CFC report 2026 Ukraine

CFC reporting can conveniently be included in the annual financial cycle of the owner of an international business. A single set of corporate documents and financial statements helps to coordinate the data of the foreign company with the owner’s personal tax reporting. This organisation saves time and creates a clear basis for further work of the company, business bank accounts and profit distribution.

It may seem that nothing can be safer than money in an offshore company’s business bank account. However, some money held with Western banks may soon become trapped, or may already be trapped. The issue is not with the banks — they are operating normally — but with the money itself, more precisely with its origin.

New anti-money laundering standards can cast doubt on the capital of many businesspeople from the former USSR, especially capital made in the 1990s.

One Western investment banker, explaining how the Know Your Customer rules are applied, gave the following example: “Recently we had to refuse services to a person who could have become a profitable client. He is slightly over fifty and started his business in the early 1990s by importing food products. For convenient settlements with foreign partners, he registered a company in one of the classic offshore jurisdictions — many people did this at that time. Several years later he changed his type of activity, the offshore company was no longer needed and became a convenient family wallet — a place for safe storage of savings. The company has successfully performed this role for more than 10 years.

 
Recently, the businessman started thinking about how to make the funds in the company’s business bank account work, because the bank pays very little on deposits while inflation reduces the value of the money. He therefore asked for an investment programme using products of well-known and reliable financial companies in Europe or the USA, which could on average provide a return 5–7% higher than deposit rates at Western banks.

For a specialist, it would not be difficult to prepare an acceptable option, but unfortunately I could not help him. The reason is that Western companies have recently sharply increased their requirements concerning the cleanliness of money. This is connected with the fight against money laundering.

What does this have to do with our businessman, who honestly earned his money? Formally, nothing. But in practice he will most likely hear something like this: “If you want to invest money in our fund, insurance policy, construction project and so on, please provide information about your company’s activities, its partners and agreements. We would also like to see your report for the last year and learn more about the company’s directors and owners. We will review the documents you provide and, if we are satisfied that we are dealing with “good” money, we will be pleased to have you as a client.

If we have doubts, we will not deal with your money. We do not want to risk our reputation.” You may receive a similar answer if you try to invest offshore funds in a Western investment fund or company, or open a business bank account for your offshore company with a prestigious European or American bank.

Any European financial or investment company will try to verify this if the money is connected with the former USSR or an offshore company — it is required to do so under KYC principles. Until recently each company built its own protection against doubtful money, but this is now gradually becoming part of the state system.

Its main principle — “Know Your Customer” — is used in all financial and banking institutions in Western Europe. For ordinary businesses, it is considered highly desirable to have a staff member who has completed money-laundering training; without such an employee, a bank may refuse to service the business, especially where this is a new company with non-EU resident owners.

For example, to decide whether the money in an offshore company’s business bank account is acceptable, bankers may require not only an apostilled charter and information about founders and directors, including passport copies and residential addresses, but also information about the main types of activity, turnover and accounting balance sheet for the previous year. They may also ask for the main business partners, supported by agreements with them, and bank reference letters for the founders or beneficial owners.

For a trust company, this includes documents establishing the trust and explaining the purpose of its creation, the origin of the assets held in it, and full information about the settlors, protectors and beneficiaries of the trust.

These requirements are natural. If a company earned money through normal business, it can easily provide the requested information. For example, it can show that it manufactures food products, supplies them to supermarkets in Europe, has annual turnover of €10–15 million and intends to invest €500,000 in a hedge fund of Deutsche Bank or Merrill Lynch. There should be no problem: it is quite logical that a company with a “white” turnover of 15 million could earn 500,000 and invest it in an investment fund.

But if a company with unclear activities, an empty annual balance sheet and no contacts with European or American companies wants to invest the same €500,000 of unclear origin, the answer will clearly be “no”.

Applying these criteria to our “pure offshore” money produces surprising results. Because for the last 10 years the company has been used as a wallet, it has neither large turnover, nor contracts with clients, nor payments from real counterparties. In addition, because many years have passed, the businessman may be able to document the origin of only part of the money.

He had documents for some transactions from the early 1990s, but later he simply transferred to the company money earned elsewhere. The fact that the money has been held in a business bank account for many years changes nothing. If the client cannot prove the original source of the money, it can be treated as doubtful.

Many other businesspeople from countries of the former USSR may find themselves in a similar situation. In Eastern Europe, Ukraine and the former USSR it may still be unusual to ask where a person obtained so much money. However, this is only a question of time. Tax and other authorities are actively developing and introducing rules that make it possible to ask such questions, usually explaining them by the need to fight terrorism, crime and similar risks.

It is difficult to estimate the scale of this issue, but it can be assumed that it may concern at least 100,000 similar companies, as well as trusts, holdings and even personal accounts. We are sure that most of them belong to ordinary businesspeople who, because of particular circumstances, had to use foreign companies as family wallets and did not think about creating a traditional credit and financial history, company reputation or evidence of the source of capital.

All this money can end up in a kind of reservation, making life more difficult not only for the owners but also for future heirs. The problem should be dealt with now because delay may make the situation more difficult. For example, after some time, as a business owner with only “offshore money”, you may be unable not only to invest in first-class companies but also to use the money to buy real estate, a business or even pay for a daughter’s education when she finishes school and wants to study at a European university.

As a rule, there is a way out — of course, if the money is genuinely clean or becomes acceptable because its source and location comply with generally accepted rules.

At a minimum, it is necessary to start building a positive financial history both for yourself and for your business. It needs a “white” face; a “dark” offshore shade is no longer acceptable in the modern business world.

You can start, at least, by opening a company in a respectable European jurisdiction, or even better by buying a ready-made company with a positive history — in the same way that titles of lords and nobility were once bought so that wealthy merchants and entrepreneurs would be accepted in high society.

Yes, this is image. But it is financial image — business image. The important point is not only the amount of money but also its “quality”. Therefore, the earlier you start working on this, the better the chances of making your business legal and normally accepted by Western business partners.

The result is higher profit due to wider contacts, because Western business generally prefers not to deal with grey money: it can negatively affect its business reputation.

The conclusion is simple: if you want to work with Europe, the USA and other solvent countries, work by their rules… or at least make it look that way. Do not know how?