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We regularly advise clients on of the benefits of creating a group structure via the use of a Holding Company. A Holding Company is a corporation or limited liability company that has no operational activity, but instead exists to own or control other companies. It can be used as a powerful tool for managing and growing multiple businesses under one umbrella.

One of the main advantages of using a Holding Company structure is asset protection. By separating assets into different entities, you can shield them from potential legal liabilities. If one business faces financial troubles or gets sued, the assets held by the other businesses will not be affected. This allows for greater security and peace of mind for both business owners and shareholders.

A Holding Company also provides tax benefits by allowing companies to take advantage of certain tax deductions that may not be available to individual businesses. As each subsidiary operates under its own unique entity.

An example of a typical structure is below:

Holding Company structure

The main points

  • A Holding Company provides limited liability protection to its shareholders, meaning they are not personally liable for the debts and liabilities of the company.
  • By having multiple subsidiary companies under a Holding Company, risks and investments are spread out among different entities, reducing overall risk.
  • Holding companies can take advantage of tax benefits such as tax deductions, deferrals, and credits that are not available to other types of businesses.
  • Allow for a long-term investment strategy as they hold shares in various businesses rather than actively participating in day-to-day operations.

What is a Holding Company used for?

Holding companies are commonly utilised to safeguard the assets of subsidiary companies, offering a protective layer. These subsidiaries can operate in diverse industries or markets, while the Holding Company provides support and additional resources.

Let’s delve into why incorporating a Holding Company within a group structure yields more advantages than operating as a standalone entity –

Reduce Risk

Risk management is one of the key advantages. When a company engages in various trades or possesses distinct investments like property, segregating them into separate subsidiary firms under the shared control of a Holding Company can prove beneficial.

This group structure mitigates the risk to the subsidiary trades in the event of underperformance or insolvency within a specific part of the group.

In contrast, if all operations were confined to a single company, this safeguard would not be in place.

Asset Protection

A Holding Company serves as a custodian for a business’s valuable assets, encompassing trade or investment property, plant and machinery, intellectual property, and surplus cash for investments.

Meanwhile, subsidiaries assume the day-to-day operations and trading responsibilities of the business. When necessary, assets can be leased to the subsidiaries, all while safeguarding them from creditors and the associated trading risks.

Tax Benefits

Dividends can be transferred between a subsidiary and a Holding Company without incurring tax charges. When a company owns more than 10% of the shares in another company and sells those shares, typically no tax is payable on any profits.

Shared Costs

Various businesses can leverage administrative and central services functions. These functions can operate under a Holding Company, which can allocate charges to its subsidiaries. This approach enables appropriate cost-sharing among them.

Do holding companies pay tax?

Holding companies are generally not liable to pay taxes on their own, as they do not engage in any business activities directly. However, the subsidiaries or underlying companies owned by the Holding Company may still be subject to taxes based on their respective income and operations.

One of the main benefits of using a Holding Company structure is its ability to manage tax efficiency plans more effectively. This is because holding companies can utilise various tax planning strategies such as profit shifting, tax consolidation, and transfer pricing to reduce their overall tax liability.

Profit shifting refers to the movement of profits from high-tax jurisdictions to low-tax jurisdictions within the same group of companies. This can be achieved through inter-company transactions such as loans, royalties, or management fees charged by the Holding Company to its subsidiary companies. By doing so, the Holding Company can allocate profits to lower tax regions and minimise its overall tax burden.

What’s the benefit of creating an international Holding Company?

In addition, holding companies can also take advantage of favourable tax laws in different countries by establishing subsidiaries in those locations. For example, some countries offer lower corporate tax rates or other incentives for businesses investing in certain industries or regions.

Furthermore, holding companies can also benefit from having greater control over their international operations and managing cross-border transactions more efficiently. By consolidating their subsidiaries under one umbrella entity, they can have a better overview of their global operations and make strategic decisions to optimise their overall tax position.

businessman, internet, continents

What options are available for international holding companies?

Our team is well-versed in the different requirements and procedures for opening companies in the UK, UAE, Cyprus, Malta, and Portugal. Each of these countries offers unique benefits and varying corporate tax rates that can be advantageous for businesses. Our team can guide individuals through the process of setting up a company in any of these locations.

