CFC Rules Worldwide: Brazil, US, UK and Germany in 2026

CFC rules (Controlled Foreign Company) tax the profit of a foreign company controlled by residents, even if the profit is not distributed. In Brazil, Law No. 14,754/2023 (Lei 14.754/2023) covers individuals, with a 15% rate on the profit of eligible controlled companies on December 31, and Law No. 12,973/2014 (Lei 12.973/2014) covers legal entities. The US, the UK and Germany have their own regimes.

What are CFC rules and what are they for?

CFC rules stop profit from sitting "parked" in a foreign company to defer tax. When the taxpayer controls the company, the country of residence taxes its profit in the year it is earned, or in the cases the law defines, and not only when the money reaches the owner.

Each country defines three points: what counts as control, which type of company or income falls under the regime and when the tax is charged. For anyone with a company abroad, the practical question is which country claims the right to tax the profit, and that depends on each owner's tax residence.

How does Brazil apply CFC rules to individuals?

Law 14,754/2023 treats as a controlled company an entity in which the individual has a preponderant say in decisions or more than 50% of the capital or profits, alone or together with related persons (art. 5, § 1). The controlled companies that fall under the regime of art. 5 are those that:

• •are in a favored-taxation country or have a privileged tax regime (arts. 24 and 24-A of Law 9,430/1996); or
• •have own active income below 60% of total income (art. 5, § 5).

In those cases, the profit is taxed on December 31 of each year, in the annual adjustment, at a 15% rate and with no deductions from the tax base (art. 5, caput, and art. 2, § 1). Controlled companies outside those cases are taxed when the profit is made available to the owner (art. 6, II).

Tax paid abroad can be deducted from individual income tax (IRPF) under the conditions of art. 4. The individual can also choose to declare the entity's assets as if they were their own. That art. 8 election is irrevocable for as long as the individual keeps the entity.

Own active income is revenue earned directly by the entity from its own economic activity. Royalties, interest, dividends, equity interests, rent, financial investments and financial intermediation are excluded (art. 5, § 6). For the step-by-step of the declaration, see how to report an offshore on your income tax return.

What about a Brazilian company with a controlled company abroad?

Law 12,973/2014 adopts worldwide taxation. The portion of the investment adjustment in a direct or indirect controlled company abroad that corresponds to the profits it earned before income tax goes into the taxable profit (lucro real) and the CSLL (social contribution on net profit) base of the Brazilian parent company (art. 77). The parent records these results in sub-accounts of the investment account (art. 76).

Points that change compared with individuals:

Consolidating the positive and negative results of controlled companies is an option for the company, and it does not apply to investees in a country with no tax information exchange agreement, in a favored-taxation country or privileged regime, or controlled by such investees (art. 78, I to III). The company may also choose to pay the tax in proportion to the profits distributed in the following years, within the limits of art. 90.

The text in force changes often. Check the updated text on the Planalto website before applying an article to a real case.

How does the US CFC regime work (Subpart F and GILTI)?

In the US, a controlled foreign corporation is a foreign company in which American shareholders hold more than 50% of the voting power or of the value of the shares (26 U.S.C. § 957(a)). For this purpose, a US shareholder is a US person who holds 10% or more of the vote or value (§ 951(b)).

Section 951 deals with the amounts included in the income of US shareholders, and § 951A creates the GILTI inclusion (global intangible low-taxed income), calculated from the CFC's taxable income (net CFC tested income). The 2024 edition of the U.S. Code, which we consulted, uses the name GILTI. Later legislative changes may alter names and calculations, so confirm the rule in force with an American lawyer or accountant.

For Brazilians, the regime matters when you are a US person, a concept defined by § 7701(a)(30) and applied to § 957. Confirm with an American professional whether you fall under it. A US LLC owned by a non-resident Brazilian is a different matter, covered in offshore structure for digital entrepreneurs.

How does the UK CFC regime work?

The British regime applies to companies resident outside the United Kingdom that are controlled by UK residents (HMRC, INTM191100). Control can be legal (shareholding and documents), economic (right to profits and assets) or accounting (parent company test).

The charge applies only to the CFC's chargeable profits, which are those that pass through the "gateway" (CFC charge gateway) defined in Part 9A of TIOPA 2010. HMRC describes these profits as those that were artificially diverted from the United Kingdom. For most CFCs, the analysis ends at the initial tests in chapter 3.

For Brazilians, the regime matters when there is residence or control in the United Kingdom.

How does Germany's Hinzurechnungsbesteuerung work?

Germany calls its regime taxation by addition (Hinzurechnungsbesteuerung), set out in the Foreign Tax Act (Außensteuergesetz, AStG). A German taxpayer who controls a foreign company is taxed, in proportion to their holding, on the income in which it is an "intermediate company" (AStG § 7 Abs. 1).

Control exists when the taxpayer, alone or with closely related persons, has more than half of the votes, of the capital holdings, or of the right to profit or liquidation proceeds (§ 7 Abs. 2). Low taxation occurs when the income tax burden is below 15% (§ 8 Abs. 5). Income from agriculture, industry and certain insurance and banking activities does not fall under the concept of an intermediate company (§ 8 Abs. 1).

How do the four regimes compare?

The table is for comparing tests, not for deciding a case. The same profit can be targeted by two countries when you have more than one residence or citizenship, and the solution depends on treaties, credit for tax paid abroad and tax residence.

How do you prepare for CFC rules in 2026?

1. •Map the corporate chain. List each entity, the direct and indirect percentage and the related persons.
2. •Classify the income. Separate active revenue from royalties, interest, dividends, rent and investments, which do not count as active income.
3. •Check the entity's country. Check whether it falls under arts. 24 and 24-A of Law 9,430/1996.
4. •Keep the accounting. Balance sheets, statements and documents for each entity support the profit calculation.
5. •Declare through both channels. The profit goes on the DAA (annual income tax return), and assets abroad above the threshold go to the Central Bank's CBE (Brazilian Capital Abroad report).
6. •Review every year. Laws change, and the classification can change with them.

Brazilian enforcement also uses automatic exchange of information, a topic covered in CRS and tax information exchange and Receita enforcement of offshores. For help with the analysis, see tax planning and compliance.