CFC Liquidation: Who Is the Controller and How Is Profit Taxed?
🔎 Scenario: A Ukrainian LLC (on the general taxation system) owns 100% of a foreign company — a controlled foreign company (CFC). The participants of the LLC are Ukrainian resident individuals. The question arises: who is the CFC controller and how is profit from its liquidation taxed?
📌 Who is the controller in this case?
At first glance, it may seem that the individual shareholders are the controllers. However, under para. 39-2.1.2 of the Tax Code of Ukraine, if the interest in the CFC is held through a Ukrainian legal entity that meets the criteria — then the LLC is considered the controller, not the individuals.
➡️ Accordingly, the LLC is responsible for filing CFC reports and paying tax on the adjusted profits of the CFC.
❗️ Importantly, the law does not exempt the LLC from liability just because a beneficial owner (individual) submitted a CFC report independently.
📌 Do individuals have a tax obligation?
If the LLC is the controller, individuals do not need to declare income from the liquidation of the CFC until they receive actual distributions from the LLC — such as dividends or liquidation proceeds.
As a result, Personal Income Tax (PIT) is not applied to individuals in this context.
📊 What about accounting in the LLC?
A legal entity applying NAS (Ukrainian Accounting Standards) must follow NAS 12 regarding financial investments. Upon liquidation, the investment in the CFC is written off, and tax differences are calculated under para. 140.5.4 of the Tax Code.
Profit or loss depends on the book value of the investment and the liquidation amount.
📌 GLS Law Recommendations:
✔️ Submit an Individual Tax Consultation (ITC) on behalf of individuals regarding:
- being recognized as a controller in case of indirect ownership of a CFC;
- taxation rules for such CFC profits.
✔️ Submit an ITC on behalf of the LLC to:
- confirm LLC status as a CFC controller;
- clarify that the LLC is not liable if the report was submitted by individuals (for risk mitigation).
⚠️ This is especially relevant in 2025, as the Ukrainian Tax Authority increases oversight of CFC filings and ownership chains. Even if individuals submit reports, the LLC may still be held liable.
📌 GLS Law supports:
- CFC structure analysis;
- reporting and documentation;
- tax modeling;
- ITC applications for both individuals and legal entities.
If your structure includes a foreign company — verify who the controller is and how to handle liquidation tax-efficiently.
