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Special Tax regime for spanish holding companies

holding-company-advantagesHas your company grown and are there blockages in the decision-making process? Do you want to reduce the taxes you pay? Maybe the solution is to create a holding company. In this post we will tell you what a holding company is and what commercial and tax advantages it has.

What problems can arise if a holding company is not created?

As companies grow, it may happen that a group of shareholders has two or more companies under their responsibility. As a result, there are several circumstances that may affect the firm, if a holding company has not been created: 
  • In general, in these cases, each type of partner has their own objective. Working partners might want to reinvest, while non-working partners might be after profit sharing. This difference in their business goals can imply a risk: the blocking of the decision-making by minority shareholders. The blockage may affect the continuity of the company.
  • In the absence of a holding company, it will not be possible to transfer cash surpluses from a subsidiary to its parent company, thus protecting the company’s assets.
  • On the other hand, without a holding company, cash surpluses are subject to the risk of the subsidiary’s business activity, which represents a business risk.
  • In the event that any of the subsidiaries are sold, the taxable amount for the capital gain is approximately 24% for the individual.
  • Higher tax burden in general, i.e., it will not be possible to offset losses of one company with profits made by another company in order to reduce the taxes payable to the tax authorities.
 

What is a holding company?

A holding or parent company is a company whose sole or main corporate purpose is the holding of shares of other companies of the same group.There is a specific CNAE for this type of activity, the 6420. Creating a holding company makes sense when a partner or several partners have direct participation in more than one company, and there is a group of companies (Article 42 of the Commercial Code).The main feature is based on the tax exemption of dividends and in the sale of participations, and a greater optimization of taxes in general, through the parent/holding company.

Commercial and tax advantages of a holding company

Among the commercial and tax advantages of a holding company we can highlight the following: 
  • Creation of the Holding Company without tax cost. It is possible to “exchange” the property of an individual for a legal entity (exchange of securities) acting as a Holding Company. This operation, of commercial nature, is exempt from both direct and indirect taxes. Normally, the Holding Company is constituted under an S.L. or S.A.
  • Tax-free cash flow. With the holding company, it is possible to transfer cash surpluses from the subsidiaries and dividends without having to pay taxes. This optimizes cash management among the companies of the group and protects corporate assets by removing them from corporate risk.
  • The Holding Company is a risk-free company since its activity does not entail risk. Its main activity will be to provide administrative, accounting, tax and legal services to the group of companies, and, therefore, it will re-invoice its services, thus avoiding being considered as an asset-holding Company. Therefore, the best place to keep the cash surplus of any subsidiary will be in this holding company.
  • Possibility of reinvestment. Excess of cash that has been transferred from the subsidiaries to the holding company can be invested in new businesses or companies, and the operation will be tax-free. Both upstream and downstream money is tax exempt.
  • Sale of a company. In the event that you decide to sell a subsidiary of the group from the holding company, the operation is tax exempt. The sale is not taxed according to article 21 of law 27/2014, complying with the requirements of having at least a 5% shareholding, and holding that participation for at least 12 months, present or future.
  • Tax consolidation. One of the most interesting tax advantages of the holding company is the possibility to consolidate for IS and VAT purposes. This means that one can offset the losses of one group company with the profits of others, thus optimizing the taxes to be paid.
  • Simplification of decision-making processes. Decision-making is simplified since the ownership of the subsidiaries is held by a single owner, the holding company. In this way, greater business continuity is likely.
  • Improved image. The existence of a group of companies favors the image of the business in the eyes of financial institutions, customers and suppliers, since it projects a well-structured and well-advised group.
 In order to seize all the commercial and tax advantages, it is essential that the holding company has activity; that is, material and human resources that are active in the company.If you wish to create a holding company, it is important that you seek the advice of a consulting firm that studies your case in depth, assesses the possibilities that exist, informs you about the advantages and disadvantages and carries out all the procedures to create the holding company.

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