date | theme

16. March 2021 | Establishment of a holding company: What advantages do you benefit from? (this contribution)

25. January 2021 | International triple holding

01. January 2021 | 7 years lock-up period for contribution and exchange of shares in a holding company

18. September 2020 | Acquisition of GmbH by a holding company benefiting from loan repayment

17. June 2020 | Tax-free distribution of profits to a holding company based abroad

13. March 2019 | Holding company simply explained: definition / advantages / examples / reasons

A holding company is a company that holds shares in one or more other companies. The holding company is also referred to as the parent company. Furthermore, such a construction is advantageous for the parent company. Because their tax burden is significantly reduced compared to an individual company. However, undesirable tax burdens can occur when setting up a holding company. Therefore, we advise accordingly towards a tax-saving foundation.

A holding company (colloquially holding company) is a company that holds shares in one or more other companies. The holding company is also referred to as the parent company. By establishing a holding structure, the parent company will have a significantly reduced tax burden. Dividends from the subsidiary to the parent company are 95% tax-free. Thus, only 5 % of the dividend is subject to corporate and business tax. Finally, the effective tax burden is therefore 1.5%. The profits of a single company, on the other hand, are burdened with about 30%. The establishment of a holding company is also interesting for the subsequent sale of the shares in the subsidiary. Here, 95 % of the proceeds are also considered tax-free.

1.2. Various forms of holding

The special thing about a holding company is that the parent company itself does not have to be an operating company. Therefore, the parent company does not have to have an operational purpose. Instead, it holds only the shares in the subsidiary. The subsidiary distributes profits to the parent company.

However, the holding company can also operate on the market and is expanded by one or more subsidiaries. This corresponds to the principle of a group. In this case, however, this would be a separate legal form. In addition, unlike the holding company, the Group is liable as a coherent entity for all its affiliated subsidiaries.

Establishment of a Holding Company: General

2.1. Various possibilities for establishing a holding company

Furthermore, a holding construct can be created by three variants. First, by setting up two companies, which consequently act as mother and daughter. It is also possible to form a holding company from two or more existing companies. Finally, a holding company can be founded and an existing company can be included here. This subsequent establishment of a holding company entails a seven-year blocking period. This entails taxation of the shares in the holding company if they are sold before the deadline. In fact, this should be avoided in principle. In addition, in the case of several shareholders of a limited liability company, the transfer of this share to a holding company may be subject to tax. However, a tax-neutral introduction can be achieved through various design aspects.

The legal form of the respective companies is irrelevant for the establishment of a holding company. However, the dividend tax advantage can only be used for two superimposed corporations. In order to achieve the lowest possible tax burden when paying out to the shareholder(s), a double-storey holding company is often also an advantage. The best way to start a holding company is to decide on the basis of individual requirements.

2.2. Requirements for a tax-saving holding company

The parent company must hold at least 10% of the subsidiary. Thus, only 5% of the distributions to the parent company are subject to corporate tax, but the business tax burden is not reduced. In order to ensure this, there would have to be a participation of at least 15 % in the subsidiary.

Under a shareholding of 10 %, according to § 8b (4) sentence 1 KStG, the tax savings on dividends cannot be used and the structure of the holding company would no longer be effective.

2.3. Costs of establishing a holding company

A holding structure incurs one-off and ongoing costs, which must be considered. One-off expenses arise for the registration of companies in the commercial register, and by the capital to be invested. Continuous costs also arise from the preparation of several financial accounts and financial statements. Separate contracts are also required for each company within the holding company. The exact amount of the costs must be determined individually.