base includes the portion of adjusted profits proportional to the ownership interest on the last day of the relevant reporting period. For an individual, this is total annual taxable income; for a legal entity, it is an increase in the corporate income tax base. Profits already included in one controller’s taxable base are not included again in another controller’s base.

If a foreign tax authority later adjusts the CFC’s income or profit before tax in its financial statements, subparagraph 39².3.6 requires the controller to recalculate adjusted profits taxable in Ukraine and file an amended tax return without financial penalties. At the request of the Ukrainian tax authority, certified copies of documents concerning that adjustment must be provided within 15 business days from receipt of the request.

What taxes an individual calculates

Under subparagraph 170.13.1 of the TCU, the portion of CFC profits to be included in the controller’s total taxable income is subject to PIT at a rate of 18%. Actual distribution and receipt of profits may change the rate under the rules of paragraph 170.13.

The 9% rate is half the basic 18% rate, as provided by subparagraph 167.5.4. Distribution rules apply to funds actually received, including through a chain of indirect ownership. We recommend retaining distribution resolutions and bank confirmations and linking each payment to the specific profit period.

How to credit tax paid by a CFC

Under subparagraph 170.13.2.4, PIT on distributed or undistributed profits may be reduced by corporate or similar tax that the CFC actually paid and that is supported by documents, including withholding taxes specified by the provision.

The reduction is based on tax actually paid for the relevant reporting period; corporate or similar tax must have been paid during that period. The amount is determined in proportion to the controller’s ownership interest stated in the report. The reduction cannot exceed the controller’s PIT liability on the profits of that CFC. Copies of supporting documents are filed together with the tax return.

How to account for dividends from Ukrainian companies

Under subparagraph 170.13.3, dividends from Ukrainian legal entities received by a CFC directly or through a chain of controlled companies are treated as received directly by the controller. The controller includes them in income for the period in which the CFC received them. For dividends from Ukrainian corporate income tax payers, except collective investment institutions, the rate is 5%. For dividends from collective investment institutions and persons that do not pay corporate income tax, the rate is 9%.

These amounts are not counted again in the CFC’s adjusted profits and are not taxed again when actually paid to the controller. Under subparagraph 1 of paragraph 170.13¹, the relevant dividends previously taxed at the Ukrainian legal entity level under subparagraph 141.4.2 in the manner specified by the provision are not included in taxable income. We recommend recording them separately and retaining proof of prior taxation.

When the military levy is charged

An individual’s taxable CFC income must be checked separately for the military levy under paragraph 16¹ of subsection 10 of Section XX of the TCU. For income included in total annual taxable income and finally calculated in an annual tax return, subparagraph 1.16 sets a rate of 5% for income accrued or paid from January 1, 2025. For relevant income for the 2024 reporting year, including foreign income, this provision provides for 1.5%; certain exceptions concern transactions with property, inheritance, and gifts.

Under subparagraph 1.3 of paragraph 16¹, the rate for the relevant category of taxpayers will be 1.5% from January 1 of the year following the third calendar year after the year in which martial law ends or is lifted. Therefore, establish the income period and applicable time-based rule when calculating the levy.

The reduction of PIT by tax paid by the CFC under subparagraph 170.13.2.4 applies specifically to PIT and does not provide for a reduction of the military levy. Exemption of income from the levy is checked under subparagraph 1.7 of paragraph 16¹: it covers income excluded from taxable income, exempt from taxation, or taxed at a zero rate under Section IV and subsection 1 of Section XX, subject to the exceptions expressly listed there. In particular, the exceptions include liquidation income under subparagraphs 3 and 4 of paragraph 170.13¹. Therefore, a specific payment’s PIT exemption must be checked separately against the levy rules.

Illustrative calculation. Assume that a controller’s income from undistributed CFC profits taxable for 2025 is UAH 1,000,000. There is no exemption, rate recalculation, or document-supported PIT reduction. PIT: 1,000,000 × 18% = UAH 180,000. Military levy: 1,000,000 × 5% = UAH 50,000. Total: UAH 230,000. The example applies only under the stated conditions.

The rules and rates are set out in Article 167, paragraph 170.13, paragraph 170.13¹, and paragraph 16¹ of subsection 10 of Section XX of the TCU.

