Since 2022, Controlled Foreign Company (CFC) rules have been mandatory for Ukrainian residents who own or control foreign structures. In practice, the requirements for CFC notifications, reporting, and taxation have proven far more complex than they may seem at first glance. They cover determining control, identifying the financial year, disclosing transactions, meeting filing deadlines, and including CFC income in the annual tax return.
Even if a foreign company has no active operations, or if exemptions from taxation of adjusted profits apply, the controller’s obligations to submit notifications and reports still remain. Mistakes in these areas not only complicate tax compliance but also create risks of additional tax assessments, penalties, and tax disputes.
Below are the most common CFC reporting mistakes we see among owners and controllers of foreign companies.
Briefly: the most common CFC reporting mistakes
- failing to submit the notification
- no report filed due to “zero activity”
- incorrect determination of the type of control
- mistakes in determining the financial year
- errors in taxation or applying an exemption
- failure to disclose transactions
- failure to file the CFC Appendix to the tax return
- missing filing deadlines
If you need assistance with preparing and filing CFC reports, our team will be happy to help.
Failure to file a CFC notification
After registering a foreign company, the controller must file a notification of acquiring an interest (control) in that company. A similar notification must be filed if the foreign company is liquidated or its interest is disposed of. Failure to submit such a notification is a separate violation that is not cured by filing the Controlled Foreign Company report itself and may entail standalone tax consequences.
During martial law, penalties are effectively not applied. However, it is advisable to remedy the breach and submit the relevant notification if it was not filed on time.
Risk: the violation is recorded separately and may become grounds for penalties once martial law ends.
No CFC report filed due to “Zero activity”
Whether a foreign company actually carried out any activity does not affect the obligation to file a report. Reporting is required in all cases where a controlled foreign company exists, regardless of whether it conducted business activities or had any income or profit.
The obligation to file a report also remains if the company existed during the reporting financial year but was liquidated before the end of that year.
Risk: failure to file the report is treated as a complete non-compliance, even if there were no income or transactions.
Incorrect reporting of the financial year
Incorrectly stating a CFC’s financial year is one of the most common—and at the same time one of the riskiest—mistakes, because it directly affects the period in which profits must be included in the tax return and the reporting deadlines.
Under Ukrainian law, for the reporting period that ended during the previous calendar year.
For example, for UK Ltd companies, the financial year may run from 01/04/2024 to 31/03/2025. The report for that year is filed by 1 May 2026. In practice, owners often mistakenly file the report earlier, in the same year.
Special rules may also apply to the first financial year.
For example, in Estonia, it may cover up to 18 months. If a company is registered in August 2025, the first financial year will end on 31/12/2026, and the first report must be filed by 1 May 2027.
Risk: an error in the financial year means the wrong reporting period and may result in missed deadlines or incorrect taxation.
Tax errors
Mistakes related to the taxation of dividends and a CFC’s adjusted profit are among the riskiest, because they directly lead to penalties and additional tax assessments.
This category of mistakes includes, in particular:
- incorrect application of an exemption from taxation of the CFC’s adjusted profit;
- failure to include the CFC’s adjusted profit in the annual tax return;
- including such profit in the wrong tax year.
As for the exemption from taxation of a CFC’s adjusted profit, in practice, it is often applied correctly, since most companies meet the criterion of not exceeding an income equivalent to EUR 2 million.
However, owners of foreign companies typically mistakenly believe that if this exemption applies, no other tax obligations arise.
In fact, even if the CFC is exempt from taxation of adjusted profit, the annual tax return must still include:
- taxes on dividends received;
- taxes on royalties and interest;
- taxes on foreign-source income that may arise for owners of certain types of companies (in particular, US LLCs).
Tax rules relating to Controlled Foreign Companies, dividends, and foreign income are complex and depend on the specific ownership structure, the companies’ jurisdictions, and the nature of the transactions.
Risk: incorrectly determining tax liabilities leads to additional tax assessments and penalties.
