Controlled Foreign Corporation (CFC)

Controlled Foreign Corporation (CFC)

A Controlled Foreign Corporation (CFC) is a foreign corporation in which U.S. shareholders (typically U.S. citizens or residents) own more than 50% of the total voting power or total value of the shares.

Under U.S. tax law, CFCs are subject to specific rules that require U.S. shareholders to report their share of the CFC’s income, even if that income is not distributed as dividends. This is designed to prevent U.S. taxpayers from deferring taxes on foreign earnings. For example, if a U.S. company owns 60% of a foreign subsidiary, that subsidiary would be classified as a CFC, and the U.S. company may be required to include certain types of income generated by the CFC on its U.S. tax return.