How to complete full and simplified reports

The forms and completion rules are approved by Order No. 254 of the Ministry of Finance of Ukraine dated 25.08.2022. It provides for a separate full or simplified report for each CFC. Use the approved form and numbering of the fields for the relevant report type.

Main fields in the full report

Under paragraph 22 of Section II of the Procedure, field 22 covers income for the financial year, including sales of goods and property, services, royalties, interest, premiums, and other amounts. Do not limit it to revenue from the main business. Check the number of employees against subparagraph “з” of subparagraph 39².5.3 of the TCU, as of the end of the reporting year.

Field 25.1 shows the financial result before tax; field 25.2 К shows the adjustment amount from row 03 of Appendix К; field 25.3 shows their total. Formula for field 26: field 25.3 × field 17.1 ÷ 100. When completing the report, take into account the applicable exemption and tax rules. Report exempt profits and the exemption ground in fields 27–28.

Appendix К is for adjustments to the financial result; Appendix ЦП is for securities transactions; Appendix ТЦ is for self-adjustment of prices in controlled transactions. The label ЦП means securities, and ТЦ means transfer pricing. Determine whether each appendix is needed based on the company’s transactions and paragraph 25 of Section II of the Procedure. Appendix data must agree with the main report.

Which currency to use for amounts

Monetary figures in the report are stated in hryvnias without kopecks, using the generally applicable rounding rules. This is expressly provided by paragraph 12 of Section I of Procedure No. 254; hryvnias are also specified in the financial fields of the approved form. The fact that field 21 contains the currency of the CFC’s financial statements does not change the unit of measurement for monetary fields.

Adjusted profits calculated in foreign currency are converted using the weighted average official exchange rate of the National Bank of Ukraine (NBU) for the reporting tax period. This rate is entered in field 21.2. We recommend retaining the original amounts in the currency of the financial statements, the exchange rate used, the calculation of hryvnia amounts, and the rounding results. Document the EUR 2 million equivalent test separately, taking into account the requirement to assess it at the end of the reporting period.

What the simplified report contains

The simplified form contains controller and CFC details without the full report’s financial calculations. It states ownership interests in field 16, indirect ownership structure in field 17, grounds for actual control in field 18, and nominee holder details in field 19. The numbering differs from the full form, so data must not be transferred by field number alone.

You can use the official files for the full report and appendices and the simplified report.

How to correct an error

Under paragraph 10 of Section I of the Procedure, by the deadline for the relevant period, file a full or simplified report marked “звітний новий” (“replacement report filed before the deadline”). After the deadline, file an “уточнюючий” report (“amending”). Both must contain complete information for the relevant year, as must the original report. In an amending report, fields 2 and 3 show the same period.

If a correction changes figures in the tax return, check separately whether the return must be amended. Filing a corrected report does not, by itself, replace the correction of tax liabilities in the return.

What documents to collect before filing

The following list is a practical recommendation for preparing and retaining evidence. It does not mean that all of these documents must automatically be attached to the annual report.

• Residency: documents about residence, family and economic ties, periods spent in each country, self-employment, and foreign tax residency.
• Registration and ownership: an extract from the foreign register, constituent documents, register of participants, agreements to acquire or dispose of interests, and evidence of the date rights transferred.
• Control: ownership structure, shareholder agreements, powers of attorney, management resolutions, authority over bank accounts, and documents showing approval of contracts.
• Finances: unconsolidated financial statements, income and expense breakdowns, source documents, adjustment calculations, carried-forward losses, and currency conversions.
• Exemption: calculation of the aggregate income of all CFCs, income structure, effective rate calculation, documents concerning company resources and activities; for a public CFC, evidence of the relevant exchange and listing of its shares or ownership interests.
• Distribution of profits: payment resolutions, bank evidence of receipt, and documents confirming actual payment of foreign tax.
• Filing: event notifications, reports, tax returns, attached files, and acceptance receipts.

We recommend agreeing in advance with the foreign accountant on the date each document will be received, the person responsible, and the method for preparing copies. The accounting services agreement should provide for the controller’s access to source documents and preparation of breakdowns for the Ukrainian calculation.