To correctly determine your tax liabilities and apply any available exemptions, it is advisable to obtain an individual consultation with WoBorders specialists, taking into account the specifics of your situation.
Failure to disclose transactions
The CFC Report includes mandatory sections 31–33, which are of particular importance from a tax control perspective.
The State Tax Service of Ukraine (STS) uses the information from these sections to:
- analyze transactions for transfer pricing purposes;
- verify compliance with the conditions for exemption from taxation of the CFC’s adjusted profit;
- assess whether de facto control over the foreign company exists.
Sections 31–33 must be completed regardless of whether an exemption from taxation of adjusted profit is applied under the income-threshold criterion.
These sections disclose information on:
- the CFC’s transactions with related parties;
- transactions with non-resident counterparties included in the lists approved by the Cabinet of Ministers of Ukraine.
The most common mistakes include:
- failing to report intercompany loans between “related” companies;
- reporting only income without expenses (or vice versa);
- failing to report transactions processed via Stripe, PayPal, or Upwork.
Risk: incomplete disclosure of transactions may lead to inquiries from the STS or an audit of whether the exemption was applied correctly.
Failure to file the CFC Appendix to the annual tax return
Failing to complete the CFC Appendix to the annual tax return is a common mistake among controllers of foreign companies.
It is important to distinguish between
- the CFC report, which is filed as a separate form; and
- the CFC Appendix, which is part of the annual tax return and is used to reflect the company’s figures for tax purposes.
According to the State Tax Service of Ukraine (STS), an individual controller is required to file the Appendix even if the controlled foreign company has a negative pre-tax profit. In that case, zeros are entered in the financial indicators (lines 01–06).
Common mistakes include:
- assuming that if there is no profit or no tax due, the CFC Appendix is not required;
- treating the Appendix as the same thing as the CFC report.
Risk: failure to file the Appendix is treated as a tax reporting violation regardless of the financial result.
Missing filing deadlines
The CFC report is filed together with the annual tax return by 1 May. If the financial statements are not yet prepared by that date, a short-form CFC report must be filed.
A common mistake is submitting the full report after the deadline without first filing the short form.
Risk: missing deadlines may result in penalties once enforcement resumes.
Most CFC reporting mistakes arise not from the calculations being difficult, but from technical inaccuracies. The main reasons are technical errors in reporting: incorrect financial years, failure to file notifications, failure to disclose transactions, or errors in determining tax liabilities.
Even if a foreign company has no activity, earns no profit, or qualifies for a tax exemption, the obligations to file notifications, submit the report, and reflect the relevant information in the annual tax return still remain.
Most mistakes are discovered only after the reports have been filed or during STS inquiries. In such cases, corrections may come with additional tax risks.
That is why, before filing, it is advisable to verify:
- the foreign company’s financial year;
- the type of control;
- whether transactions are fully disclosed;
- the correct reporting of income and tax liabilities.
This approach helps minimize the risk of future tax assessments, penalties, and disputes.
FAQ: The most common CFC reporting mistakes
Yes. The obligation to file a Controlled Foreign Company (CFC) report does not depend on whether there was any activity, income, or profit. A report must be filed in all cases where the company existed during the reporting financial year, even if all figures are zero.
Yes. An exemption from taxation of adjusted profit does not exempt you from the obligation to file the CFC report and the appendix to the annual tax return. In addition, the tax return may still need to include dividends and other foreign-source income.
The report is filed together with the annual tax return by 1 May of the year following the reporting year. If the CFC’s financial statements are not ready by that date, you must file a short-form report.
They are different documents.
The CFC Report is filed separately as an independent form, while the CFC Appendix is part of the annual tax return and is used to report the Controlled Foreign Company’s financial figures. The CFC Appendix must be filed even if there is no profit.
The highest-risk issues typically include:
- failure to file a CFC notification;
- a mismatch in the financial year;
- no report filed due to “zero activity”;
- failure to disclose related-party transactions;
- incorrect application of an exemption or failure to include income in the tax return.
