- Holding company purpose: how to use an offshore holding structure?
- Offshore holding company advantages
- Holding company structure advantages and tax obligations
- What types of offshore holding companies exist?
- Additional examples of holding company structure advantages
- Ease of transferring ownership rights to real estate
- Offshore holding privacy level and asset protection
- Choosing the best offshore jurisdiction for a holding company
A holding company serves as an optimal structure for international businesses when coupled with subsidiary enterprises. International entrepreneurs establish offshore holding companies to gain more favorable tax benefits or safeguard their assets and investments.
An offshore holding company refers to a corporate structure established in an offshore, midshore, or onshore jurisdiction that offers tax advantages for non-resident legal entities. The term offshore in this context pertains to the location of the legal entity, which differs from the conventional domestic financial market.
An offshore company is established outside the beneficial owner’s country of residence and is typically prohibited from engaging in any commercial or local operations within the country (although not always). Why set up a holding company? The primary objective of forming an offshore holding is to own shares of other enterprises and create a corporate group. This enables risk reduction for owners and tax optimization concerning retained dividend and capital gains taxes.
Creating a holding company proves effective in conjunction with offshore business and subsidiary enterprises. To properly organize such a structure, we encourage you to contact our experts and receive comprehensive assistance for all your inquiries.
FREE EXPERT CONSULTATION
on which jurisdiction is best for
your business, preferred tax regime,
on which jurisdiction is best for your business, preferred tax regime, company structure.
Holding company purpose: how to use an offshore holding structure?
An offshore holding company is primarily utilized for owning assets of other subsidiary companies in foreign countries. These assets can encompass various financial investments, such as shares of other companies, intellectual property, or even real estate.
Typically, a foreign holding company generates passive income through:
- dividends, interest, and capital gains from stocks, bonds, and other financial instruments
- rental income from real estate ownership
- royalties from ownership of intellectual property.
A holding structure can serve as an effective corporate tool for reducing source taxation, enhancing asset protection, and increasing confidentiality.
It’s important to note that a holding company is merely a role and function within an offshore company and is not a separate legal entity.
Most commonly, a holding entity is registered in traditional offshore jurisdictions as an International Business Company (IBC), which provides preferential treatment for non-resident structures.
Such a company can exercise all the rights of a legal entity, open bank accounts, invest, and participate in financial transactions.
Open a bank account for your holding structure and offshore business under advantageous conditions. To do so, fill out the form and contact our experts!
Offshore holding company advantages
Please be reminded that an offshore holding company is not an active business venture and is not considered a separate type of legal entity.
A holding company does not engage in the production or sale of goods or services, as well as commercial or trade activities. The most common utilization of such a structure is the ownership of shares in other companies.
How an offshore holding can be used:
- You can utilize an offshore holding structure to control the shares of multiple subsidiary companies or stakes in joint ventures.
- Through an offshore-registered holding, you can own intellectual property, real estate, yachts, and art collections. In addition, you can work with venture capital using your offshore holding company.
- Due to its high flexibility, an offshore company is suitable for a holding structure that aims to attract foreign investors.
- Succession planning is a typical example of using an offshore holding where a separate corporate structure is created for inheritance purposes.
With proper management, an offshore holding company can provide its subsidiary companies with appropriate corporate and tax restructuring, resulting in increased benefits for both parties.
Typically, these structuring strategies enable to reduce the risks associated with the losses of the parent company and its subsidiaries by allocating assets of the holding structure. Additionally, there is a separation of obligations between the holding company and its subsidiaries, thereby reducing the legal and financial liabilities of other affiliated organizations.
Open an offshore company that best suits your goals and objectives with our expert assistance:
OFFSHORE COMPANY FORMATION: CUSTOMIZED BUSINESS SETUP SERVICES
Holding company structure advantages and tax obligations
Entrepreneurs are inclined to establish offshore companies in countries that offer unique benefits for non-resident entities. In an attempt to attract foreign capital, many jurisdictions still create favorable offshore financial environments for non-resident business structures.
Here are some of the advantages that an offshore holding company can gain by registering in low-tax jurisdictions:
- tax exemption (or comfortable reduction) – either permanent or temporary
- financial confidentiality
- beneficial owner’s information protection
- isolation of the parent company
- protection against lawsuits
- asset protection
- centralized company management
- flexible structure
- successful business planning.
Although offshore companies and the jurisdictions in which they are established provide a high level of confidentiality without tax reporting requirements, it does not mean that the company is exempt from the obligation to pay taxes or report its income to any relevant authorities.
Tax obligations are imposed on the director or beneficial owner, who is required to report the corporate structure to the country in which they reside.
Developed countries with high tax rates, where ultimate beneficial owners often reside, typically require residents to disclose foreign accounts and legal entities.
