Controlled foreign company

Controlled foreign company (CFC) rules are anti-avoidance rules in the shareholder’s home country. When a resident controls a foreign company whose profit bears little or no tax, the rules can treat some of that company’s undistributed profit as the shareholder’s taxable income at home, even though no dividend has been paid.

The details vary by country: what counts as control, what counts as low tax, and which kinds of income are covered. In the EU, the Anti-Tax Avoidance Directive requires every member state to apply CFC rules to companies that pay corporate tax there. Rules for individual shareholders, where they exist, are set by each country. The OECD has published recommendations on how to design CFC rules.

This matters for an Estonian OÜ because Estonia taxes company profit only when it is distributed (see corporate income tax on distributions). Your home country may therefore see retained profit as low-taxed. Read What are controlled foreign company (CFC) rules? and run the fit check.