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.

INVESTOPEDIA EXPLAINS '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. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  2. Foreign

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

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

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

    An illegal practice where a person, organization or corporation ...
  6. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at ...
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. 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 >>
  4. 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 >>
  5. 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 >>
  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 >>
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 MSCI Singapore

    Learn more about BlackRock Advisor's iShares Singapore MSCI exchange-traded fund, which looks to mirror the holdings and yield from Singapore markets.
  5. Mutual Funds & ETFs

    ETF Analysis: Vanguard MSCI EAFE

    Learn more about Vanguard's index-shifting, low-cost and non-U.S. market exchange-traded fund: the FTSE Developed ex U.S. Markets ETF.
  6. Investing

    Some Overseas Markets May Prove More Resilient

    Though global markets sold off and have continued to slip in recent days, stocks in Europe and Japan are still faring better than their U.S. counterparts.
  7. Mutual Funds & ETFs

    Top 3 ETFS for Investing in Germany

    Discover why Germany is considered an economic powerhouse in the eurozone, and learn about the three ETFs that provide investors exposure to Germany’s economy.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares FTSE/Xinhua China 25

    Learn about iShares FTSE/Xinhua China 25 and its asset allocation and how investing in this fund comes with heightened risks of emerging market risk.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Germany

    Learn about iShares MSCI Germany, which is a nondiversified exchange traded fund that invests principally in large-cap German companies.
  10. Mutual Funds & ETFs

    Top 3 ETFs For Investing in China

    Discover the top three China ETFs. Chinese stocks tend to be quite volatile, presenting opportunities for savvy investors, given the country's high growth rate.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
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!