Holding companies

Any company founded with the aim of administering the holdings of a subsidiary can be called a holding company. The protection and ease of disposition of assets are the main reasons for using a holding company. Compared to Estonian companies, European companies enjoy several advantages.

Depending on the country of residence of the holding company, in some cases it is even possible to reduce the tax expenditure to zero. Tax burden depends on the legislation of the country of residence and the tax rates laid down in agreements on avoidance of double taxation.

Holding companies occupy a central position in most of the international structures as they enable to significantly lower the tax burden, offer better protection for assets and simplify the use of assets. Also an Estonian company can be used as a holding company, but your assets are not as well protected and it is almost impossible to reduce tax expenditure. Nevertheless, asset disposition can be well organized through an Estonian company.

When choosing a holding company’s jurisdiction, you need to make sure that the country:

• has agreements on avoidance of double taxation with as many countries as possible;
• offers tax exemption on foreign dividends;
• does not impose tax on capital growth when a holding in a subsidiary is realized;
• does not apply withholding when revenue is distributed to a parent company or shareholders;
• does not impose tax on the profits of non-residents which are generated from the realization of a holding in a holding company;
• does not impose tax on capital;
• does not require minimum paid up capital.

For example, companies founded in England , Spain , Malta or Cyprus make perfect holding companies and they are attractive mostly because of the tax incentives offered by the state authorities.

Tax advantage gained depends on the location of a holding company or subsidiary. On average, tax advantage constitutes 60-70% of the compulsory tax burden.

Depending on the structure and choice of region it is possible for a holding company to make payments to parent companies located in low-tax areas while obtaining tax exemption on additional taxes.