Holding companies

Produced by Tolley in association with Anne Fairpo
Holding companies

The following Corporation Tax guidance note Produced by Tolley in association with Anne Fairpo provides comprehensive and up to date tax information covering:

  • Holding companies
  • Introduction
  • Tax issues when choosing a holding company location
  • Withholding tax
  • Corporate income tax rate
  • Controlled foreign companies (CFC) rules
  • Exemption for dividend income received from subsidiaries
  • Tax on sale of subsidiaries
  • Exit taxes
  • Economic substance requirements
  • More...

Introduction

There are a number of occasions when it is necessary to consider the location for a holding company, including:

  1. migration or redomiciliation of an existing holding company to another country

  2. establishing an intermediate holding company through which to make an acquisition or through which to expand

  3. establishing a new holding company to act as a listing vehicle

An attractive location for a holding company from a tax perspective will be one which minimises the tax on income and gains generated by the group. This will depend in part on the location of the group’s subsidiaries and the location of its shareholders.

Tax issues when choosing a holding company location

There are several tax issues to consider when deciding where to establish the holding company of the group. These tax issues will vary depending on the group’s particular circumstances and will often have to be considered in the round. The most common considerations are discussed in turn below.

Withholding tax

One of the most important tax issues when choosing the location of a holding company is the possibility of withholding taxes being levied on dividends. This is relevant both to dividends paid up to the holding company from the group’s subsidiaries, and also to dividends paid out by the holding company to the ultimate shareholders of the group.

The first of these issues can often be mitigated by establishing the holding company in a jurisdiction that has an extensive double tax treaty network. The issue of double tax agreements is discussed in more detail below. In addition, (for payments made before 1 January 2021) if the holding company is located in the EU, the benefit of the Parent-Subsidiary Directive may be available to mitigate or eliminate any withholding tax on dividends paid by subsidiaries. The directive ceased to apply to the UK from the end of the Brexit implementation period. See the Withholding tax guidance note for further details.

Given the wide range of jurisdictions in which the shareholders of the holding

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