Holding solutions: How to optimise taxation through a holding structure
Structuring a holding company is one of the most challenging tasks for tax advisors and businesses, because there are so many factors to consider in terms of taxation, residence and optimisation. The simple fact that a holding regime exists in a given country will not make the whole structure work. Here are the key aspects to consider when choosing a holding jurisdiction:
Income tax. In favourable holding jurisdictions, income derived from qualifying participations (i.e. dividends and capital gains) will ideally be fully exempt from corporate income tax. In many holding countries, full tax exemption is possible under specific participation exemption rules established by local legislation.
Outbound distribution of dividends. Dividends paid by a holding company to its parent company may be exempt from withholding tax under certain conditions. The final withholding tax rate may vary, depending on the residence status of the beneficial owner.
Double taxation treaties and the EC Parent-Subsidiary Directive. Tax treaties are aimed at reducing withholding tax rates on inbound and outbound dividends. Therefore, the most appropriate holding jurisdiction depends on the respective locations of the parent company and the subsidiary.
Tax residence status. Achieving tax residence status can be crucial for utilising the benefits of a holding company. Obtaining a tax residence certificate can be challenging but may be possible under certain conditions, such as having a resident director, a local rented office, local employees and others. Other obligations, like annual financial accounts, statutory accounts and tax returns, must be complied with at all times.
Substance. Very often there are substance requirements, with some countries stipulating a certain amount of substance in the holding jurisdiction before tax benefits can be obtained (so-called anti-abuse legislation).
