CFC rules: when your home country taxes your offshore company

Normally a company is taxed where it is resident, and you are taxed when it pays you. That gap is the point of a low-tax company: profit can build up at 0% and come home later, or never. CFC rules close the gap for the income a country thinks was parked abroad only for the tax. They take the profit of the controlled company and add your share to your own taxable income, year by year, as if it had been paid to you.

The US was first, with Subpart F in 1962. The EU made every member state adopt a version from 1 January 2019 through its Anti-Tax Avoidance Directive. Most other large economies have one. Each country writes its own thresholds, so the same company can be fine for a founder in one country and taxable for a founder in the next.

Strip away the detail and every regime asks the same three questions, in this order. Fail any one and the rule does not apply to that income.

1. Do you control it?Usually more than 50% of the votes, capital or profits, counting shares held by related people. The US adds a 10% floor per owner; the UK needs a 25% interest before a UK company is charged; France drops to 5% in some group cases.
2. Is it low-taxed?Measured against home tax. Under the EU directive, the company is low-taxed if what it pays is less than half of what it would pay at home. Germany uses a flat "under 15%", the UK and Spain "under 75% of our tax", Japan "under 20%", the Netherlands "under 9% or on a list".
3. What kind of income is it?Interest, dividends, royalties, insurance and financial income, and invoicing companies that add little, are the classic targets. Real trading or services income, earned with people and premises where the company is, is usually outside. Some countries, such as Spain where the company has no staff or premises, tax all of it.

Pick where the company is, how much you own and what it earns. The checker applies the main tests from the table below for each country. It is a first screen, built on headline rules: exemptions for small profits, related-party details and treaty points can change the answer, so take the result to an adviser in your country.

Where do you live? pick it

Every EU member state has had CFC rules since 1 January 2019, because the Anti-Tax Avoidance Directive, Article 7 required them. It sets a floor, and states may go further. The control test is a holding of more than 50% of votes, capital or profits, alone or with associated enterprises. The low-tax test compares the tax the company actually pays with what it would pay at home: the company is caught if it pays less than the difference, which in plain numbers means less than half the home tax. Then each state picks one of two ways to decide what income to tax:

Article 7(4) lets states skip small companies: accounting profits up to EUR 750,000 with non-trading income up to EUR 75,000, or profits of no more than 10% of operating costs. Article 8 then sets the maths: the inclusion is computed under home rules, in proportion to your share, in the year the company's tax year ends, with credit for tax the company paid and no second tax when profit is later paid out (Article 8).

Model choice by state from a Big Four implementation overview of September 2024. Germany, the Netherlands, Spain, Austria, Belgium, Denmark, Portugal and Sweden are among the Model A states; Bulgaria taxes all undistributed profit of a CFC with a substance exception; France and Poland kept their own systems.

The rules for the countries most of our clients live in. "In numbers" turns a relative test into a rate at today's home tax rate, so you can set it against what your company pays. Each row links to the law or the tax authority, or to a Big Four summary where the official text could not be read.

The Dutch list, in practice

The Netherlands is the one country that publishes its low-tax places by name. The 2026 list, in force from 1 January, names the Bahamas, Bahrain, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey and the Cayman Islands among others, plus Panama through the EU's non-cooperative list. Belize, Seychelles, the Marshall Islands, Saint Kitts and Nevis, the UAE, Hong Kong and Mauritius are not on it. The EU removed Panama from its own list on 9 October 2026, so the 2027 Dutch list may change; our EU tax blacklist record tracks every listing.

The US is the strictest system for its own people, and it follows citizens wherever they live. A foreign company is a CFC when US shareholders own more than 50% of its vote or value, and a US shareholder is any US person owning 10% or more (26 USC 957, 951). Two layers then apply:

Individuals are taxed on these inclusions at their own rates, unless they elect under section 962 to be taxed like a company, with credit for the foreign tax. A US person who owns less than 10%, or a company that is not a CFC, can still meet the passive foreign investment company rules if 75% or more of its income is passive (26 USC 1297). 2026 also restored the old limit on counting a foreign parent's shares as owned by its US subsidiary.

The other direction. If you do not live in the US and own a US LLC, US CFC rules do not concern you: they apply to foreign companies owned by US persons, and your LLC is a US entity. Our reading is that the question flips to your home country, which may treat a single-member LLC as transparent or as a company. The IRS treats a foreign-owned single-member LLC as a company only for its Form 5472 reporting (IRS Form 5472 instructions); our Form 5472 guide covers that filing.

CFC rules tax your share of the profit. A different rule can do worse: treat the company itself as resident in your country, taxing all its profit there at the full corporate rate. Many countries look at where the company is managed. In the UK it is central management and control, in India the place of effective management, defined as where "key management and commercial decisions" are made in substance (Income-tax Act, section 6). A company whose only director signs everything from a kitchen table at home can end up resident at home, CFC rules or not.

Say you live in Germany and own a BVI company outright

Pillar Two, the 15% global minimum tax, is not the issue for owner-managed companies. It applies to groups with revenue of EUR 750 million or more (HMRC MTT11010). For everyone else the questions are the ones on this page: CFC and residence.

None of this makes an offshore company pointless. It decides which company, and how it is run. The moves that matter:

1. Start from your country, not oursRun the checker above for where you live. If you live in the UAE, Switzerland, Hong Kong or Singapore, there is no CFC rule to meet. If you live in Germany, Spain or the US, plan around it.
2. Give the company a real businessTrading or services income, earned by people who work for the company where it is, falls outside almost every rule. A UAE free zone company with a visa and an office, or a Cyprus company with local staff, is built for that.
3. For passive income, check the rate against your thresholdA company paying 15% is not low-taxed for a German owner, and Cyprus taxes companies at 15% from 2026. For a Spanish owner the line is 18.75%, so the same company is caught. A 0% BVI or Cayman holding company is low-taxed everywhere.
4. Keep management where the company isBoard decisions taken abroad, minutes kept, and directors who decide. Our nominee director guide explains what a local director can and cannot do for residence.
5. Expect your tax office to knowBanks report company accounts and their controlling people under the CRS, and crypto platforms under DAC8 and the CARF. Plan as if the company is visible, because it is. The tax haven list compares company rates if you are still choosing.