How to arrange electronic filing

1. Determine the period and list of CFCs. Compare the ownership structure, control changes, and end dates of foreign reporting periods.
2. Select the form based on available data. If financial statements or the profit calculation cannot be prepared, check the conditions for a simplified report and schedule the full report.
3. Reconcile the report with the tax return. The profit portion, exemption ground, and tax reduction must agree with the supporting documents and calculations.
4. Prepare an electronic signature. Check that the qualified electronic signature (QES) to be used for signing the documents is valid.
5. Send the report, required attachments, and tax return. Check the reporting period and ensure each file belongs to the relevant CFC.
6. Check acceptance. Retain the documents sent and receipts for the report and tax return.

Paragraph 49.5 of the TCU generally allows electronic filing until the end of the final hour of the deadline day. At the same time, during martial law or a state of emergency, subparagraph 69.18 of paragraph 69 of subsection 10 of Section XX of the TCU provides for electronic services and acceptance of electronic documents on business days from 8:00 to 20:00. Certain extended operating hours under this subparagraph apply to tax invoices and adjustment calculations; they do not establish round-the-clock acceptance of CFC reports. We recommend sending the report in advance so that you receive receipts and, if needed, correct technical errors before the deadline.

Under paragraph 49.9 of the TCU, an acceptance receipt is one form of confirmation that an electronic tax return has been accepted. If a refusal is received, check the reason and correct the relevant issues. Subparagraph 49.12.2 provides the right to appeal a refusal under Article 56 of the TCU.

Penalties for violating CFC rules

Special penalties are established by paragraph 120.7 of the TCU. In the table, PM means the subsistence minimum for an able-bodied person established by law on January 1 of the tax reporting year. To determine a specific amount, identify the relevant year and the statutory amount of this indicator.

Paying a penalty does not remove the obligation to file the report and supporting documents. The last penalty is linked to the deadline for paying the relevant penalty and the following 30 calendar days. Merely receiving a request from the tax authority is not enough for this ground to apply.

Limits of the temporary exemption during martial law

Paragraph 72 of subsection 10 of Section XX of the TCU covers violations committed from January 1, 2022 through and including the last day of the calendar month in which martial law ends or is lifted.

The penalty exemption covers paragraphs one through eight of paragraph 120.7. These are violations involving failure to file a report, late filing, failure to disclose a CFC or specified information, and failure to notify about relevant events. The condition is to fulfill the obligations under Article 39² within six months after martial law ends or is lifted.

Penalties for failure to provide documents upon request and for subsequent failure to file a report after a penalty are set out in later paragraphs of paragraph 120.7. The exemption under paragraph 72 does not cover them. Upon receipt of a request or penalty decision, separately identify the penalty ground and the deadline for fulfilling the obligation.

Administrative and criminal liability also do not apply to violations covered by paragraph 72 and related to Article 39². Information and documents obtained under Article 39² during the period specified in the provision have restricted access, cannot be requested or transferred to law enforcement authorities under the procedure specified in the provision, and cannot be evidence in criminal proceedings. For determining a liability related to information in a CFC report, the limitation period under Article 102 starts on the date the report is filed.

Practical recommendation: Make a list of outstanding obligations for each company and year and set deadlines for completing them. Applying paragraph 72 requires checking the specific violation and fulfilling the condition it provides.

How to establish inability to fulfill tax obligations

Subparagraph 69.1 of paragraph 69 of subsection 10 of Section XX of the TCU provides an exemption from liability where it was impossible to fulfill a tax obligation on time, including filing reports or notifications under Article 39². The taxpayer must fulfill obligations covered by this provision within six months after martial law ends or is lifted. If the ability to comply is restored sooner, for overdue obligations covered by the provision whose deadline fell from February 24, 2022 until that ability was restored, the deadline is 60 calendar days from the first day of the month following the month in which the ability was restored.

Check the procedure for confirming inability and the application deadlines separately under Procedure No. 225.

The procedure for confirming inability and separate lists of documents for individuals and legal entities are approved by Order No. 225 of the Ministry of Finance of Ukraine dated 29.07.2022. You must show how specific circumstances prevented this particular taxpayer from fulfilling this particular obligation by the deadline. Merely referring to martial law does not establish all the conditions for exemption.

What circumstances and documents are considered

Paragraphs 1–2 of Section II of Procedure No. 225 set out separate grounds for legal entities and individuals. Depending on the taxpayer category and circumstances, these may include loss or damage to documents and equipment, inability to use them or evacuate them safely, presence in a relevant territory, specified cases of medical treatment or military service, absence of a legal representative, or other documented force majeure circumstances.

