Why exactly do you need a holding company?

What is a Holding Company?

A holding company is a legal entity that owns and controls other business entities engaged in operational activities. The holding company itself does not typically engage in operations; instead, its primary role is to own shares or assets in other companies that do. Simply put, a holding company “holds” your assets and shares in operating businesses that conduct day-to-day activities.

When Do You Need a Holding Company?

A holding company becomes relevant when your business grows beyond a single line of activity or a simple ownership structure. If you already have multiple companies or business directions, are planning to attract investors or financing, or are considering entering international markets — it’s worth thinking about setting up a holding company. This decision will not only help to streamline business management, but also provide flexibility for further development.

In addition, a holding structure is an effective tool for legal tax optimisation and allows for the separation of operational activities and ownership of key assets. This, in turn, protects the company’s property from financial risks, litigation, creditor claims and unfair actions by counterparties or partners. With this approach, even if one of the subsidiaries runs into trouble, the main assets stay protected and can’t be seized.

A holding company creates additional opportunities for business, in particular through the possibility of redistributing and reinvesting funds between companies in the group (for example, financing software development by company 1 with funds earned by company 2 from providing logistics services). At the same time, the existence of a holding company simplifies and optimises the tax burden when selling a business and greatly simplifies the process of transferring the business to heirs, avoiding complex legal procedures in the future.

Where Should You Register Your Holding Company?

This article outlines 15 of the most commonly used jurisdictions for registering holding companies abroad.

The right jurisdiction depends on numerous factors, including: purpose of the holding structure, geographic footprint of the operating business, ownership structure and source of funding, tax residency of the beneficiaries, banking and confidentiality needs. Equally important are the jurisdiction’s international reputation, legal stability, regulatory flexibility, and its participation in global tax transparency initiatives.

In this article, we will focus specifically on foreign jurisdictions, as the creation of holding companies is most often associated with international activities, the protection of assets outside the country of registration, or the attraction of external financing. Of course, in some cases, it may make sense to establish a holding structure in Ukraine — but that is a separate scenario which requires a detailed, tailored analysis of your specific situation.

There are other options that might suit you better, but these are more the exception than the rule. Typically, such decisions need to be carefully assessed by a qualified legal advisor who can provide a well-reasoned recommendation.

First of all, it is necessary to understand what the main purpose of creating the company will be. This may be the protection of assets and information about beneficiaries, attracting investment/selling a business, or reducing operating costs.

Asset and beneficiary privacy protection

If your priority is to protect assets and beneficiary information, you need a jurisdiction with (1) a non-public register of beneficiaries; (2) a legal system that minimises the risk of property loss due to the actions of interested parties.

Such jurisdictions include Belize, BVI, Nevada, Wyoming, Seychelles and Switzerland.

If the reputation of the jurisdiction is an important factor for you, then you will have to give up holding companies in offshore zones. Switzerland, Nevada, and Wyoming would be good options. If you are ready to register an offshore company, you should consider Belize, BVI, and Seychelles.

The choice of jurisdiction for registering a holding company should also take geography into account, as it can affect transaction speed and the overall flexibility of your structure. The classic approach is to set up the holding company in a jurisdiction that is geographically close to the operating companies. However, in some cases, the opposite approach may be more appropriate — driven by other factors, such as the level of cooperation between the tax authorities of the holding company’s country and your country of residence.

Another factor that will influence the choice of jurisdiction is the cost of maintaining the company. This issue is highly individual, but services in Switzerland will usually be more expensive than similar services in the Seychelles.

Reducing the effective tax rate

If your goal is to minimise your tax burden, you need to look for (1) a jurisdiction with low tax rates for your field of activity; and (2) tax preferences that apply to your business.

When selecting the most suitable jurisdiction, it’s important to consider your tax residency and the final destination of the funds to be accumulated. This approach will help minimise your overall tax burden as efficiently as possible.

The most tax-efficient jurisdictions include Cyprus, the Netherlands, Switzerland (specific cantons), Malta, and Ireland.

A key factor in choosing a jurisdiction is the size of your business income. If you have a small or medium-sized business, Cyprus, Malta, and the British Virgin Islands (BVI) are often the most suitable options. These jurisdictions allow for effective tax minimisation regardless of business size, while also offering low maintenance costs for the holding company.

If you operate a large business with significant income and expenses for its maintenance, then the Netherlands, Ireland and some cantons in Switzerland can offer you a lower effective tax rate, access to a huge network of banks that will help you attract financing for your transactions, and a more prestigious jurisdiction for registering a holding company. This choice is very individual and depends on many factors, as Zug (Switzerland) is known for its history of “creating” tax exemptions and preferences for the largest companies. At the same time, the costs of maintaining a holding structure will be significant and will only be justified if your business generates significant income.

If your business operates in the technology, software development or IT sector, the most favourable jurisdictions are Ireland and Cyprus. Cyprus offers an IP Box tax regime (2.5%) for income related to intellectual property rights, but requires the creation of a certain economic presence, which will place part of the operating activities on the holding company.

Attracting financing

To raise financing, you will need a jurisdiction that (1) has no capital gains tax; (2) is close to your target investor; (3) allows you to open an account for the company at a local bank.

A key factor in choosing such a jurisdiction is whether you plan to raise funds from investment funds, banks, or financial institutions.  

If you have a private investor and need a holding company to attract funds from them, any jurisdiction that is comfortable for both you and your partner will work. We recommend choosing a jurisdiction governed by English law and that has no capital gains tax.

To attract external financing, you should immediately rule out offshore jurisdictions, as securing funding from third parties into an offshore company is nearly impossible.

When it comes to bank financing, the simplest route is to raise funds in the same country where your company is registered, or from a bank in another EU member state, provided your company is registered within the EU.

If you’re seeking investment from funds, you need to consider where the money will come from. Currently, the two primary markets for raising capital from investment funds are North America and Asia, while the EU and the UAE serve as two secondary markets.

If you want to attract an investor from North America, Wyoming and Delaware may be the best jurisdictions. If for some reason you cannot open a company in the United States, your choice will be the United Kingdom, but it will be much more difficult to get the funds.

To obtain financing from Asian investors, Singapore would be a good choice. When attracting funding from China, Hong Kong is the priority jurisdiction.

Raising investment in Europe or the UAE is possible, but considerably more complex. If you’re not yet in discussions with a specific investor, we recommend focusing on the primary investment markets.

However, if you’re already negotiating with an investor in Europe, the preferred jurisdictions include the United Kingdom, certain British islands (such as Guernsey and the Isle of Man), Luxembourg, Switzerland, and the Netherlands. For investors in the UAE, Dubai and Abu Dhabi offer attractive conditions for holding companies registered in free economic zones.

Conclusions

Today, you have asked yourself many questions and, we hope, received answers that you had not considered before. Finally, you have figured out whether you need a holding structure at all and where it should be established specifically for you.

Establishing a holding company is a serious step for any business structure, so such a decision must be carefully considered. For a holding company to deliver value, it must be backed by a reliable legal advisor, because ignorance of the law is no defence — but knowing the law is your greatest advantage.