Holdings. Business Structures. Tax optimization
Referring to the list of the largest companies in the CIS, we find that the vast majority of them are owned by foreign entities. Therewith, most of them are in the Luxembourg, the Netherlands, Switzerland and Cyprus.
This means that for some reason, at certain stage of their business, the owners of large companies come to the decision to found a holding (the union of control chains in a single holding company.)
The concept of Holding
Holding is a vertical consolidation of legal entities and consists of the parent company and its subsidiaries. The parent (main, holding) company controls the activity of subsidiaries and owns their block of shares. Holding companies are generally not engaged in trade, provision of services and / or production. The task of any holding is to own assets and provide administration thereof. However, in some countries of EU, a combination of holding activity and trading purposes is possible, but for reasons of safety and protection of assets, such a combination is not recommended.
For what purpose are companies formed into holdings?
The main tasks of a Holding are
– Accumulation of income in a jurisdiction with a lower taxes.
– Possession of corporate rights of other companies, real estate, securities.
– Business protection against encroachments from outside.
– Better protection of shareholders.
– Financing of the units of holding.
– Ownership of intellectual property rights and obtainment of royalty.
– Reduction of the taxes in the case of sale of interest in the group to a third party investor.
– Obtainment of loans and fundraising abroad in order to make investment in different projects.
– Creation of a unified management system.
The location of Holding
As described above, the main tasks of the holding company are the accumulation of assets, tax planning and prevention of possible risks. Therefore, when choosing the country of registration of the holding company it is important to take into account the tax treaties that have been signed by the country. The process of choosing the most profitable international treaty is called treaty shopping.
It should be noted that there exists no perfect jurisdiction in the context of the holding location. However, proceeding from specific tasks, you can choose the most suitable state for the holding registration. As a rule, it is EU countries that are selected for holding companies. Today, the most popular countries for registration of holding companies are the Netherlands, Switzerland, Luxembourg, Liechtenstein, and Denmark. Almost all of those countries have a good protective legislation and a reliable banking system.
For the purposes of asset protection, the following structure will be need
The basis will be a special trust structure established in a country with a well-developed protective legislation where the assets of the trust structure will be placed in a country where there are no special laws for the protection of assets, but the banking system is well developed.
The rule for combination of jurisdictions is the golden rule in business consolidation. SBSB always follows the principle of combining jurisdictions and of taking from each jurisdiction only the best.
We stand ready to assist in incremental restructuring of your business and turning it into a reliable global holding structure.
Legal support in structuring companies into a holding consists of several stages. At the initial stage, we provide legal analysis of the current situation in the group, we try to identify and prevent all possible risks. Then, our employees develop the strategy of corporate property, corporate governance, commodity – money flows and economic relations. The next stage is development of the schedule of measures taken in the process of structuring companies into a holding.
Before beginning the process of business restructuring, you should carefully consider your goals and clearly define your tasks. This thoughtful consideration will greatly assist you and hired experts in structuring a holding company.
Before planning the process, you should answer the following questions: what requirements do you have for the structure as a whole, from which activities do you receive income, what guidelines will be used on which expenditures are made, who owns of the holding and what is their relationship. Analysis of the current situation will be the basis for planning the holding structure.
The last stage of our collaboration will involve preparation of a legal opinion that describes the model of ownership and holding management structure. The list of measures necessary for the transition into a holding structure will contain the schedule and a step-by-step plan for their implementation.
If you have any questions, please contact SBSB attorneys.