International holdings and offshore companies

An international holding gives the owner the ability to manage several businesses through one parent company and centralise investment decisions. This structure is convenient for owning shares, receiving dividends, selling assets and financing new projects. An offshore company can have a separate place in the group if its function matches the international ownership or investment structure. The main task is to determine the countries and account requirements so that the whole structure works as one mechanism for making and reinvesting profit.

Holdings. Holding structures using offshore companies

The reason for creating a holding is normally the need to organise ownership of the group and financial flows between its members. The holding company acts as shareholder or member of subsidiaries located in the countries where the group carries on business and makes profit.

Holding structures can solve a whole group of tasks connected with forming income and suitable taxation of the business by methods other than dividend payments, including:
combining into one structure companies with different functions, for example companies owning a trade mark or real estate, companies carrying on trading intermediary activity and so on;

• a strong reputation of the holding company and the companies in the group;
• promotion of one trade mark for the group;
• tax planning within the holding;
• raising loans and additional investment within the holding on better terms.

Factors that are important when choosing a jurisdiction for a holding:

• the existence of holding company legislation;
• a favourable tax regime for dividends, royalties, interest at source and other types of income in the country of registration of the holding;
• the existence of bilateral double tax treaties for income and property.

When choosing a jurisdiction, current company law and the participation tax regime are important. In many countries a separate legal form called a 'holding' is not required: an ordinary company becomes a parent company by owning shares and performing the relevant functions.

In practice, European jurisdictions can conveniently be compared by how an ordinary company may own subsidiaries, receive dividends, sell shares and finance the group. Special investment regimes and company forms are also considered if they give an advantage for a specific transaction.

The first and most common model is an ordinary company under national company law that owns qualifying shares in subsidiaries. This approach is used, for example, in Denmark, Sweden, Spain, the Netherlands and several other countries.

The second model is an ordinary company for which the specific tax result depends on the participation structure, holding period and type of income. Dividends, capital gains and intra-group financing are calculated in advance.

The third model is the use of special company or investment structures when they fit the owner's goals. In Luxembourg, for example, ordinary companies with the relevant asset and participation structure are widely used for holding purposes, while the legal form is selected according to the investment task.

Share capital requirements are determined by the selected country and legal form. Therefore, it is better to check the amount and payment procedure after the role of the holding, planned assets and future bank have been defined.

Participation exemption criteria differ between countries. For distributions between qualifying EU companies, the Parent-Subsidiary Directive uses a basic participation threshold of 10%, while national regimes may provide their own conditions. For example, in Spain one of the main criteria of the domestic regime is participation of at least 5%, under which qualifying dividends and income from sale of shares use a 95% exemption.

When choosing the country of registration for a holding, intra-group loans should be calculated separately. Important points are the agreement terms, interest rate, accounting treatment of interest and the role of the parent company as a financing centre. This calculation allows a loan to be used as a full investment tool within the group.

The choice of jurisdiction for registering a holding is also connected with the countries of registration of the subsidiaries. For example, in Sweden and Austria, before registering a holding company it is important to plan in advance that the subsidiaries are in suitable jurisdictions under the laws of these countries.

The list of parent company functions depends on the specific legal form. In practice, a holding may specialise in ownership of shares, investment and financing, or combine these functions with other business activity if this model is permitted in the selected country and fits the group's tasks.

Holding jurisdictions should also be distinguished by the level of restrictions connected with activity inside the group. For example, some countries have actual or legal restrictions on transfer pricing, and a proper approach to pricing within a group has become increasingly important.

As noted above, further but no less important factors when choosing a jurisdiction are special tax rules, especially those regulating taxation of property, dividends and withholding tax.
Attention is also paid to double tax treaties for income and property concluded by the country of registration of the holding.
For tax planning purposes, the most interesting treaty articles are usually those regulating taxation of interest, dividends and licence payments, including copyright and licence income.
These treaty provisions can reduce the tax burden on some types of income to zero, leaving larger amounts of profit available for investment.

Holding companies have been and remain a very effective tool for managing business assets and planning taxation of investment income.

When creating a holding structure, the choice of jurisdictions participating in the holding scheme is very important.

For a country to be attractive for creating a holding company, four criteria should be considered:
Withholding tax on incoming dividends: dividends sent by a subsidiary to the parent company should be exempt from tax or subject to very low tax rates in the subsidiary's jurisdiction. This is normally achieved through double tax treaties between the countries of the subsidiary and parent company.
Corporate tax on dividends: dividends received by the parent company from the subsidiary should either be fully exempt from tax or be subject to very low rates in the parent company's country.
Capital gains tax on sale of shares: income received by the parent company from selling shares in a subsidiary should either be fully exempt from tax or be subject to a very low rate in the parent company's jurisdiction.
Withholding tax when dividends leave the country: dividends paid by the parent company to its own parent company should either be exempt from tax or be subject to very low rates in the country of the first parent company.

Holding company concepts exist in the laws of many countries, the best known including Denmark, Luxembourg, the Netherlands, Spain, Malta and others.

Spain remains a specific jurisdiction for a European holding because of its qualifying participation regime. Under the current system, 95% of qualifying dividends and income from transfer of shares is exempt when the required criteria are met; one of the basic conditions is participation of at least 5%. For payments within the EU, applicability of the Parent-Subsidiary Directive is also considered.

Malta also remains a well-known option for an international holding because of its qualifying participation regime. Andorra can be considered separately for specific ownership and investment tasks by comparing its domestic regime and treaties with the countries where the subsidiaries are located.

The Maltese Income Tax Act keeps an exemption for income and gains from qualifying participation when the required criteria are met. Therefore, the business calculation for a Maltese company is based on the participation percentage, the subsidiary's country and the type of income, not on one universal rate for every holding.

Qualifying regimes apply according to specific participation criteria and income structure. These parameters can be checked before registration and built into the company structure immediately.

It is better to choose the jurisdiction after comparing the countries of the subsidiaries, participation percentages, planned dividends and future sale of assets. Then double tax treaties and domestic regimes work as part of one calculation of income and expenses.

We value your time and offer a ready solution: ownership structure, company registration in a suitable country, company registration, business bank account and further support. The owner receives a clear scheme and can concentrate on business development and new investments.

We wish you success in business and the right decisions!