What is a holding company and how does it operate?
A holding company is an organisation, or in some cases owned by an individual, that acquires assets across a range of business environments of other companies. This arrangement lowers risk to owners and provides for the administration of a number of various companies. In doing so, a holding company can secure certain tax concessions, based on percentage of ownership and value held by the company.
So, basically, holding companies come in two forms:
- Holding companies that serve as investment platform for investors.
- Holding companies that provide risk management options for large corporations.
Although they obviously have some similarities, they are both different and each suits its need for differing clients.
Switzerland, why Switzerland?
There are several countries in Europe that offer agreeable prospects for holding companies, such as Spain, Luxembourg and the United Kingdom, but Switzerland is currently the country offering the best tax benefits for this domain.
The reasons are many as to why Switzerland is a popular location for international business arrangements, and why a Swiss holding company has been a very popular mode of business overseas.
These consist of:
- Political, financial, social and economic stability.
- An encouraging fiscal environment.
- Geneva and Zug are leading centres for commodity trading, and cover one quarter of every Holding Company incorporated in Switzerland.
- Exceptional business support structures, and a wide assortment of professionals, including: accountants, lawyers, bankers, insurance companies, corporate service providers and inspection companies.
- Along with the evolution of the holding company, comes the specialised organisations that handle all the red tape, and can smoothen all transactions.
- A multi-lingual and diligent local workforce.
- Located perfectly in the centre of Europe, ensuring real time communication, not only with Europe, but also within the same working day as the US and Asia.
- A holding company in Switzerland with no other activities is more or less exempt from Swiss federal taxes.
Various tax exemptions or privileges exist for holding companies in relation to federal and cantonal taxes when specific precedents are met. These benefits are:
Concessions Relating to Federal Tax
At the federal level, income is subject to a regular tax rate of 7.83%. Nonetheless, dividend income derived from, and capital gains made on the disposal of certifiable participations are subject to a participation deduction.
Dividends – Company tax on dividends received
A participation deduction provides relief from taxation on dividends received from qualifying practices. A Swiss holding company is generally required to withhold 35% tax on dividends paid to its shareholders. Tax treaties, however, can reduce or eradicate the withholding tax on distributed dividends, and Switzerland has an extensive double tax treaty system of more than 100 double tax treaties. In addition, withholding tax is reduced to zero when certain dividend distributions are met. So, hopefully things are a little clearer as to why Switzerland is the number one choice for holding companies worldwide.