Under the new Law No. 466, considerable attention is devoted to controlled foreign companies (CFCs). The emergence of new obligations regarding the submission of reports and the payment of taxes on the undistributed profit of CFCs in Ukraine prompts one to consider whether it is still advisable to keep foreign companies going forward.
In this article, we will examine in which cases and how it is worth liquidating a CFC.
All foreign savings will need to be reported to the tax authorities.
With the adoption of this law, many representatives of Ukrainian business began reviewing their foreign structures. Naturally, companies that no longer serve their intended functions should be liquidated. As a result of liquidation, the company's assets pass into the ownership of its beneficiary, which gives rise to income and tax obligations.
However, the new law contains a provision that allows for the tax-free liquidation of a foreign company. To take advantage of this, it is necessary to initiate the company's liquidation by the end of the current year and submit the required package of documents to the tax authorities together with the individual's income tax declaration.
If you have decided that you no longer need a company abroad, it is important to remember: the procedure for closing it must be carried out as correctly as possible. In this article, we will examine the options for liquidating a foreign company using Cyprus as an example.
For instance, a Cyprus company can be voluntarily dissolved under Section 327 of the Companies Law (Cap. 113). This can happen either through a voluntary decision of the members (winding-up) or through removal from the Register of Companies (striking off). What is the difference between these two procedures?
The new law allows for the voluntary liquidation of a CFC without paying tax on the income from liquidation; however, the procedure for closing the company must be as correct as possible.
Strike-off
The strike-off procedure is a simplified method of ceasing operations for companies that have discontinued all types of activity and have no intention of conducting business in the future.
The shareholders make a decision and notify the Board of Directors of it. The Board of Directors, in turn, notifies the Registrar. Before the application is sent to the Registrar, the following must take place: closing bank accounts, settling debts, selling assets, paying all taxes and state duties, and submitting tax returns and a final audited financial statement. Upon receiving the application, the Registrar sends a notice to the company (first notice) and publishes an announcement in the Official Gazette of its intention to remove the company from the Register of Companies after three months. After this period has elapsed, if no objections are received from shareholders, tax authorities, or creditors, a further notice (final notice) is sent and an announcement of the company's final removal from the Register is published in the government gazette.
The decision on removal is usually accepted by the Registrar within 6–9 months from the date the application is submitted. When choosing strike-off as a method of ceasing a company's operations, it should be taken into account that the Cyprus tax authorities may raise obstacles by sending letters objecting to the company's removal from the Register until the tax authorities have reviewed all of the company's submitted tax returns. The period during which the tax authority may maintain its objection filed with the Register of Companies can last several years, until the tax department has reviewed the tax returns filed by the specific company. The strike-off procedure is ideally suited for a dormant company (a registered but non-operating company with no open bank accounts).
Winding Up
Voluntary winding up is the voluntary liquidation of a company that ceases its operations, namely: closing bank accounts, settling debts, paying taxes and fees, and preparing reports under the supervision of a liquidator.
This procedure begins from the moment a resolution on voluntary liquidation is approved at a general meeting of shareholders. Within 14 days of the decision being made, notice of this decision must be given by way of an announcement in the Official Gazette. At the general meeting, the company must appoint one or more liquidators to distribute its assets and pay its debts, and must also agree on the liquidator's remuneration. Upon the appointment of a liquidator, all powers of the directors must cease, provided this is approved by the shareholders at the general meeting or by the liquidator. The liquidator must prepare a liquidation report indicating how the property was liquidated and, following this, must convene a general meeting of the company to present the report and provide explanations regarding it. The meeting is convened by an announcement in the Official Gazette, indicating the time, place, and purpose of the meeting, and is published at least 1 month before the meeting. Within one week after the meeting, the liquidator must send a copy of the report to the registrar of companies and provide it with a report on the conduct of the meeting. Upon receiving the relevant report from the liquidator, the Registrar must promptly register it, and after 3 months have elapsed from the date the report was registered, the company will be deemed liquidated. Please note that, in the case of voluntary liquidation, the company's liquidator or any interested party may, within 2 years after liquidation, initiate its restoration, and the court, if it deems it appropriate, may declare the liquidation void.
If a decision is made to cease operations, one should not give in to the temptation to simply "abandon" the company or conceal information about it from the Ukrainian tax authorities (this applies to any of your CFCs!). Information about the company will be retained in the registered agent's files, and, should a request be received from the tax authorities, the agent will be obligated to disclose all information about the company and its owner. The agent also has the right to remove its nominee shareholders and directors from their positions, disclosing the name of the company's declared beneficiary. Given the current environment of transparency and information exchange, we advise our clients to liquidate inactive companies by the end of 2021.
