Tax intelligence

CFC rules: the company that follows you

Controlled foreign company rules attribute a low-taxed offshore company's income to its owner personally, wherever the owner now lives. They are the reason an offshore holding company is a function of where YOU are resident, not where IT is registered — and they are the most common way a carefully built structure becomes worthless on landing.

Last verified July 2026

What is actually true

  • The mechanism is uniform even where the detail is not: if you control a foreign company that pays little or no tax, your country of residence taxes you on its income as it arises, without waiting for a dividend. Control is usually defined by capital, voting rights or profit entitlement, typically at 50%, and typically aggregating your interests with those of associates and related parties.
  • The critical distinction for private clients is whether the rules reach individuals at all. Some states apply CFC rules directly to resident individuals — Italy, Spain, Germany, Sweden, Finland, Denmark, Portugal and the US among them. Others (France, the Netherlands, Belgium) confine CFC rules to corporate residents and address individuals through separate anti-abuse or deemed-income regimes. Moving from a country in the second group to one in the first turns a dormant structure into an annual tax liability.
  • In the EU the floor is ATAD (Directive 2016/1164, adopted 12 July 2016), which required all Member States to adopt CFC rules from 1 January 2019 and defines control by reference to a taxpayer acting alone or together with its associated enterprises. Member States chose between Model A (attributing specified categories of passive income) and Model B (attributing income from non-genuine arrangements). Both are floors — several states go further.
  • The US is a category of its own and it reaches individuals hard. A US shareholder of a CFC faces Subpart F inclusions and, for tax years beginning after 31 December 2025, the regime formerly called GILTI, renamed Net CFC Tested Income (NCTI) by the One Big Beautiful Bill Act. The QBAI routine-return carve-out has been repealed, broadening the base — the old planning move of parking tangible assets in the CFC to shelter a 10% return is gone.
  • The §962 election is the standard US mitigation and it changed in 2026. An individual US shareholder can elect under §962 to be taxed at corporate rates on Subpart F and NCTI inclusions and to claim indirect foreign tax credits. For tax years beginning after 31 December 2025 a §962 electing individual generally accesses the 40% §250 deduction against NCTI and an indirect FTC cap raised from 80% to 90%. It is not free: the election accelerates the analysis and the eventual actual distribution can be taxed again above previously taxed earnings.
  • Relocation interacts with CFC rules in both directions, and the second is the one people forget. Leaving a CFC jurisdiction can free a structure. Arriving in one can capture a structure that has sat benignly offshore for twenty years — and the arrival is usually the moment nobody is looking, because the client's attention is on the visa.

Jurisdiction by jurisdiction

United States high
Subpart F plus NCTI (formerly GILTI, renamed by the OBBBA for tax years beginning after 31 December 2025). QBAI carve-out repealed, broadening the base. Individual US shareholders may elect §962 for corporate-rate treatment: from 2026 this generally gives access to the 40% §250 deduction and a 90% indirect FTC cap (up from 80%). Applies to US citizens and residents wherever they live — the CFC follows the person, not the company.
Italy high
Applies CFC rules directly to resident individuals. Combined with the art. 24-bis neo-residenti regime, the interaction is the whole question: the substitute tax covers foreign-source income, but the CFC analysis for anyone outside or exiting the regime is live. Arriving in Italy with an offshore holding company without pre-clearing the CFC position is a recognised and expensive error.
Spain high
Applies CFC (transparencia fiscal internacional) to resident individuals, attributing specified passive income from low-taxed controlled entities. Combined with Spain's wealth tax and the art. 95 bis exit tax, Spain is among the least forgiving European destinations for a founder holding a private company through an offshore vehicle.
Germany high
Hinzurechnungsbesteuerung under the AStG applies to resident individuals holding controlling interests in low-taxed foreign companies with passive income. Sits alongside the §6 AStG exit tax, so a German-resident founder is exposed both while resident (CFC) and on departure (Wegzugsteuer).
United Kingdom medium
UK CFC rules operate at the entity level and apply to companies, not to resident individuals. Individuals are instead within the transfer of assets abroad code and s. 13 TCGA-style attribution of gains. Post-Brexit, ATAD does not apply to the UK. For a UK-resident individual holding an offshore company, the CFC code is not the exposure — the transfer of assets abroad rules are.
France / Netherlands / Belgium medium
CFC rules apply to corporate residents rather than directly to individuals, with separate anti-abuse regimes covering individuals (France's art. 123 bis is the closest analogue and does reach individuals holding 10%+ of low-taxed foreign entities). The corporate/individual split is jurisdiction-specific and shifting; do not treat 'no individual CFC rules' as a durable feature.
What can go wrong
  • Your offshore company's tax position is determined by where YOU live. Incorporating in a zero-tax jurisdiction achieves nothing if your residence country has individual-level CFC rules — you simply pay at home on income the company has not distributed.
  • Arriving is as dangerous as leaving, and less noticed. A structure that was benign in Dubai can become an annual inclusion the day you become Italian- or Spanish-resident. Pre-arrival restructuring is cheap; post-arrival remediation is not.
  • Management and control can override incorporation entirely. If you run the company from your new home, it may simply become tax-resident there — a worse outcome than a CFC inclusion, and one CFC analysis never reaches because the company is now domestic.
  • The US NCTI base got wider in 2026 with the repeal of the QBAI carve-out. Structures built on the pre-2026 GILTI arithmetic need recomputing, not merely renaming.
  • The §962 election is not a set-and-forget. It changes the character and timing of later distributions and interacts with the §250 deduction and FTC limits; the wrong election is expensive and the analysis changed for tax years beginning after 31 December 2025.
  • Economic substance requirements in the classic offshore jurisdictions now run in parallel with CFC rules. Satisfying substance in Cayman does not defeat a CFC inclusion at home, and failing it triggers local penalties as well — two regimes, both live.
  • Attribution aggregates family and associates. A 40% stake looks safe until the rules add your spouse's 20% and your trust's 15%. Control tests are computed on the aggregate, not on your personal holding.
Sources (6)