Introduction

Company profits are often subject to ‘double taxation’- taxation first in the hands of the company which has earned or received the profits and again when the company distributes profits to shareholders. This can affect both income profits and capital gains. To counteract this economic inefficiency, a number of countries provide different forms of relief and exemption against such double taxation. It is possible to combine the various reliefs and exemptions to achieve genuine tax savings. A number of these benefits are available to ‘holding companies’ and others are purely features of a country’s tax system.

Capital Gains Tax Planning Using “Participation Exemptions”

A number of European countries exempt capital gains made on the disposal of the shares in subsidiary companies if specific conditions are met. The countries include the Netherlands, Luxembourg, Belgium, Switzerland, Austria, the UK and some Scandinavian countries. It is often possible to distribute profits derived from such capital disposals with little further taxation in the country where the holding company is situated. Additional tax relief afforded by double taxation treaties can enhance these benefits in appropriate cases.

Dividend Income

Dividend income is often exempted from taxation if received by holding companies located in particular jurisdictions. There is either a specific statutory exemption if certain conditions are met (as in the Netherlands, for example) or the domestic tax code will relieve the dividend income from further taxation if the company paying the dividend has paid, or been subject to, tax on its profits at a certain rate of tax (as in the United Kingdom). Some countries in Europe, such as the United Kingdom, do not levy withholding taxes on dividends, and others, such as the Netherlands, do not levy withholding taxes on interest. It is often possible to structure investments in European countries using one or more holding companies with the result that the tax cost of the investment can be reduced considerably, particularly if double taxation treaty relief is available or if the EU Parent-Subsidiary directive applies.

Intellectual Property ­ Services for Artistes

Copyrights, designs and other forms of intellectual property are usually exploited by granting licences for use. Where licence fees or royalties are paid cross-border, withholding taxes are often levied. Withholding taxes can be reduced or removed by double taxation treaties and the use of a licensing company in an appropriate jurisdiction is often an important means of reducing taxation. The licensing company can sometimes also function as an employment or service company to contract for the provision of the services of the artiste or performer in question. Depending upon the jurisdiction and method of ownership and structuring selected, the effective rate of tax on the licensing company can be an almost nominal amount.

Offshore Holding Companies

In cases where it is desired to transfer assets to companies in offshore jurisdictions for holding or consolidation of ownership, a company incorporated in a zero-tax juridiction such as the Cayman Islands may be appropriate. Such holding companies are often used for holding real estate as investments in countries such as the United Kingdom.

Nominee Companies

If ownership by a tax haven company is inappropriate, it is possible for assets such as real estate or shares to be registered in the name of a nominee company. The nominee company can be incorporated in a jurisdiction such as the United Kingdom or Canada without exposing the assets to taxation there. The nominee company simply holds title to the underlying assets either for an individual or for a company incorporated in an offshore jurisdiction.

Our Holding Company Services

Summit Trust International is able to provide a full incorporation and management service including the provision of directors and officers, registered office and agency facilities and accounting services for all types of holding companies.