First of all, just what is a holding company? A holding company is a group of people bound by interest, or sometimes owned by an individual, that obtains assets across a number of business environments of other companies. This understanding lowers any risks to the owners and provides for the administration of various companies. In so doing, a holding company can be granted certain tax concessions, which are based on the percentage of ownership and value held by each company.
So, generally speaking, holding companies come in two models:
- Holding companies that can grant risk management solutions for large corporations.
- Holding companies that work as an investment platform for investors.
And even though they clearly have some similarities, they are at the same time both different and each one suits its need for different customers.
What’s the Big Deal about Switzerland?
There are a number of countries in Europe that provide agreeable prospects for holding companies, countries like the United Kingdom, Luxembourg and Spain, but the nation of Switzerland is presently the one which offers the best tax benefits in this domain.
There are many reasons why Switzerland is the most popular place for international business arrangements, and why a Swiss holding company has become such a popular mode of business overseas. These are:
- A promising fiscal environment.
- Political, financial, social and economic cohesion.
- Alongside the development of the holding company, comes specialised organisations that manage all the red tape, thus making all transactions much smoother.
- Zug and Geneva are dominant centres for commodity trading, and cover one quarter of all holding companies incorporated in the country.
- Exclusive business support structures, and a wide array of professionals, which include: accountants, lawyers, bankers, insurance companies, corporate service providers and inspection companies.
- A holding company in Switzerland without any other activities is practically exempt from Swiss federal taxes.
- A multi-lingual and industrious local workforce.
- Situated ideally in the centre of Europe, which ensures real time communication with Europe, and also within the same working day as the US and Asia.
Tax Effectiveness
A number of tax exemptions or privileges are available for holding companies in relation to federal and cantonal taxes when certain precedents are met. These are:
Concessions
On the federal level, income is liable to a regular tax rate of 7.83%. However, dividend income derived from, and capital gains made on the disposal of certifiable participations are subject to a participation deduction.
Dividends
A participation deduction offersassistance from taxation on dividends earned from qualifying practices. The holding company is usually required to withhold 35% tax on dividends paid to its shareholders. Tax treaties, however, can reduce or eliminate the withholding tax on distributed dividends, and Switzerland offers an extensive double tax treaty arrangement of more than 100 double tax treaties. Plus, withholding tax is diminished to zero when particular dividend distributions are met.
Hopefully,now, you will understand exactly why Switzerland has become the number one solution for global holding companies.