Controlled Foreign Corporation regimes attribute a company’s income to its owners. Smart families still plan—differently.
A moving target. Many countries have CFC rules that attribute passive income (and sometimes active income) of low-taxed foreign companies to residents. Thresholds, exemptions, and white/black lists vary.
What survives scrutiny. Active trading companies with staff and risks; genuine distribution or manufacturing; documented decision-making.
What fails. Holding piles of passive income in a zero-tax shell with no people, then claiming deferral forever.
Design patterns. Blend onshore and mid-shore entities, align people with profits, and use treaty-eligible holding companies. Evaluate high-tax kick-out exemptions or substance-based carve-outs where available.
Distribution policy. Even when deferral is preserved, scheduled dividends with withholding relief often beat indefinite accumulation.
FAQ:
- Can trusts block CFC attribution? Not reliably; look-through rules often apply.
- Is “substance” just an office lease? No—decision-makers, payroll, and risks. Editor’s Note: CFC planning is now choreography, not hide-and-seek. Tags: CFC, Substance, Attribution, Family Office