Glossary
Controlled Foreign Company (CFC) Rules
CFC rules let your home or new tax-residence country tax the profits of a foreign company you control — even if the company never sends that money to you — to stop people parking income in low-tax shells abroad.
When you move abroad and set up a company in another country, you might assume its profits stay untaxed at home until you actually pay yourself. CFC rules can change that. If a country decides you “control” a foreign company — usually through ownership, voting rights, or who really runs it — it can tax some or all of that company’s profit as if it were your own personal income, in the year it’s earned.
The rules exist to stop a common move: incorporate somewhere with low or zero tax, leave the profit sitting inside the company, and never bring it home. Most rules target “passive” income — interest, royalties, dividends, sometimes IP and intra-group fees — and companies in low-tax jurisdictions. But the exact triggers vary a lot by country: the control percentage, the tax rate that counts as “low”, which income gets caught. Some places exempt genuine trading businesses with real staff and substance; others don’t.
The catch people miss: this is about where you are tax-resident, not where the company is. A spotless foreign structure can still be transparent to your new home country if you run it from your sofa. This overlaps with Permanent Establishment — running the company from your kitchen table can create a taxable presence there too. It’s also why a US LLC or an e-Residency Estonian company isn’t automatically a tax-free wrapper: the country you live in gets a say. If you’re choosing where to set up, our where to incorporate tool walks through the trade-offs.
This is general information, not advice — CFC rules are some of the most country-specific and fact-sensitive in tax law, so confirm with the official source or a cross-border tax professional before acting.
Where you’ll meet this
- On a tax return, when your new country asks you to declare foreign companies you own or control and attribute their undistributed profits to you.
- In an accountant’s first email after you relocate, asking who really manages your offshore or foreign company day to day.
- When comparing incorporation options and discovering a “0% tax” jurisdiction stops being 0% once your home country’s CFC rules apply.