What is a holding company?
In short, it is a company that owns other companies but has no operations of its own. This type of company is often the best solution for securing a company’s future.
Holding companies will typically be ApS companies. A holding company is a company that sits between you and the operating company. The holding company owns the company that creates the values. You then own the holding company.
The benefits of holding companies are many. The biggest one is that you can hold on to the liquidity of your business. That is, you can make tax-free savings by drawing the profits out of your operating company and into your holding company. This way, they are secured against any bankruptcies, lawsuits and claims that may arise in the operating company and no taxes must be paid when you transfer the money to your holding company. This secures your capital so that you can manage it as you see fit. Of course, you have to pay taxes when you withdraw money from the holding company for private purposes.
It would be best if you considered starting your holding and operating companies simultaneously. You can found both companies with “the same” share capital, as the holding company you found can then itself found the operating company with the deposited funds.
Four apparent benefits of holding companies
Benefit 1: Risk minimization
For example, if an operating company goes bankrupt, the owner can lose everything. However, this does not happen if the owner has continuously transferred profits to a holding company. In that case, only the operating company goes bankrupt and the transferred profits are safe from the operating company’s creditors.
Benefit 2: Change of ownership and generation
Suppose the company is to be sold at some point. In that case, there can be such great benefits associated with having a holding company that it can become a costly pleasure if one has not considered a holding structure well in advance.
Firstly, the holding structure provides an opportunity to slim down the operating company before divestment. This means that the new owners do not have to pay for profits saved from previous years in the operating company.
Secondly, the possibility of tax-free divestment may mean that a much smoother and less liquidity-demanding generational change can be carried out than if there is no holding company. If there is no holding company, it is the owner who sells the shares. As such, the entire profit will be taxed. On the other hand, if there is a holding company, it is the holding company that sells the shares.
Once the holding company has owned the shares for three years, they can be sold without taxation. This means that if you have established your private limited company for DKK 50,000.00, and after three years can sell it for DKK 1,050,000.00, then you do not have to pay taxes on the profit of 1 million. The money can then be saved in the holding company and reinvested or, against payment of dividend tax, paid out privately to the owner.
Benefit 3: Tax savings
A holding structure is associated with significant tax benefits. If you own your operating company through a holding company, the profit in the operating company, after payment of corporate tax of 22.0% (2017), can be transferred tax-free to the company. However, it is a requirement for tax-free distribution of profits that the holding company owns more than 10% of the operating company. The advantage of the construction is that the profit from the company can be saved in the holding company instead of in the operating company. Should the operating company get into financial problems, such as lack of sales, a lawsuit, or something else, then you do not risk losing previous years’ accumulated profits, as these are no longer located in the operating company.
The holding company may choose to use the distribution to save or invest in other activities, e.g. shares, real estate, etc. without having paid major taxes beforehand.
In other words, you choose when you have to pay tax and how much you want to pay.
Benefit 4: Multiple owners
The fourth advantage of a holding structure is that it provides flexibility in those situations where there are multiple owners. The owners may have different needs to withdraw money for themselves privately. However, the owners of an operating company must always agree on how much dividend is to be distributed from the operating company to the owners / holding companies. After this, the individual owners can then decide how much they want to withdraw from their respective holding companies to themselves privately. At the same time, paying dividend tax. In addition, one can transfer money from the holding company to oneself at a much lower tax rate than with ordinary income tax.
If you are married, a dividend tax is paid at 27 per cent (2017) of the first DKK 103,400.00 (2 x DKK 51,700.00) and then 42 per cent (2017) of the rest. This allows for optimizing and saving tax.
It’s never too late.
It is never too late to establish a holding structure. It is possible to establish the holding company later. Typically by a tax-free exchange of shares. We are pleased to help you arrange everything connected with such an exchange. In this way, the optimal group structure for your company is ensured.