Insights from the Webinar “CFC Reporting 2024: Legislative Changes, Deadlines, and Practical Advice for Businesses”

On December 10th, a webinar “CFC Reporting on CFC 2024: Legislative Changes, Deadlines and Practical Advice for Businesses” took place, organised by the IT Ukraine Association in collaboration with the law firm Juscutum.

 

The speaker was Mykola Klymenko, Head of the Accounting Support at Juscutum.

 

The key points discussed were:

 

A CFC (Controlled Foreign Company) is a legal entity registered abroad, which is under the control of a physical or legal person who is a resident of Ukraine. A CFC is not an individual entrepreneur or sole trader.

 

The controlling person is a physical or legal person who is a resident of Ukraine, holding a share in the foreign legal entity of more than 50%, or more than 10% if multiple persons have a combined share exceeding 50%.

 

Obligations of the controlling person to the state:

• submission of notifications about changes in the CFC (within 60 calendar days from the change in shareholding or the commencement of control);
• reporting: Submission of the report along with the financial statements by 1st May for individuals and by 1st March for legal entities;
• additional requests: Provision of information upon request by the State Tax Service, including an audit opinion.

 

Reasons for submitting a CFC notification:

• Acquisition or indirect acquisition of a share in the CFC.
• Commencement of actual control.
• Transfer of a share in the foreign legal entity.

 

Adjusted profit refers to the portion of the profit proportional to the share of the controlling person. To convert the adjusted profit into Ukrainian hryvnias, the NBU exchange rate is used.

 

Two forms of CFC reporting:

• Shortened report: For cases when the controlling person cannot submit the financial statements on time.
• Full report: Contains all information about the CFC, including income, ownership structure, tax obligations, and other details.

 

Recent legislative changes regarding CFC reporting and their impact on the obligations of controlling persons

 

Law of Ukraine No. 3706 dated 9th May 2024 suspends the application of fines during the period of martial law and for six months after its termination. After this period, fines will be fully applied.

 

From 2024, taxpayers may submit reports for two years (2022 and 2023), but from 2025 onwards, reports will need to be filed separately for each year. These changes complicate the reporting process, and entrepreneurs must be prepared for fines after the transitional period.

 

Why delaying reporting can create significant risks for your business:

• The Ukrainian tax authorities are actively sending letters for reporting, even for minority shareholders, so delays may lead to substantial fines.
• Ukraine successfully completed its first data exchange under the CRS (Common Reporting Standard). This enables effective tracking of undeclared income and financial assets, making it almost impossible to avoid responsibility for failing to submit reports.

 

What fines are imposed for late or incomplete CFC reporting?

• Fines for non-submission of reports: If the report is not submitted on time, a fine of 100 minimum wages is applied (UAH 292,000 in 2024, UAH 302,800 in 2025).
• Fines for late submission: A fine of one minimum wage for each calendar day of delay (UAH 2,920 in 2024, UAH 3,028 in 2025).
• Fines for failure to notify changes in control over the CFC: The fine is 300 minimum wages (UAH 876,000 in 2024, UAH 908,400 in 2025).

 

Important reporting deadlines – What should you pay attention to?

• Reporting for 2022 and 2023: By 1st May (for individuals) and by 1st March (for legal entities) in 2024.
• Reporting for 2024: Reports for 2024 must be submitted separately by 1st May 2025 for individuals and by 1st March for legal entities. In 2025, it will no longer be possible to submit reports for two years together, as was allowed in 2024.

 

Carefully check the accuracy of the adjusted profit calculations, using the latest NBU exchange rates for conversion into hryvnias.

 

Gather all necessary documents, submit reports and notifications about changes in the CFC on time. If necessary, consult auditors or specialists to verify your reports.

 

Always submit reports on time, avoiding last-minute submission to prevent fines for delay.