Registration of an international holding

In order for the business to operate with maximum profit, many companies decide to register an international holding. Thanks to this, access to new market sectors is opened, cost optimization and the introduction of complex financial schemes become available. All this is typical for holdings – a system of commercial organizations, consisting of a management company and subsidiaries (controlled) firms.

If you are interested in organizing this type of enterprise abroad, then it is important to take care of ensuring the legality of this process. Acting strictly within the framework of the law of the country in which you plan to open a holding, you will be able to avoid trouble with the law and penalties. Assistance in the implementation of this rather labor- and resource-intensive task is ready to be provided by qualified specialists of Lawrange Law Firm.

The concept of holding

A holding is an association of legal entities managed by one dominant organization: a company, a foundation, a partnership, a trust, etc. The main feature is the presence of a company that leads all other structures. It is called “parent” or holding, and the enterprises that are subordinate to it are called subsidiaries. Typically, the parent company owns:

shares or shares in the capital of subsidiaries;
property rights to assets, patents, licenses.

There is a legal connection between all legal entities within the holding, which is necessary for conducting common business activities.

The main function of the parent company is to manage subsidiaries and receive dividends from them. It also organizes lending and financing of various projects in which firms under her subordination participate.

Why create international holdings

Holding registration, including abroad, pursues a number of tasks and goals:

Optimize the tax burden by registering a holding company in a prestigious jurisdiction, and a subsidiary in an offshore zone. At the same time, an agreement on the avoidance of double taxation must be concluded between the two states in which such enterprises are registered.
Assistance in the interaction between related firms (for example, those that are connected by a single technological chain), which should eventually contribute to the implementation of their joint investment policy.
Combine financial and industrial capital, which gives banks many more tools to control the activities of subsidiaries in case of crediting them. As a result, the holding’s chances of accessing the financial resources of the bank of interest are significantly increased.
Give your investment maximum privacy. The shares of various firms owned by the holding company do not require it to be responsible for the activities of these firms. In this case, the parent company receives dividends. It is possible to increase confidentiality even more by appointing nominal top management and founders.
Organize business protection (for example, from raider attacks or unscrupulous competitors) – Ukrainian companies owned by foreign legal entities are protected by foreign investment legislation.
Make the process of transferring a business or a part of assets less complicated – there is no need for re-registration of ownership and related costs. All that is required is the transfer of shares or a specific company to a new owner.

It is also impossible not to mention that registering a holding is often preferred in order to protect against transfer pricing that develops between subsidiaries.

On the advantages and potential risks of an international holding

International business highly appreciates the opportunity to reduce tax expenses through the organization of holdings. There are preferential taxation regimes for such structures in various countries, which can either exempt from taxes or help reduce the fiscal burden on business. In addition, the registration of an international holding contributes to:

A clear distribution of tasks and goals among all members of this organization.
The choice of taxation regimes, which helps to achieve even more comfortable conditions for the fiscal burden.
Effective cash flow control.
Ensuring effective protection of beneficiaries’ assets from credit costs.
Attracting additional funding, which ultimately helps to make large projects a reality.
Reducing the costs required to run a multi-firm business.
Ensuring control over assets while maintaining the confidentiality of ownership.
Easier and more efficient resolution of asset inheritance issues, as well as intra-corporate conflicts.

Another, no less important advantage of registering a holding abroad is the opportunity to work in a foreign legal field, to have access to foreign justice, which is considered the standard of quality in many prestigious jurisdictions. At the same time, you can be sure of the full protection of the rights to property and capital.

Disadvantages of holding structures

In cases where the parent company owns less than 80-90% of the shares, the likelihood of overpayment of taxes increases. This is influenced by the rules for registering a legal entity in the selected country.
Due to the holding’s ability to expand through the use of debt or borrowed capital, a complex corporate structure may arise, including with unrealized value. This is due to the risk of changes in the interest rate on liabilities or the valuation of assets used as collateral.

Types of holdings

Holding structures are classified according to various parameters. For example, holdings can be:

Property – the parent company owns shares of firms under its control.
Contractual – the management of subsidiaries is carried out on the basis of a contract, and not shareholding.

Holdings may differ in functions and types of work, taking into account what they are:

Pure – a controlling stake is owned by the parent company, which plays an exclusively control and management role, but does not take part in the production affairs of the business.
Mixed – the functions of the main company include not only the control and management of subsidiaries, but also production activities or the provision of services.

