FlagSageControlled foreign company
Glossary term
A controlled foreign company rule lets a country tax its resident companies or shareholders on certain profits of a foreign company they control, usually where those profits bear low tax abroad.
In the European Union, the Anti-Tax Avoidance Directive requires member states to have such a rule for corporate taxpayers. A foreign entity can be a controlled foreign company where the taxpayer, alone or with associated enterprises, holds more than 50 percent of its voting rights, capital or profit entitlement. The tax actually paid on its profits must also be lower than a benchmark based on the tax the member state would have charged.
The United Kingdom has its own regime. HMRC guidance says it applies to companies resident outside the UK that are controlled by UK residents. A charge needs, among other conditions, a UK interest holder with at least a 25 percent interest together with connected companies, and exemptions can apply.
Rules differ by country in who they apply to, how control is measured and which income is caught. Owning a company abroad can therefore still lead to tax or reporting in the owner's country of residence.
Not to be confused with
- Permanent establishment. A permanent establishment is part of a business operating abroad, while a controlled foreign company is a separate foreign company.
- Place of effective management. Place of effective management can decide where a company is resident, while CFC rules apply to companies resident elsewhere.
Sources
- Anti-Tax Avoidance DirectiveOfficial guidance
- Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal marketPrimary law
- INTM191100 - Controlled Foreign Companies: Introduction to the CFC rules: OverviewOfficial guidance
Related
- Countries covered
- General
- Sources
- 3 sources
- Tax year
- Current rules as checked
- Review
- Not professionally reviewed
Sources checked November 8, 2026