What is the Holding Company?
A holding company is a parent company — a Private Limited or Limited Company — that is created to buy and control the ownership interests of other companies. The companies that are owned or controlled by a holding company are called its subsidiaries.
Holding companies do not perform any other services or activities. They don’t manage the corporations in the group directly, nor do they administer assets or partake in any decision-making for the subsidiary companies.
Holding companies provide an effective way for your business to manage its assets while protecting you from liabilities. Starting a Singapore-based holding company is also relatively straightforward.
Based on the relationship between a holding company and a subsidiary, it’s not surprising that
- A holding company is also called a parent company/umbrella company, and
- A subsidiary company is known as an operating company.
As per the UK Companies Act 2006, s.1159(1), there are four ways in which the relationship of a holding company and a subsidiary may arise:
- The holding company has a majority (over 50%) of the voting rights in the subsidiary.
- It is a member of the subsidiary and has the right to appoint and remove a majority of its directors.
- It is a member of the subsidiary and has agreements in place with other shareholders that effectively give it majority voting rights in the subsidiary.
- The company in question is a subsidiary of a subsidiary.
The UK is a good place to form a holding company as it has extensive historic tax treaties with other nations which means that many of the tax advantages apply internationally as well as domestically.
Eligibility Criteria for Setting up a Holding Company in United Kingdom (UK)
- There are no restrictions on the number of directors, at least one.
- The board of directors can have residency anywhere in the world – they do not have to be British residents.
- Holding companies must include a secretary. Moreover, he can be both an individual and a legal entity. But at the same time, the director of the company cannot be the secretary.
- The minimum number of shareholders for a UK holding is one person (natural or legal).
- There is a minimum share capital requirement is £ 1 and there is no maximum share capital requirement for Private Limited Companies, but public organizations must provide a minimum share capital of £ 50,000.
- The office of the holding company must be in the UK.
Legal Structures for Company in Singapore in the United Kingdom (UK)
There is no separate structure for the holding available in the UK as per the Companies House (Authority for registering the company in the UK), but there are four structures of holding companies that can be found in the UK:
– Private Limited Liability Company (Private LTD)
– Public Limited Company (PLC)
– Limited Liability Partnership (LLP)
Companies differ in structure and principle of operation. But the registration procedure for both LTD and LLP is the same.
If we look at it from the accounting and tax side, the holding is different. In the Companies Law, there are definitions and concepts in this regard that dictate the specifics of reporting and taxation, considering European directives. Any limited liability company in the UK can be a holding company.
Benefits for Setting up Holding Company in United Kingdom (UK)
1. Attractive Tax Regime
The UK has an attractive tax regime for companies, so setting up a holding company in the UK will provide leverage on the available tax incentives to optimize the tax liabilities.
The tax regime in the UK is discussed in detail in the later part of the article.
2. Asset protection
A holding company can hold the valuable assets of a business. This includes trading or investment property, plant and machinery, intellectual property, and excess cash for investments.
Subsidiaries take on the daily operations of the business and its trading responsibilities.
Assets may be leased to the subsidiaries if required but are protected from creditors and the inherent risks of trading.
3. Reduce Risk
One of the main benefits is risk management. If a company undertakes multiple trades, or has separate investments such as property, stripping these out into separate subsidiary companies under the common control of a holding company may be worthwhile.
A group structure minimizes the risk to the trade of the subsidiaries if one part of the group underperformed or became insolvent. This would not be the case if everything operated within a single company.
Incentives and Benefits for Holding Company in United Kingdom (UK)
1. Low Corporate Income Tax
According to a UK government official release, the current corporate tax rate in the UK is 19%. This is considered to an internationally low rate and give an edge to set up a holding company in United Kingdom.
2. Benefits through Double Tax Treaties
The UK has signed more than 160 treaties with different countries to avoid double taxation. It is one of the world’s largest treaty networks whereby if the UK holding that owns more than 10% of the issued share capital of an overseas subsidiary, the rate for withholding tax on dividends paid by the subsidiary can be reduced to 5%.
3. No Tax on Dividends
Small and Medium Enterprises
Small and medium-sized enterprises (SMEs) can receive a full exemption from paying taxes on foreign income dividends if dealings are done with a country that has a double tax agreement with the UK. The advantages for a holding company are realized only when the following criteria are met in the UK:
- The holding company must have less than 50 employees.
- The holding company’s turnover should be less than €10 million.
- The holding company’s balance sheet total is less than €10 million.
Large Enterprises
A full exemption from taxation of foreign dividends applies if the dividend falls into one of several classes of exempt dividend. The most relevant classes are:
- Dividends paid by a company that is controlled by the UK recipient company.
- Dividends paid in respect of ordinary shares.
- Capital that is non-redeemable.
- Most portfolio dividends.
- Dividends derived from transactions not designed to reduce tax.
Where these exemption classes do not apply, foreign dividends received by a UK company will be subject to UK corporation tax. However, relief will be given for foreign taxation, including underlying taxation, where the UK company controls at least 10% of the voting power of the overseas company.
4. No Capital Gain Tax
Any subsidiary’s chargeable gains (Capital Gains) on disposals by the holding company are automatically exempt from corporation tax, provided below condition is met:
The UK holding company owns at least 10% of ordinary shares in the subsidiary for 12 consecutive months (beginning no more than 2 years before the disposal date).
This only applies if both the holding and the subsidiary companies are actively trading for 12 months before and after disposal.
5. No withholding Tax on Dividends
There is no withholding tax on the distribution of dividends to shareholders or holding companies, a benefit which applies even if the shareholder is not a UK resident.
6. Exemption on VAT-Taxable Supplies
There is an exemption from VAT registration on following taxable supplies for the Holding Company in UK:
- Continues acquiring shares in subsidiary companies.
- Receives dividends from Shares.
- Disposing of shares in the subsidiary companies.
- Prevents itself and its subsidiaries from acquisitions from third-party companies.
Examples of Holding Company in United Kingdom (UK)
- Eurostar International Group (Travel)
- McClaren Group (Motoring)
- Octopus Group (Energy)
- Great Western Holdings (Railways)
