If you are an investor and are concern about the risk to ultimate beneficial owners or wants strong asset protection laws, here is the solution – incorporate a holding company. A very next quest after this may arise –  what is a holding company?  

What is Holding Company?

Holding company is a legal entity that is only allowed to own shares in other companies. In addition, it can perform management or supervision function. This company is not allowed to conduct business trading or service providing business activities.

What is the use of Holding Company?

There are a number of reasons why you should set up a Holding Company.

1. This company achieves the reduction of risk for the ultimate beneficial owner’s assets. This is in the case when the company is registered in the jurisdiction with strong asset protection laws.
2. This company can centralize the ownership and control number of its share owning companies.
3. If this company is established in the tax haven jurisdiction, it may help to reduce the tax burden.

Here is an example of holding company: Mr. Lal, Indian nationality, was planning to start a new business by investing in tourism facilities like Hotels, Restaurant, Golf links and others in Portugal.  He was interested in investing in such a manner that:

1. The investment returns should be tax effective and
2. The assets should be well-protected against various business, economic or political risks.

Solution

Mr. Lal can split the business transactions by incorporating two different companies, where one will look after real estate and the other will look after business operations. The income generated from renting the properties will be subjected to Portugal corporate tax at a rate of 28%, not considering whether the real estate companies is resident or not. Moreover, if the companies are established in ‘blacklisted’ offshore jurisdiction, additional taxes may apply. As the initial phase of the company is the development phase, the operational company will have accumulated losses. If the real estate companies are resident in Portugal, both the real estate companies can be held as Holding Companies based in Portugal. In this way, group of companies will be able to claim relief under Portuguese law, resulting that profile of real estate company can be adjusted against the initial losses of the operating companies, resulting into minimizing the exposure to Portuguese tax. If this Portugal company is owned by a foreign Holding Company, below will be the outcome:

1. Withholding tax on dividends paid by the Holding Company
2. Corporate income tax upon receipt by the Holding Company

However, these conditions would meet if the Portuguese company is owned by tax exempt company in an offshore jurisdiction.

Note:

A Holding Company structure will not work if the jurisdiction is blacklisted under Portuguese law.

If you are looking for any tax saving solutions or proper business structure, get in contact with our experts by just writing an email to incorporate@nrdoshi.ae . Our first consultation is free.