For a legal entity, the absence of authorized officers is subject to special conditions: consider whether the owner was unable to appoint other persons, whether there were no taxable items or indicators to declare, and the circumstances concerning the owner and officer specified by the Procedure. The accountant’s departure alone is not enough to establish that these conditions are met.

Documents are selected based on the relevant ground and the list approved by Order No. 225. For example, the lists provide for documents concerning medical treatment or conscription, confirmation of residence, loss of property and documents, and notices from a bank, internet provider, or electricity supplier. A statement showing the absence of funds relates to the assessment of ability to pay; by itself, it does not explain an inability to send a report.

How to confirm grounds under subparagraphs 102.6.1–102.6.5 of the TCU

Paragraph 2 of Section II of Procedure No. 225 separately addresses grounds provided by subparagraphs 102.6.1–102.6.5 of the TCU. The list of documents for individuals approved by Order No. 225 refers, for confirmation of those grounds, to paragraph 2 of Section II of the Procedure approved by Order No. 861 of the Ministry of Finance of Ukraine dated 20.10.2017. The documents depend on the specific circumstance.

Presence abroad must be connected to the inability to fulfill a specific obligation. Paragraph 1 of Section II of Procedure No. 861 requires that the individual or officer of a legal entity be deprived of the ability to prepare and file the relevant documents within the specified period. For the procedure under Procedure No. 225, the tax authority also establishes a causal link between the circumstance, its impact on the taxpayer, and the ability to fulfill the obligation by the deadline.

Practical recommendation: For each overdue report or notification, prepare a separate explanation stating the deadline, obstacle, period during which it applied, supporting document, and effect on fulfillment of the obligation. Keep original evidence for the limitation period established by the Code and present it upon a proper request from the tax authority.

How deadline extensions under Procedure No. 861 differ

Paragraphs 102.6–102.8 of the TCU and Procedure No. 861 provide a separate process for extending deadlines for tax returns, complaints seeking review of a tax authority decision, and applications for a refund of overpaid amounts. To use this process, the taxpayer submits a written application and supporting documents, and the tax authority issues a decision. For an officer of a legal entity, an additional condition is that throughout the relevant periods there are no other officers authorized to keep records, prepare and file reports, and fulfill the specified tax obligations.

Under paragraph 1 of Section III of Procedure No. 861, an application in free form is submitted within 30 calendar days following the day the relevant circumstances end or begin, together with supporting documents. The application explains the ground, describes the attachments, and states the information needed for the specific type of request. It may be submitted in person or sent by post with acknowledgment of receipt.

If there is no documentary evidence or the application requirements are not met, the tax authority does not consider it and notifies the taxpayer no later than five business days after receipt. A proper application is considered within 20 calendar days; on the grounds provided by the Procedure, consideration may be extended with written notice to the taxpayer, but by no more than 60 calendar days. During the extended tax return filing period, the penalties specified by the relevant provisions do not apply.

If you are applying under the wartime procedure in Order No. 225 and using documents listed in Procedure No. 861, follow the deadlines and rules of the procedure you have chosen. The reference to a list of evidence does not automatically extend all other rules of Procedure No. 861 to an application under Procedure No. 225.

What to include in an application under Procedure No. 225 and how to file it

Prepare the application in free form with the information specified in paragraph 3 of Section II of Procedure No. 225. State the taxpayer’s details, tax number, tax address, name of the tax authority, date, specific outstanding obligations and periods, and reasons for the inability with references to supporting evidence. Include a complete list of documents with their names, details, and page counts, and sign the application.

Under paragraph 8 of Section II, the application and documents may be sent electronically through Електронний кабінет (the Electronic Cabinet), submitted in paper form to the tax authority at the taxpayer’s tax address or to any of its service centers, or sent by post with acknowledgment of receipt.

How to determine the application deadline under Procedure No. 225

A notice that the ability to comply has been restored must state the taxpayer’s details and the tax authority’s details, filing date, details of the latest decision recognizing inability, and date the ability was restored. Monitor the deadline for this notice together with the deadline for fulfilling overdue obligations under subparagraph 69.1 of the TCU.

