On May 21, the President of Ukraine signed a law amending the tax system.
One of the most important innovations concerns controlled foreign companies (KИTO). For the first time, the Ukrainian Tax Code introduces this concept at the legislative level. All changes related to CFCs and controlled transactions come into force on January 1, 2021.
What is a kick?
Controlled foreign company Any legal entity registered in a foreign state and under the control of an individual or legal entity - a resident of Ukraine is recognized.
Controlyuschim a person who owns at least 50% of the company or 10% if in aggregate the percentage of ownership by residents of Ukraine is at least 50%, as well as a person who exercises actual control over the CFC.
Perhaps the most interesting question is how will the tax office determine this de facto control?
A whole list of requirements is spelled out in the law for this: a) confirmation that the controlling person gives instructions to the company's management that are binding. That is, it is required to prove the person really manages this foreign company and has control over it.
b) confirmation that the controlling person is negotiating to conclude transactions and agree on the material terms of such transactions, and that these transactions are subsequently only formally approved by the governing bodies of the legal entity or are carried out without further additional approval. That is, the controlling person should be not just a representative of his company, but also the one who makes the final decision and whose opinion is decisive.
c) if necessary, the manager (controlling person) must have a power of attorney to carry out significant transactions on behalf of a legal entity, issued for a period of more than a year.
d) the manager must conduct transactions on the bank accounts of a legal entity or be able to block such transactions;
e) he must also be indicated as the founder (beneficiary, actual beneficiary) when opening accounts by such a legal entity.
Even this list provides tax authorities with a wealth of options for determining effective control. Therefore, in the near future, the owners of foreign companies will have to say goodbye to their favorite practices of issuing a general power of attorney and account management.
If, nevertheless, you need to involve another person, it is recommended to issue a power of attorney for each individual operation. And when conducting important transactions, it is worth drawing up a resolution of the board of directors, which will express the company's decision to conclude each specific transaction and the transfer of powers to another person is discussed.
The management of bank accounts abroad has been monitored for several years now, so it is better to indicate as authorized persons the directors of the company - residents of the foreign state in which the company is established.
What does the recognition of a CFC company entail?
- Each owner of such a company must send a report to the tax authorities of Ukraine. In addition, the tax office must be notified of any change, such as the purchase / sale or registration of a new company, within 60 days of the change.
- A CFC's financial report prepared in accordance with IFRS (International Financial Reporting Standards) must also be sent to the tax authorities of Ukraine, even if such a report is not required by the country of registration of the CFC.
- The payer of the income tax of a CFC is a controlling person who is a resident of Ukraine.
What is the income tax rate у CFC?
Income tax is respectively 18% if the controlling person is a legal entity and 19,5% if it is an individual. The tax will be charged in proportion to the ownership / control share. In this case, it is possible to offset the paid tax in the country where the CFC is located. So, for example, if a CFC registered in Cyprus pays 12,5% of income tax at the place of its registration, then an individual shareholder must pay an additional 7% (19,5-12,5).
Is it possible to avoid CFC taxation in Ukraine?
Yes, this possibility exists if one of the following conditions is met:
- between Ukraine and the country of registration of the CFC, an agreement has been concluded on the avoidance of double taxation and one of the conditions below is fulfilled:
– passive income (interest, royalties, dividends) is less than 50%;
– the effective tax rate is at least 13%. - the total aggregate income of all CFCs of one controlling person does not exceed EUR 2 million at the end of the reporting period;
- CFC is a public company whose shares are traded on a recognized exchange;
- KIK is a charitable organization.