For example, the UK has a stable economy and a business-friendly environment with various tax incentives for companies. The UAE is known for its tax-free zones and numerous opportunities for foreign investment. Cyprus offers a low corporate tax rate of 12.5% and access to the European market. Malta has a favourable tax system and an attractive residency program for business owners. Portugal has recently become a popular destination for entrepreneurs due to its welcoming business environment and competitive tax rates.

During an introductory meeting with our team, we can discuss in detail the specific benefits and advantages of each location based on your business goals and needs. We will also provide information on legal requirements, paperwork, and timelines to ensure a smooth setup process.

Don’t miss out on the opportunity to establish your business in one of these thriving economies. Contact us today to schedule an introductory meeting with our team and start your journey towards successful company setup across the UK, UAE, Cyprus, Malta or Portugal.

Is it possible for a Holding Company to acquire other companies?

Absolutely. By bringing companies together under a Holding Company structure, numerous benefits can be opened up.

The Holding Company, positioned at the apex of a group structure, can purchase additional companies, which then become subsidiaries. This arrangement proves advantageous for businesses seeking to expand through acquisitions while maintaining a separate group entity for the acquired business.

This subsidiary serves as a safeguard, allowing for the transfer of assets to the Holding Company. Employing a Holding Company and group structure also safeguards important reliefs, facilitating the transfer of assets within the group and preparing subsidiaries for future asset or trade sales.

Examples of famous Holding Companies

Here are some examples of famous holding companies in the UK and around the world.

  • Tesco plc
  • Unilever plc
  • GlaxoSmithKline plc
  • BP plc
  • Berkshire Hathaway
  • Alphabet Inc.

Holding company vs Parent Company

A Holding Company is a type of business entity that owns and controls other companies, known as subsidiaries. Unlike a Parent Company, which is directly involved in the operations of its subsidiaries, a Holding Company’s main purpose is to hold and manage investments in other companies.

Let’s delve deeper into the advantages of adopting a Holding Company structure over establishing a brand new Parent Company:

Asset Protection

One of the main benefits of a Holding Company is that it provides a layer of asset protection for the business. By separating the assets of the operating company from those of the Holding Company, the business owner’s personal assets are shielded from any potential liabilities or lawsuits that may arise.

Tax Benefits

Holding companies often have more favourable tax treatment compared to operating companies. This is because holding companies typically receive income from dividends and capital gains, which are taxed at a lower rate than regular business income.

Flexibility and Control

A Holding Company structure allows for greater flexibility and control over the operations of subsidiary companies. The Holding Company can make strategic decisions and investments without affecting the day-to-day operations of its subsidiaries.

Easier Expansion

As a business grows, it may want to expand into different industries or geographic regions. A Holding Company allows for easy expansion as new subsidiaries can be added under its umbrella without disrupting the existing structure.

Succession Planning

A Holding Company provides an effective way to transfer ownership and control of a business to future generations. The ownership of shares in a Holding Company can be easily transferred, making succession planning simpler and more efficient.

Diversification

By having multiple subsidiary companies under one Holding Company, there is less risk involved compared to putting all your eggs in one basket with a single Parent Company. If one subsidiary fails, it will not affect the others and overall losses can be minimised.

Cost Savings

Setting up a completely new Parent Company can be costly and time-consuming compared to establishing a Holding Company; which only requires registering one entity instead of multiple entities.

In conclusion, opening a Holding Company instead of setting up a completely new Parent Company offers numerous advantages. These benefits make it an attractive option for businesses looking to expand and protect their assets.

teamwork, cooperation, brainstorming

Summary

By setting up a Holding Company, individuals can have a better control over their various businesses while minimising their financial risk. They can also benefit from the expertise and resources of the subsidiary companies without having to directly manage them.

Our team specialise in helping individuals set up holding companies for their businesses. We understand the intricacies of this complex structure and can guide you through the process with ease. Our experienced professionals can help you determine the best approach for your specific needs.

We highly recommend setting up an introductory call with our team to begin discussions about expanding and improving your business. This allows us to understand your goals and tailor our services accordingly.

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