Which are the best countries to open a holding company?
In this article, we’ll discuss which criteria you need to take into account to decide which country is best for you to open a holding company.
After that, we’ll make some suggestions of countries which score good on those different criteria. Therefore, you might find the perfect solution for you in the list of best countries to open a holding company.
Nevertheless, if you want more individualized advice for your particular situation you an always reach out to me.
How to Choose the Right Country to Open a Holding Company
If you want to choose the right country to open a holding company you need to take into account various factors.
Tax Implications
Look for a jurisdiction with favorable tax rules for holding companies.
Be aware that this isn’t always the same as looking for a country with interesting tax rates for operational businesses.
Operational businesses make money by selling services or goods. However, holding companies make money by receiving dividends from companies they own or capital gains from selling their investments.
From a tax perspective, the difference is important because the tax rules for these different types of income can differ a lot.
Moreover, a country with no or a low withholding tax on dividend distributions to you as the shareholder can save you a massive amount in taxes.
In this respect, double tax treaties are also important. First of all, they will impact the withholding tax rate when the holding company pays a dividend to you as the owner. Second, the double tax treaties will also come into play when your holding receives dividends from the operational companies it owns.
Legal Framework
Choosing the best countries to open a holding company is not only about tax though.
Pick a country which has a clear and good legal framework for opening and running companies.
Good and stable tax rules are one thing. However, you can’t underestimate the importance of having a good legal framework in place. Nothing is so frustrating as not getting your work done because you need to deal with inefficient administration or compliance.
Political Stability
Make sure the country has a stable political climate that is friendly towards businesses.
You don’t want to end up owning a holding company in a country where the rules change all the time which leads to insecurity. Furthermore, this leaves you vulnerable to higher taxes.
Business Infrastructure
Apart from good tax and legal frameworks, you also want a country with an efficient business infrastructure.
Look for a country which is a frontrunner in digitization. And, most importantly, choose a country with a good banking system in place so you can actually run your business without needing to worry about your payments being processed.
The 6 Best Countries to Open a Holding Company
Let’s now have a look at a list of the best countries to open a holding company.
Cyprus
Cyprus offers a tax rate of 12,5%. The government did announce though that they have the intention to increase the rate to 15%. However, these changes are still uncertain as they still need to be discussed in parliament.
Nevertheless, this tax rate only applies to active income. If your holding company mainly receives dividends from subsidiaries, you can exempt these dividends from tax if you meet certain conditions.
First, the subsidiary itself should at least get 50% of its income from active trading (e.g. selling goods or services). Second, the subsidiary’s tax rate should be at least 50% of the tax rate in Cyprus. Therefore, the tax rate should currently amount to at least 6,25%.
In addition, Cyprus also doesn’t levy any capital gains tax on the disposal of shareholdings by your holding company.
What’s more, is that Cyprus doesn’t levy any withholding tax on dividend distributions. This is mainly important if you have your holding company in Cyprus while being a tax resident abroad yourself.
Cyprus also has an extensive network of double tax treaties to fall back on. This can help you to avoid paying withholding tax on the dividends in the country where the subsidiary is located.
Furthermore, Cyprus offers a stable business and political climate. It’s no surprise that it has been an hub for international businesses for decades.
Moreover, Cyprus is part of the European Union. Therefore, it also gives you access to the European market and infrastructure.
Hong Kong
The second country on our list of best countries to open a holding company is Hong Kong.
Hong Kong offers low corporate tax rates. The first HKD 2 million is taxed at a rate of 8,25%, while everything above that at 16,50%. However, these rates only apply on local source income.
Therefore, you can exempt offshore dividends which the Hong Kong holding company receives from tax with the right setup.
Nonetheless, for multinational enterprises there are specific rules in place which add additional conditions to benefit from this exemption under the Foreign Sourced Income Exemption (FSIE) regulations.
For capital gains, the same rules apply as for dividends. In principle, these are exempt from tax but for multinational enterprises certain conditions apply.
Hong Kong also doesn’t levy any withholding tax on dividend distributions. Therefore, as a shareholder you only need to worry about the dividend tax in your country of tax residency.
In addition, Hong Kong has an extensive list of double tax treaties.
Furthermore, it’s easy to do business in Hong Kong as you can manage your incorporation swiftly and in English. The country also offers robust banking solutions.
Given its location, having a holding company in Hong Kong can also give you easier access to the Asian market and investment opportunities there.
Luxembourg
The total corporate tax rate in Luxembourg is around 24%. This is a combination of the actual corporate tax rate, surcharges and municipality taxes. However, lower rates apply for companies with taxable profit under EUR 200.000.
Nevertheless, Luxembourg offers a participation exemption. Accordingly, dividends received from subsidiaries are exempted from corporate tax. In order to obtain this, certain conditions apply.
First, the subsidiary needs to be a European company or pay tax at a rate of at least 8%. Second, the holding company needs to hold a participation of minimum 10% or acquisition price of mEUR 1,2 for at least 12 months. Some other conditions apply but these are the most important ones.
Furthermore, Luxembourg also exempts capital gains from tax if similar conditions as for the participation exemption are met.
However, Luxembourg does have a withholding tax rate of 15% for dividend distributions to individuals.
Nevertheless, Luxembourg has a very extensive network of double tax treaties. These DTT’s can potentially lower the withholding tax rate.
The country offers a stable political and legal framework. Therefore, many international groups set up a (holding) company there.
Luxembourg does give you EU access. Moreover, the country has a great financial reputation.
Malta
Another European country on the list of best countries to open a holding company is Malta.
Malta has one of the highest statutory corporate tax rates in Europe at 35%. Nevertheless, many people see it as a tax haven. The reason for this is, that there are all kind of ways to lower your corporate tax burden to as low as 5% (e.g. tax refund).
In any case, Malta has a participation exemption based on the European parent-subsidiary directive just like Cyprus and Luxembourg. In this way, you can exempt dividend income and capital gains from qualifying subsidiaries from tax.
Malta does not levy any withholding tax on outgoing dividends and has a broad range of double tax treaties with other countries.
Just like Cyprus, Malta is a European island that has been attracting businesses for decades for its business friendly climate and infrastructure.
Singapore
Singapore’s statutory tax rate is 17%. However, just like the other Asian country in this list – Hong Kong – it applies a territorial tax system.
Accordingly, you won’t have to pay corporate tax on foreign dividends if the setup is right. The same can apply to capital gains on investments.
Furthermore, Singapore also doesn’t apply a withholding tax when your holding pays out a dividend.
Just like most other countries on the list, Singapore also has a very wide network of double tax treaties.
Basically, the whole country of Singapore was built on its easy for doing business there. Add a robust banking environment to the mix and you might have found the perfect country for your holding company.
United Arab Emirates
We can’t forget about the United Arab Emirates when looking at the best countries to open a holding company.
For a very long time, the UAE didn’t have any income tax at all. However, since a few years there is a corporate tax rate of 9%. Nevertheless, all kinds of exemptions can apply which allow you to still pay very little to no tax at all.
Specifically holding / investment companies can still benefit from a 0% tax rate if they are registered in one of the free zones and meet certain conditions.
Furthermore, the UAE doesn’t levy withholding tax on dividend distributions. You can also fall back on the DTT’s for treaty benefits.
These interesting tax rules are the main reason the UAE become a global hub for international business. Yet, it also offers a good infrastructure for businesses of all kind.
Work With Me
Reach out if you need assistance on where to incorporate your holding company and how to organize your business to protect your assets and optimize your taxes.
