Controlled Foreign Company
Reviewed by A foreign company controlled by a tax resident of another country, whose undistributed profits may be taxed at the level of the controlling person under certain conditions.
A controlled foreign company (CFC) is a foreign entity controlled by a tax resident of another country. Many countries have CFC rules under which the undistributed profits of such a company may be attributed to, and taxed at the level of, the controlling person — a mechanism designed to discourage shifting profits into low-tax jurisdictions.
In the context of relocation, changing tax residency matters: after becoming resident of a new country you may fall under its CFC rules, so the profits of your foreign companies could be taken into account for tax there, while your former country's rules cease to apply.
Whether a company is treated as controlled, and the resulting tax consequences, depend on ownership thresholds and control tests set by each country's legislation, which differ from one jurisdiction to another and require individual assessment.
FAQ
Does a second passport change which CFC rules apply to me?
CFC rules follow tax residency rather than citizenship, so exposure shifts only if your residency actually changes. The exception is the small number of countries that tax on the basis of citizenship.
Must I report a foreign company even if it distributed nothing?
In many countries the reporting duty arises from the shareholding itself, regardless of distributions, while undistributed profit is assessed separately. Filing scope and deadlines are set by the law of your country of residence.
Do CFC rules reach trusts and foundations?
Several jurisdictions extend comparable rules to trusts, private foundations and similar structures where control or entitlement to income is retained. Classification depends on the terms of the structure and on local law.
Does transferring shares to a relative or a nominee solve the problem?
Generally no: the rules capture indirect holdings, related parties and de facto control, and beneficial-ownership registers and information exchange make such arrangements visible. A formal transfer does not remove the exposure.
Do special regimes for new residents switch off CFC rules?
Not automatically — a preferential regime may change how foreign income is taxed, while reporting and attribution duties are governed separately. How the two interact must be checked under the law of the specific country.