What are Controlled Foreign Corporations (CFCs)?

Controlled foreign corporations (CFCs) are corporations established or operating outside of the United States (US) that are controlled by US persons. These US persons, typically US corporations or individuals, may own more than 50% of the voting stock of the foreign corporation or may otherwise control the foreign corporation. The US has adopted the world-wide taxation system and this includes taxation of CFCs. This means that US persons with ownership or control of a foreign corporation are taxed on income realized by the foreign corporation in the same way as income earned directly by the US person. Under the US tax system, CFCs are taxed on their income and assets on a yearly basis. The tax rate usually depends on the type of income the foreign corporation earns and the country in which the foreign corporation operates. For example, the US has a preferential tax rate for foreign corporations operating in designated countries. Under Texas law, the taxation of income earned by CFCs is generally identical to the taxation of income earned by US persons. This means that US persons are subject to the same tax rate in Texas regardless of whether they earn income directly or indirectly through a CFC.

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What are Controlled Foreign Corporations (CFCs)?

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