Another factor, taking into account which holdings are classified, is the production relationship. So, there are holdings:

Integrated – the work of all enterprises within the holding is carried out strictly within the framework of the technological chain. An example of such organizations is the oil and gas market.
Conglomerate – there is no single technological chain, that is, each subsidiary is engaged in its own activities that are not related to the activities of other companies within the holding.

An important characteristic feature of any holding organization is the management process, which can concern not only other enterprises, but also assets and cash flows. Before proceeding with the management of subsidiaries, they must be attached to the holding. You can do this by integrating:

Vertical – the structure includes legal entities working in the area of interests of the holding. It is thanks to this that a closed production cycle is formed, which helps to reduce the cost of manufacturing and selling products.
Horizontal – company that produces products already represented in the holding is joined. This happens when you need to boost profits in your business sector and reduce the level of specificity.
Independent – companies that are not related to the activities of other members of the holding are connected to the structure.

Holding structures also differ in the type of activity, for example, there are agricultural holdings and technological holdings.

Problems of financial planning

For any holding, it is extremely important to build an effective and comprehensive financial management scheme due to the scattered economic connection between subsidiaries. Financial management is directly determined by the functions of the management company and its role.

The tasks of the financial service of the holding depend on the type of holding. For example, in a centralized structure, the finance department is responsible for:

Drawing up execution of budgets of subsidiaries.
Financial planning.
Risks.
Attraction, redistribution of funds, etc.

The main aspects of financial planning in international holdings are cash and profit planning. For effective work, it is important to have a properly drawn up budget, as well as the organization of interaction between investment and financial decisions. Financial planning begins with the creation of a long-term plan (2 to 10 years) focused on:

capital costs;
research, development;
marketing;
capital structure;
important sources of funding for the holding.

Lack of well-designed financial planning in the long term is often the cause of obstacles and business failures.

Rules for choosing jurisdiction for registering a holding

It is recommended to consider the following questions:

What tasks will the beneficiaries and the holding itself have to perform.
Is it necessary and possible to obtain a residence permit in the country of registration.
What are the budget options?
Are there residents from different countries in the team of the future holding?
Is it necessary to further limit the influence of a large number of beneficiaries on the activities of the holding.
Does the holding consist of companies located in the countries of the former CIS.
What are the plans for the finances earned by the holding.

There are a number of other nuances that also need to be taken into account when choosing a country:

Tax rules.
Restrictions that apply to the “write-offs” of expenses between subsidiaries.
Consequences of tax acquisitions or sales of corporate rights of Ukrainian companies or their parent companies located abroad.
Legislation relating to transfer pricing.
Algorithms used by tax authorities in different countries to analyze activities of non-resident organization, etc.

Important! Opening a holding abroad requires in-depth knowledge of all the above issues and other nuances. Solving this problem without the risk of facing unpleasant consequences for the business is much more realistic if you use the services of qualified specialists from Lawrange Attorneys Association. We are ready to advise in detail on all emerging issues related to the registration of an international holding, including in the taxation sector.

Switzerland

One of the most attractive countries for organizing a holding company. It is known for its federal tax credits for dividends and capital gains, which accrue subject to certain conditions of participation. You can also organize a holding that does not have to pay utility, cantonal taxes. The size of the maximum allowable effective CIT rate ranges from 11.4-24.4%. If a special tax regime is applied, the CIT rate is set at 5%.

In Switzerland, the registration of a holding is possible in the form of:

GmbH is a limited liability company.
AG – public joint stock company.

State of Delaware (USA)

Those wishing to register a holding here can expect to receive tax benefits, as well as protection from creditors. This jurisdiction is able to provide any business with a high level of confidentiality. Other advantages of registering a holding in Delaware include:

Ease of starting a business – minimum constituent requirements are put forward.
Separation of personal assets from the assets of the enterprise, that is, liability is borne only within the framework of shares of the authorized capital.
Availability of a specialized economic court, created specifically for foreign companies, so that they can quickly and efficiently resolve legal disputes without recourse to a jury.

The greatest benefit of registering a holding in the state of Delaware is determined in the absence of any activity on its territory, similar to classic offshore jurisdictions.

Great Britain

In most cases, there is no taxation of foreign dividends in this jurisdiction. When selling shares of subsidiaries, you will not have to pay capital gains tax. Also, such a tax is not provided if the shares of the holding are sold to shareholders without UK residence. Many entrepreneurs prefer this particular country to open a holding because of the opportunity to significantly reduce registration costs, as well as the costs of further business maintenance. At the same time, there are no strict citizenship requirements for shareholders and directors. An equally weighty argument in favor of choosing the UK is its positive commercial image.