Under paragraph 7 of Section II, taxpayers who did not file an application and documents within the periods in paragraphs 3–4, or for whom the tax authority issued a reasoned decision that they were able to fulfill the obligation, are treated as able to fulfill tax obligations on time. Therefore, before applying the exemption, determine which paragraph governs your situation.

How the tax authority reviews an application

Under paragraph 1 of Section III of Procedure No. 225, the tax authority reviews the application and documents within 20 calendar days from the day after receipt. If the evidence is insufficient, within that period it sends a preliminary decision proposing that specific additional documents be provided. This process may extend the review period.

The taxpayer may provide additional documents, substantiation, or explanations within 10 calendar days from the day after receipt of the preliminary decision. The tax authority reviews them within 20 calendar days from the day after receipt. If the taxpayer provides nothing further, a decision is made based on the materials already submitted.

The tax authority bears the burden of proving whether the taxpayer could or could not fulfill the obligation on time. It must establish a causal link between the circumstances, their impact on the specific taxpayer, and the ability to fulfill the obligation by the deadline, and issue a reasoned decision. Under paragraph 2 of Section III, the decision may be appealed administratively or in court.

Practical recommendation: Retain the application, list of attachments, evidence of submission, preliminary decision, and final decision. After the ability to comply is restored, separately plan the notice to the tax authority and fulfillment of each overdue obligation.

How to respond to a tax authority request and challenge audit findings

After receiving a request, identify its legal basis: Article 39² of the TCU sets different deadlines for different documents.

• Additional explanations under subparagraphs 39².6.1–39².6.2: a response with properly certified copies of documents is provided within two months from the date the request is received.
• Source documents during an audit under subparagraph 39².6.4.3: certified copies are provided within one month from the date the request is received; for an additional request, within 30 calendar days. This provision does not require Ukrainian translations of documents submitted in English.
• Evidence of a foreign adjustment under subparagraph 39².3.6: certified copies are provided within 15 business days from the date the request is received.
• Transfer pricing documentation under subparagraph 39².3.2.4: the deadline is 60 calendar days from receipt of the request under the conditions specified by the provision.

The tax authority may request transfer pricing documentation for CFC transactions with related nonresidents, nonresidents from states or territories on the government list, and nonresidents with legal forms on the relevant government list. Two conditions must both be met: the volume of transactions with a specific such counterparty exceeds UAH 10 million for a calendar year, and the CFC’s total income exceeds UAH 150 million for a calendar year.

The controller may choose documentation under Ukrainian requirements or under the requirements of the CFC’s jurisdiction with a Ukrainian translation. These thresholds determine the right to request documentation under that provision; the obligation to show the relevant lists of transactions in the report must be checked separately. If documentation is not submitted, the tax authority increases profit before tax by 30% of the value of income or expenses for which documentation and/or copies of source documents were not provided. If the documentation does not comply with Article 39, the tax authority may independently determine income and expenses for those transactions and increase profits accordingly.

Practical recommendation: Prepare an index for your response: request item, explanation, document name, and attachment number. Retain proof of the date the request was received and the response was submitted.

Under subparagraphs 39².6.4.4–39².6.4.6, a special audit of the controller may not be conducted more than once in two calendar years. Its duration may not exceed six months; on specified grounds, it may be extended for up to a further six months. This audit does not prevent other audits under Article 75 of the TCU. The controller must also assist in interviewing relevant officers and employees of the CFC; if it is not possible to conduct the interview in Ukraine, the Code allows a video conference.

An audit report or certificate must be delivered within two business days from the date it is prepared. If the controller disagrees with the report, subparagraph 39².6.4.9 provides 30 calendar days from receipt to submit objections. Supporting documents may be provided with the objections or later within a period agreed with the tax authority. The objections are reviewed within 30 business days following the day they are received.

A tax assessment notice resulting from such an audit may not be issued before the objection period expires. Appealing it is a separate procedure under Article 56 of the TCU. After receiving the notice, determine the applicable deadline for that procedure; the period for objecting to the audit report does not replace it.

