According to the new legislation, if a Ukrainian has control over a foreign company (CFC), he or she must register it with the tax office and pay taxes (not all businesses fall under this rule; we covered this in more detail earlier). The norm should have taken effect from January 1, 2021, but recently, on the first reading, the Parliament has voted to move the deadline to January 2022.

What happened

On November 3, 2020, the deputies approved bill No. 4065 amending the tax code, on first reading. Its provisions move the date of obligatory reporting on and paying taxes for, CFCs for a year. One should remember that this is just the first reading, though. For the date to be actually postponed, the Parliament must adopt the bill as a whole, and then it must be signed by the President.

Lawyer’s commentary

AIN.UA’s editorial office has asked the founder of the law firm Rikk, Vlad Yaroviy, to comment on the approved bill.

“Let’s see what benefits/threats this bill on CFCs could incur. Strange as it may seem, I see nothing particularly negative specifically for CFCs. All of us have been expecting the Verkhovna Rada to move the CFC taxation deadlines, because, frankly speaking, neither the state, nor business is ready for that yet.

And so it happened; now, the first accounting period should be the year 2022. Moreover, the business has an opportunity to monitor the situation even until 2024, because there will be no penalties for 2022–2023.

In this country, no one wants to be a pioneer; usually, this does not end very well. I think lawyers and advisers will also wait for some practice in the application of the law before filing anything for their clients.

There is also an option for the tax-free dissolution of CFCs under the established procedure, allowing an individual not to pay the personal income tax or military tax afterward. The rest of the changes will rather affect transfer pricing, permanent establishments, etc.”