Controlled Foreign Corporation - CFC

AAA

DEFINITION of 'Controlled Foreign Corporation - CFC'

A corporate entity that is registered and conducts business in a different jurisdiction or country than the residency of the controlling owners. Control of the foreign company is defined, in the U.S., according to the percentage of shares owned by U.S. citizens.

Controlled foreign corporation (CFC) laws work alongside tax treaties to dictate how taxpayers declare their foreign earnings. A CFC is advantageous for companies when the cost of setting up a business, foreign branches or partnerships in a foreign country is lower even after the tax implications, or when the global exposure could help the business grow.

BREAKING DOWN 'Controlled Foreign Corporation - CFC'

The CFC structure was created to help prevent tax evasion, which was done by setting up offshore companies in jurisdictions with little or no tax. Each country has its own CFC laws, but most are similar in that they tend to target individuals over multinational corporations when it comes to how they are taxed. For this reason, having a company qualify as independent will exempt it from CFC regulations.

Countries differ in how they define the independence of a company. The determination can be based on how many individuals have a controlling interest in the company, as well as the percentage they control. For example, minimums can range from fewer than 10 to over 100 people, or 50% of voting shares, or 10% of the total outstanding shares.

RELATED TERMS
  1. Foreign

    1. A non-U.S. company with securities trading on the North American ...
  2. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  3. Tax Haven

    A country that offers foreign individuals and businesses little ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at ...
  5. Corporation

    A legal entity that is separate and distinct from its owners. ...
  6. Tax Evasion

    An illegal practice where a person, organization or corporation ...
Related Articles
  1. Forex Education

    Global Trade And The Currency Market

    Learn how the Bretton Woods system got the ball rolling for world trade.
  2. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  3. Options & Futures

    Offset Risk Without Investing Abroad

    With a little know-how, you can keep risk from topling your portfolio of domestic equities.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Global Telecom

    Learn about the iShares Global Telecom exchange-traded fund, which invests in U.S. and foreign telecommunication companies with high dividend yields.
  5. Active Trading Fundamentals

    The Top 5 Impact Investing Firms

    Learn what impact investing is and obtain information on some of the top impact investing firms ranked by total assets under management.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Hong Kong

    Learn about the iShares MSCI Hong Kong fund, which invests in various equities of companies listed on the Hong Kong Stock Exchange.
  7. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  8. Forex

    The Pros and Cons of a Fully Convertible Rupee

    Amid the rising economic power of India, the talks of making the Indian currency fully convertible are gaining momentum. We look at the pros and cons.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
RELATED FAQS
  1. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  2. What is the purpose of a "repatriated tax break", and why is it so controversial?

    In 2004, Congress passed the American Jobs Creation Act to create new jobs in an effort to boost the economy. One of the ... Read Full Answer >>
  3. Are domestic and foreign subsidiaries included on a company's financial statements?

    A subsidiary is a company that is controlled by another 'parent' company. The subsidiary acts and operates like its own entity ... Read Full Answer >>
  4. Why would a multinational corporation conduct a vertical foreign direct investment?

    In many cases, multinational corporations conduct horizontal foreign direct investment (FDI) activities in order to expand ... Read Full Answer >>
  5. What risks do organizations face when engaging in international finance activities?

    When an organization decides to engage in international financing activities, they also take on additional risk as well as ... Read Full Answer >>
  6. What is the difference between a greenfield investment and a regular investment?

    A greenfield investment is a particular type of investment where an international company begins a new operation in a foreign ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!