Company Formation, Holding,offshore company formation, offshore company, limited company,company formation UAE,Cyprus,Belize
Setting Up a Holding Company: Holding Company within the EU – Swiss Holding Company -Holding Companies in Other Countries
- Tax planning via a network of international tax advisers and attorneys
- Why form a company in a foreign country with a tax accountant specialized in international tax law?
- Basic Considerations regarding the Formation of Companies in „Zero-Tax Havens“ i.e. in countries that have not entered into Double Taxation Agreements with other countries
- Offshore Company Formation: Tax haven rankings
- Download all Company Information
- Examples for the legal reduction of corporate taxes
Concept of the Holding Company: General Perspectives
The term “holding company” does not describe an independent legal form but a form of organisation set up in practice in relation to the parent company of a group of companies and is not legally defined.
The holding company organisation consists of two levels: a corporate headquarters or parent company and several, legally and organisationally independent subsidiary companies, in which the holding company (from the English “to hold”) holds a share of the capital.
The organisational form of the holding company is defined – unlike the organisation of functional areas or the organisastion of the business sectors – less through the internal allocation of duties than through the allocation of the property rights and, accordingly, through powers to make decisions and issue instructions.
The creation of goods and services is carried out within the subsidiary companies, the basic units of the group. It is irrelevant whether these vertical part stages operate in the same wealth-creation process and, accordingly, a functional division exists or whether they are active in different wealth-creation processes and there is, accordingly, a division according to property areas. Many holding companies try to make use of the effects of synergy between the subsidiary companies. As a result of this intention, main areas emerge with corresponding functional authority to issue instructions to the subsidiary companies that are created according to regional or product-oriented points of view.
The holding organisation is an instrument for the exploitation of tax benefits, for circumventing equity holding limits and for the realisation of advantages in terms of size and specialisation within the context of the capital investment. Furthermore, this organisational form allows the easy integration of businesses acquired. Tax benefits can be taken advantage of by the holding company moving its head office to a country where the tax environment is more attractive.
The profits transferred from the subsidiary companies to the holding company are then subject to more favourable tax legislation. For reasons to do with antitrust law, companies are frequently prohibited from holding fairly large equity stakes in other companies. Moreover, in many cases, exceeding a minimum participation involve statutory duties. In order to circumvent this, holding companies are set up in many cases.
Tax and Non-Tax Reasons for Setting Up a Holding Company
A holding company collects the dividends (profits after tax) of the subsidiary company/companies as free from tax as possible and does not tax pure participation profits. In addition, further distributions from the holding company have only a small amount of tax levied on them or, in the best case scenario, are untaxed (no tax at source by smuggling the dividends through to the shareholders of the holding company or umbrella company/companies = dividend routing). In addition, management or administrative holding companies can invoice the subsidiary companies in respect of its activities, which will correspondingly reduce the taxable profit of the subsidiary companies. The same applies in the case of holding companies that hold patents, licences or rights.
Non-tax reasons for setting up a holding company may be:
- Legal separation of the operational business from the strategic responsibility
- Concentration of management and administrative tasks
- Management and administration of the holdings within the family group
- Concentration of financing functions
- Bundling of shares and pooling of profits in the case of joint ventures
Holding Company within the EU
If the subsidiary or basic companies are located within the EU, then, as a rule, a Cypriot, Dutch or Spanish holding company is suitable due to the effect of the EU parent-subsidiary directive (=tax-free collection of dividends, provided that the preconditions of the parent-subsidiary directive are met, with respect to the value of the stake and the period for which it is held), EU freedom of establishment and/or EU directive on mergers (tax-neutral exchange of shares, merger). Cyprus and Holland, in particular, have a so-called holding privilege, that is, there is no taxation of proceeds purely from holdings. Cyprus offers further benefits in this connection: in principle, there is no tax at source in the event of further distributions to non-Cypriots, and even under non-DTA circumstances, active income is taxed at a rate of only 10%.
Swiss Holding Company
A Swiss holding company is suitable in the case of certain constellations. However, this can also have unfavourable repercussions: a tax rate of 35% at source in the event of further distribution under non-DTA circumstances, and there are only positive effects analogous to the EU parent-subsidiary directive provided that subsidiary companies are located within the EU AND there is a DTA with Switzerland in existence (otherwise exemption from tax at source is only granted after a holding period of two years).
Holding Companies in Other Countries
Other countries such as the United Arab Emirates (UAE), certain offshore countries or Singapore may also be suitable as the location for a holding company. When it comes to the selection of the right location for the holding company, the questions listed below are important, among other things.
Finding the Right Location for the Holding Company
Thus the following factors are important, among other things, for determining the right location for the holding company:
- Location of the subsidiary companies (DTA circumstances, EU, non-DTA circumstances)?
