HOLDING COMPANIES
When founding a holding company, the selection of a country with favourable laws for holding activities such as Luxemburg, the Netherlands, the UK, or Cyprus, can both facilitate the company’s activities and reduce risks.
Offshore companies, trusts and foundations are frequently used for investments in subsidiary or associated companies: open stock companies, private companies, and joint ventures. In many cases, the increase in capital arising from concrete investments can be tax-free. Taxes for dividends paid out can be reduced by using a company founded in a zero or low taxation jurisdiction, which has a double taxation agreement with the appropriate country.
INTERMEDIATE HOLDING COMPANIES
Many large corporations and companies, when investing in a country, which does not have a double taxation agreement with the investor’s country, found an intermediate company in a jurisdiction, which has an appropriate agreement. For example, Madeira holding companies are widely used for investments in the countries of the European Union since companies founded in Madeira can usually use the advantages of the EU Directives concerning the procedure for the taxation of subsidiary companies.
Cyprus has concluded double taxation agreements with many of the countries of Eastern Europe and the CIS; therefore, Cyprian companies are effective instruments in respect to taxes for investments in these countries.
OWNERSHIP OF REAL ESTATE AND LAND
The possession by a holding company of the ownership of real estate and land can frequently create conditions for tax advantages including legal avoidance of taxes on an increase in capital as well as inheritance and property transfer taxes.
If, for example, an offshore company, the real owner of which is a non-resident in the United Kingdom, acquires real estate in that country for investment purposes, the real estate being later sold to a third party, then the income from the increase in capital would not be taxable in the United Kingdom. In addition, by properly structuring the financing using a form of loan guaranteed by a mortgage, an offshore company can reduce the income tax on rent as a source of income.