Official sources for preparing the report

• Tax Code of Ukraine dated 02.12.2010 No. 2755-VI: paragraph 3.2 and subparagraph 14.1.213 — international treaties and residency; subparagraphs 39².1.1–39².1.6 — definition of CFCs and control; paragraphs 39².2–39².4 — taxation, profit calculation, and exemption; subparagraphs 39².5.1–39².5.7 — reports, notifications, and arrangements without legal entity status; paragraph 39².6 — requests and audits; paragraphs 49.5, 49.9, subparagraph 49.12.2, subparagraphs 49.18.4, 49.18.6, and paragraph 49.20 — filing tax returns; Article 56 — appeals; Article 102, including paragraphs 102.6–102.8 — limitation periods and extensions of deadlines; paragraph 120.7 — penalties; paragraphs 167.1, 167.2, subparagraph 167.5.4, subparagraphs 170.11.1–170.11.2, paragraph 170.13, and paragraph 170.13¹ — individual taxation; subparagraphs 1.3, 1.7, and 1.16 of paragraph 16¹, paragraph 54, subparagraphs 69.1 and 69.18 of paragraph 69, and paragraph 72 of subsection 10 of Section XX — military levy, transitional rules, inability to fulfill obligations, electronic acceptance, and temporary liability rules.

• Order No. 254 of the Ministry of Finance of Ukraine dated 25.08.2022, “On Approval of the Form of the Report on Controlled Foreign Companies, the Simplified Form of the Report on Controlled Foreign Companies, the Procedure for Completing the Report on Controlled Foreign Companies, the Simplified Form of the Report on Controlled Foreign Companies and Submitting It to the Supervisory Authority, and Amendments to the Form of the Corporate Income Tax Return”, registered with the Ministry of Justice of Ukraine on 11.10.2022 under No. 1219/38555: paragraph 1 of the Order; paragraphs 5–12 of Section I, Sections II–III, and paragraphs 1–5 of Section IV of the Procedure — separate reports, corrections, currency of figures, form fields, and financial statements; approved forms for the full report and appendices and the simplified report.

• Order No. 512 of the Ministry of Finance of Ukraine dated 22.09.2021, “On Approval of the Form and Procedure for Sending to the Supervisory Authority a Notification by a Resident of Acquisition (Commencement of Actual Control) or Disposal of an Interest (Cessation of Actual Control) in a Foreign Legal Entity or Property Rights to a Share in the Assets, Income, or Profits of an Arrangement without Legal Entity Status”, registered with the Ministry of Justice of Ukraine on 22.11.2021 under No. 1525/37147: paragraph 1 of the Order and the approved form; paragraphs 2–3 and 6–10 of the Procedure — taxpayers covered, public CFC exception, deadline, electronic filing, separate notifications, and grounds for refusal.
• Resolution No. 1275 of the Cabinet of Ministers of Ukraine dated 16.12.2020, “Issues Regarding Implementation of Subparagraph 39².4.2.2 of Subparagraph 39².4.2 of Paragraph 39².4 of Article 39² of the Tax Code of Ukraine”: paragraphs 1–2 and the approved list of stock exchanges — exchanges for applying the public CFC exemption and the mandatory requirement that its shares or ownership interests be listed on the relevant exchange.
• Order No. 225 of the Ministry of Finance of Ukraine dated 29.07.2022, “On Approval of the Procedure for Confirming a Taxpayer’s Ability or Inability to Fulfill Obligations Established in Subparagraph 69.1 of Paragraph 69 of Subsection 10 of Section XX ‘Transitional Provisions’ of the Tax Code of Ukraine, and Lists of Supporting Documents”, registered with the Ministry of Justice of Ukraine on 25.08.2022 under No. 967/38303: paragraph 1 of the Order; paragraphs 1–2 of Section I, paragraphs 1–8 of Section II, and paragraphs 1–3 of Section III of the Procedure — grounds, applications, deadlines, filing methods, restoration of ability, evidence review, and appeals; approved lists of documents for legal entities and individuals, including self-employed persons.
• Order No. 861 of the Ministry of Finance of Ukraine dated 20.10.2017, “On Approval of the Procedure for Applying the Rules of Paragraphs 102.6–102.7 of Article 102 of Chapter 9 of Section II of the Tax Code of Ukraine”, registered with the Ministry of Justice of Ukraine on 10.11.2017 under No. 1373/31241: paragraph 1 of the Order; paragraphs 1–4 of Section II — conditions for extending deadlines and supporting documents; paragraphs 1–6 of Section III — application deadline, content, and submission; paragraphs 1–4 of Section IV — review of the application and non-application of penalties during an extended tax return filing period.