Tax Residency and CFCs: What Keeps Our Clients on Edge
3 May, 2024
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A longstanding Client approached Interlegal regarding the preparation and submission of CFC (Controlled Foreign Company) reports for their foreign company.
During discussions with the Client, it became evident that they have been residing in Germany for over two years. Given this, the primary issue was the Client’s tax residency (note that the obligation to report CFCs only applies to tax residents of Ukraine).
Interlegal specialists conducted a thorough analysis of the Client’s circumstances and the criteria for tax residency in both Ukraine and Germany.
When determining the country of tax residency, it is crucial to consider factors such as ownership or use of residential property in a particular country, the presence of individual entrepreneur status, the residence of family members, the source and amount of income for both the individual and their family members, and the duration of stay in the country.
It was not feasible to determine the Client’s tax residency based solely on the criterion of the place of permanent residence. The analysis revealed that the Client held individual entrepreneur status, which provided a sufficient basis to determine their center of vital interests in Ukraine.
Based on this, our lawyers developed personalized recommendations for the Client to minimize signs of Ukrainian residency and strengthen the indicators of German residency.
The second stage of work for Interlegal lawyers involved preparing and submitting CFC reports via the electronic tax office for the 2022-2023 period, during which the Client was a tax resident of Ukraine.
The project was handled by a team including lawyers Dmytro Bondar and Ihor Danyliuk, Junior Associate Oleksandra Savelieva, under the leadership of Partner Irina Voyevodina .
The Corporate & Taxes team at Interlegal will advise you on tax residency issues, develop a tailored plan for changing tax residency, and assist with the preparation and submission of CFC reports and notifications.