Controlled foreign corporation (CFC) laws regulate the tax obligations of foreign corporate structures. These are complex sets of rules that vary in each country.
Explore opportunities of using a holding company as a tool for tax burden reduction.
What types of offshore holding companies exist?
The structure of an offshore holding company is typically built using the following legal forms:
- International Business Company (IBC) – the most popular structure with tax advantages for non-residents in traditional offshore jurisdictions. As an IBC, an offshore holding company becomes a legal entity and a corporate tool for international trade or financial investments.
- Limited Liability Company (LLC) – an ideal choice for asset protection. If you want to establish a holding company to provide better security and limited liability for funds, real estate, etc., creating an LLC is recommended.
- Trust or Trust Foundation – perfect options for those seeking holding structures with effective succession planning and asset protection. While a private foundation is a separate legal entity widely used by most business owners in civil law countries, a trust is a construct of common law jurisdictions.
Do you want to register an offshore company but do not know what legal form to choose? Read about the features of IBC and LLC in Nevis.
Additional examples of holding company structure advantages
The options for structuring an offshore holding company indeed offer numerous advantages:
- An offshore holding company can minimize its corporate tax obligations by taking advantage of very low (or zero) tax rates on capital gains, dividend income, royalties, and interest.
- With proper planning, you may also be eligible for further reduction of withholding taxes on holding company dividends, interest, and royalties. However, this primarily depends on the double taxation treaties in place between the jurisdiction where the holding company is registered and the jurisdiction where the subsidiary operates.
- Isolation of the parent company’s obligations by creating multiple subsidiaries (separate legal entities with no liability to each other) is a widely used method of corporate structuring for transnational companies and businesses operating in different markets.
- Subsidiary companies can benefit from intragroup financing strategies and proper tax restructuring if implemented correctly.
- A holding structure can be used as a means of segregating assets, whether it’s intellectual property, shares, or any other type of investment, thereby achieving risk reduction by separating legal and financial obligations that exist between different entities.
- The division of business assets can help reduce the risk of potential losses for both the parent company and its subsidiaries.
With the proper structure in place, a holding company enjoys limited liability, which exists between each subsidiary and its parent structure. This means that all participants within the holding are not liable for the debts and obligations of one another.
For instance, if a subsidiary was involved in a high-risk investment, the loss of assets and any liabilities cannot be transferred to any other subsidiary unless there is evidence of a fraudulent transfer.
Find out why rich people use holding companies.
Ease of transferring ownership rights to real estate
A foreign holding company is a flexible structure that not only facilitates approaches to internal financings, such as reinvesting retained earnings into its subsidiary but also enables easy transfer of shares to a new owner.
Transferring property or other investments for an offshore company is more accessible than for an individual. Such transfers may be exempt from stamp duty and other taxes. In the case of transferring the primary property ownership rights held by the offshore holding company to heirs, no inheritance tax is levied.
Offshore holding privacy level and asset protection
By choosing the appropriate type of offshore legal entity, your company can obtain an additional level of protection for information regarding its internal affairs and its owners.
Some offshore jurisdictions have established strict rules regarding the guaranteed confidentiality of ownership information. Personal data cannot be publicly disclosed unless it is a lawful request from the government of another country or Interpol. This ensures a high level of confidentiality for offshore companies that own real estate.
We recommend considering the registration of trust structures in the offshore jurisdiction of Nevis, where reliable asset protection from foreign courts and creditors is ensured. Registering trust structures and foundations is one of the top services provided by our experts!
OUR PROFESSIONALS SERVICES
Choosing the best offshore jurisdiction for a holding company
What criteria should be considered when choosing a country to register an offshore holding structure:
- tax regime as a fundamental factor
- flexibility of the country’s regulatory framework – whether it is a jurisdiction with double taxation and with which countries it has signed double taxation treaties
- requirements for non-resident companies and other points.
Currently, there are numerous countries offering popular options for holding structures due to their multiple advantages. However, it should be noted that some previously tax-exempt jurisdictions, including the British Virgin Islands, Cayman Islands, Jersey, and Mauritius, now apply substance requirements to holding companies.
It is worth noting that the legislative framework of many offshore jurisdictions is constantly changing, and these changes do not always favor business founders. Therefore, it is essential to continually monitor updates on official websites or consult with a personal advisor. What works best for one business may not be the optimal solution for another.
Offshore holding companies can be a powerful tool if they are appropriately structured for asset and business segregation. The choice of the most suitable jurisdiction will depend on the nature of the business and the residency of the involved parties.
Do you have any questions regarding the registration or selection of jurisdiction for an offshore holding? Request a free consultation and receive a personalized solution in no time!