In this article, we will examine in which cases and how it is worth liquidating a CFC.
All foreign savings will need to be reported to the tax authorities.
With the adoption of this law, many representatives of Ukrainian business began reviewing their foreign structures. Naturally, companies that no longer serve their intended functions should be liquidated. As a result of liquidation, the company's assets pass into the ownership of its beneficiary, which gives rise to income and tax obligations.
However, the new law contains a provision that allows for the tax-free liquidation of a foreign company. To take advantage of this, it is necessary to initiate the company's liquidation by the end of the current year and submit the required package of documents to the tax authorities together with the individual's income tax declaration.
If you have decided that you no longer need a company abroad, it is important to remember: the procedure for closing it must be carried out as correctly as possible. In this article, we will examine the options for liquidating a foreign company using Cyprus as an example.
For instance, a Cyprus company can be voluntarily dissolved under Section 327 of the Companies Law (Cap. 113). This can happen either through a voluntary decision of the members (winding-up) or through removal from the Register of Companies (striking off). What is the difference between these two procedures?
The new law allows for the voluntary liquidation of a CFC without paying tax on the income from liquidation; however, the procedure for closing the company must be as correct as possible.
Strike-off
The strike-off procedure is a simplified method of ceasing operations for companies that have discontinued all types of activity and have no intention of conducting business in the future.
The shareholders make a decision and notify the Board of Directors of it. The Board of Directors, in turn, notifies the Registrar. Before the application is sent to the Registrar, the following must take place: closing bank accounts, settling debts, selling assets, paying all taxes and state duties, and submitting tax returns and a final audited financial statement. Upon receiving the application, the Registrar sends a notice to the company (first notice) and publishes an announcement in the Official Gazette of its intention to remove the company from the Register of Companies after three months. After this period has elapsed, if no objections are received from shareholders, tax authorities, or creditors, a further notice (final notice) is sent and an announcement of the company's final removal from the Register is published in the government gazette.
The decision on removal is usually accepted by the Registrar within 6–9 months from the date the application is submitted. When choosing strike-off as a method of ceasing a company's operations, it should be taken into account that the Cyprus tax authorities may raise obstacles by sending letters objecting to the company's removal from the Register until the tax authorities have reviewed all of the company's submitted tax returns. The period during which the tax authority may maintain its objection filed with the Register of Companies can last several years, until the tax department has reviewed the tax returns filed by the specific company. The strike-off procedure is ideally suited for a dormant company (a registered but non-operating company with no open bank accounts).
Winding Up
Voluntary winding up is the voluntary liquidation of a company that ceases its operations, namely: closing bank accounts, settling debts, paying taxes and fees, and preparing reports under the supervision of a liquidator.
This procedure begins from the moment a resolution on voluntary liquidation is approved at a general meeting of shareholders. Within 14 days of the decision being made, notice of this decision must be given by way of an announcement in the Official Gazette. At the general meeting, the company must appoint one or more liquidators to distribute its assets and pay its debts, and must also agree on the liquidator's remuneration. Upon the appointment of a liquidator, all powers of the directors must cease, provided this is approved by the shareholders at the general meeting or by the liquidator. The liquidator must prepare a liquidation report indicating how the property was liquidated and, following this, must convene a general meeting of the company to present the report and provide explanations regarding it. The meeting is convened by an announcement in the Official Gazette, indicating the time, place, and purpose of the meeting, and is published at least 1 month before the meeting. Within one week after the meeting, the liquidator must send a copy of the report to the registrar of companies and provide it with a report on the conduct of the meeting. Upon receiving the relevant report from the liquidator, the Registrar must promptly register it, and after 3 months have elapsed from the date the report was registered, the company will be deemed liquidated. Please note that, in the case of voluntary liquidation, the company's liquidator or any interested party may, within 2 years after liquidation, initiate its restoration, and the court, if it deems it appropriate, may declare the liquidation void.
If a decision is made to cease operations, one should not give in to the temptation to simply "abandon" the company or conceal information about it from the Ukrainian tax authorities (this applies to any of your CFCs!). Information about the company will be retained in the registered agent's files, and, should a request be received from the tax authorities, the agent will be obligated to disclose all information about the company and its owner. The agent also has the right to remove its nominee shareholders and directors from their positions, disclosing the name of the company's declared beneficiary. Given the current environment of transparency and information exchange, we advise our clients to liquidate inactive companies by the end of 2021.