CFC (Controlled Foreign Corporation)

A Controlled Foreign Corporation (CFC) refers to a foreign company that is primarily owned or controlled by U.S. shareholders. Specifically, if U.S. citizens or residents own more than 50% of the shares, it qualifies as a CFC. CFC rules are designed to prevent U.S. taxpayers from deferring taxes on income earned abroad. U.S. shareholders may need to report their share of the CFC's income on their U.S. tax returns, even if that income is not distributed as dividends. This regulation helps ensure that U.S. citizens can't easily avoid taxation by using foreign entities.