- Pros and cons of the individual holding company locations, with regard to the priority aims
- How are non-holding company activities taxed in the country where the holding company is to have its head office?
- Is there any holding privilege at all, that is, no taxation of the dividends flowing in in the case of pure investments
- How are further distributions from the holding company directed at home and abroad taxed (question of taxation at source)?
- How are interest and licence payments of the holding company taxed?
- What are the arrangements for the deduction of losses on disposals and partial write-downs?
- What are the arrangements for the deduction of investment expenses/external borrowing of the partners?
- Issue of the CFC regulations, regulations concerning additional taxation
- Under what conditions do non-holding company activities infect the holding privilege?
Services of Our Legal Firm with regard to “Setting Up a Holding Company”
-tax advice,“suitable location for a holding company” under existing conditions or conditions to be created (location of the subsidiary companies, country of residence of the recipients of the dividends, main aims etc..)
-establishment of the holding company abroad, including all the necessary services such as setting up the company, entering it on the register, representation of the nature of the holding company to the domestic tax authority, and the necessary physical escape of the holding company (from a virtual office to an actual office)
-Insofar as no director has been appointed: trust director or full-time director in the country where the holding company is to have its head office (=5 DTA:location of the senior management of the business as the location of the business premises)
-At the active holding company or group level: linking the employees of the holding company, visa matters, payroll accounting, assistance with finding living accommodation in the country where the holding company is to have its head office, suitable offices for the holding company etc.
Offshore Company Formation
We are a network of international tax advisors and attorneys, with focus of interest on foreign formation of businesses for the legal minimization of taxes,limitation of liability and/or restart after domestic insolvency. We are able to found the following companies:
- English Limited (21% income tax for medium-sized businesses up to a profit of £300,000, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
- Cypriot Limited (12,5% income tax rate, independent of profits, no taxation of distribution of profits, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
- Bulgaria (10% income tax rate, independent of profits, no taxation of distribution of profits, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
- US Corporation (pure form of stock corporation, taxes depending on the kind of activity and on federal state, DTA concept)
- Company Formation United Arab Emirates (NO taxes, except for banks, oil companies and chemopetrol enterprises, DTA concept)
- Companies in Liechtenstein (12,5% tax, depending on purpose and legal form)
- Swiss GmbH (low taxes depending on canton, DTA concept)
- Company Formation Belize,BVI,Cayman Islands,Nevis,Isle of Man,Panama,Seychellen (NO taxes)
Our English company is mainly consulted by clients from high tax countries in the EU, such as Danish and Swedish clients. In particular for these clients, there are broad opportunities within the framework of double tax agreements, EU freedom of establishment and the EU directive on parent companies and their subsidiaries to legally reduce the tax load in their domestic country (e.g. Sweden, Denmark), or to place the sole right of taxation abroad. Click here for examples…
The fees for formation of businesses depend on the services:
- Formation of the company, entry in the commercial register, any required documents, apostille
- Nominee services: nominee direktor/supervisory board, nominee partner/shareholder
Please note: Nominee services are required, if the founder of the company has his centre of vital interests in a state other than the state of the company’s registered office, i.e. for example not in England in case of an English Limited company, but the state of registered office should still be entitled to the right of taxation: “place of business management” as the place of tax law permanent establishment according to double taxation agreement (DTA). Therefore, nominee services may be required, provided that the actual founder wants to remain unknown, e.g. after insolvency or prohibition of trade. It is important that the nominee is an attorney or tax office, respectively, in the formation state (state of registered office), and that the nominee can always be reached. Any “cheap founders” do not install any attorney or tax office as nominees, which may have disastrous consequences for the client.
- Domicile in the formation state: domicile address in the foundation state, deliverable postal address, mail forwarding service, telephone, fax
Please note: If taxation is to be effected in the state of registered office, for example in England, domicilation must meet the requirements of a regular registered office. A “mailbox” or an “answering machine” does not constitute a regular registered office, and may lead to the assumption of a bogus company (beware of cheap founders!)
- Opening of an account for the company, including internet banking and VisaCard
Please note: Most cheap founders only offer “help with opening a bank account”. The company usually does not get any bank account and/or the nominee has access to the bank account. We install a bank account for the company in the state of the company’s registered office, with sole account authority for the client!
Please send us an E-Mail with your objectives. We require the following details:
- Where are you resident (as natural person) according to tax laws?
- What are your objectives (e.g. reduction of corporate taxes, indemnity, capitalization, restart after insolvency)
- Would you like to actively do business in the foundation country (state of registered office) of the company (such as industry), or do you not intend any active business in the foundation country?
We will then explain any possible constructions in a summary with advantages and disadvantages. Any futher consultation (per e-mail, telephone or in our office) will be charged at € 70.00 per hour.