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.