Basic requirements for registering a holding:

Any number of directors, but not less than 1 person.
Mandatory presence of a secretary, in the role of which both an individual and a legal entity can act.
UK registered office.
Mandatory annual filing of tax returns.

It is beneficial to register a holding in the UK if most of the income in the form of dividends is received from subsidiaries that operate in countries with a high level of taxes on dividends.

Cyprus

For any Cypriot holding company, there’s various tax advantages. This jurisdiction attracts investors with the opportunity to register a holding structure in a short time – no more than 2 weeks. To work with international partners, the holding does not need to obtain a special license (provided that the company’s activities do not relate to banking, insurance, investment and other areas).

The main tax incentives in Cyprus:

Profits are distributed among non-resident shareholders without paying taxes. Thus, the corporate rate of 12.5% allows a significant increase in the holding’s income, which creates comfortable conditions for building a profitable business.
Receiving dividends from other companies, regardless of where they are registered, at a low or even zero rate.
Zero tax on income from trading in securities, on profits from a permanent establishment of a Cypriot subsidiary registered abroad.
Corporate tax of 2% on income from the management of intellectual property rights.

Lawrange specialists provide legal support on all matters of corporate and financial activities in Cyprus. We will help you to establish the holding quickly and in full compliance with the laws of this jurisdiction.

Hong Kong

This jurisdiction is one of the largest business and financial centers in the world. Here you can take advantage of a competitive tax regime. A holding registered in Hong Kong is generally exempt from taxes on dividends and capital gains. Due to the territorial tax system in force here, income from subsidiaries is not related to the parent company.

Important! The registration of a holding in Hong Kong will be especially useful for those entrepreneurs whose business is related to mainland China. In this case, your company will have more opportunities for rapid business development.

UAE

When looking for a suitable jurisdiction to open a holding, many entrepreneurs choose this jurisdiction. Due to the participation of the UAE in the double taxation agreement, it is possible to significantly optimize tax costs. It is allowed to participate in the holding of an unlimited number of companies that can operate in any country. Other important features of opening a holding in the UAE include:

The ability to apply transactional schemes without restrictions.
The owner’s access to the function of centralized management of financial flows, which makes it possible to freely transfer capital between all members of the holding.
There are no restrictions regarding the withdrawal and input of capital, profits, etc.

A few words about the taxation of holdings

Due to the high mobility of parent companies, a profitable tax planning strategy can be used. At the same time, the accumulated profit from subsidiaries is usually subject to corporate tax (holding level) and tax on dividends (subordinate companies level). It also does not exclude the possibility of taxing profits at the time of distribution to individual shareholders in the form of dividends. In turn, shareholders need to pay income tax on these dividends.

Important nuances of taxation of holdings:

The amount of corporate tax can vary between 0-40%.
The presence in some countries of full or partial tax incentives, or the complete absence of taxes on dividends.

Why choose Lawrange

Our team of experienced and highly qualified specialists will quickly cope with the task of registering a holding company in any jurisdiction of interest. Contacting us, you get:

Opportunity to consult in detail on the issue of interest.
Full support of the registration process, including without your participation.
The ability to collect all the necessary documents in a short time – our specialists will receive certificates, extracts and other documentation from various funds, government agencies, etc.
Analysis of international jurisdictions to select the most appropriate one.
Development of international schemes for intra-group financing and much more.

All preparation and organization of the registration process will fall on our shoulders, thanks to which you will be able to save time, money and nerves.

FAQ

How long does it take to register a holding company offshore?

The duration of registration depends on the rules and legislation of the jurisdiction where the holding is planned to be registered. Many countries create conditions for a relatively fast registration process – from several days to several weeks. However, before registering a holding offshore, additional time will be required to prepare the notarization of documents, translate them, obtain extracts of powers of attorney, appoint directors, and more.

What are the advantages and disadvantages associated with registering a holding?

The main advantages of the holding are the reduction of the tax burden on business and the diversification of risks through the distribution of assets. Disadvantages include the need to hire a large number of staff to supervise subsidiaries, as well as more complex administration.

What is the difference between a holding and a holding company?

These are two concepts, one of which is part of the other. That is, a holding is the entire business structure, which consists of a holding company, as well as other smaller enterprises that are subordinate to it.

ORDER REGISTRATION OF THE HOLDING Telegram bot for quick communication with us