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A holding company is a business structure designed to act as a command center, coordinating the activities of several affiliated companies. Unlike traditional companies that produce or sell goods and services, a holding company focuses on managing the shares and shares of other companies.
This strategy is particularly beneficial for large corporations, family businesses and those with plans for international expansion, as it allows for greater organization and centralized control.
Key aspects of a holding company:
✅ Tax Exemptions: Holdings can access significant tax incentives and benefits, optimizing costs.
✅ Property protection: They provide a barrier against financial and legal risks, safeguarding family or business assets.
✅ Centralization of decisions: They facilitate strategic decision-making and more efficient management from a single operating core.
In this blog, we'll explore in detail what a holding is, when it's recommended to create one, and how you can benefit from this structure.
For a holding company to be effective and functional, it is essential to have a basic structure that allows it to operate efficiently. This must include at least:
Parent Company: It is the holding entity itself, which acts as the central axis of management. It must be incorporated under a Limited Company (S.A.) or a Limited Company (S.L.).
Subsidiaries: The holding company must hold shares in one or more subsidiary companies. These shares must be significant (at least 5%) to access the tax advantages offered by this structure.
Board of Directors or Board of Directors: It is essential to have a body that oversees and makes strategic decisions to ensure the efficiency and coordination of all related companies.
The creation of a holding company requires meeting certain legal and tax requirements. Among the main ones, the following stand out:
1. Legal Form
The holding company must be constituted under a legal form recognized in Spain, such as an S.L. or a S.A., according to the company's needs and legal obligations.
2. Significant Participations
You must hold at least a 5% interest in other companies. Alternatively, you can qualify as a holding if the shares exceed 20 million euros.
3. Social Objective
The company's statutes must explicitly reflect the objective of managing and managing the shares of other companies.
4. Consolidated Accounting
If you choose the fiscal consolidation regime, it is mandatory to keep consolidated accounts that reflect the results of all the subsidiaries grouped under the holding company.
5. Tax Compliance
The holding company must be up to date with all legal and tax obligations, including the filing of returns, registrations and payment of corresponding taxes.
The creation of a holding company can be a very effective strategy to optimize taxation, improve operations and protect business assets. However, your convenience will depend on the specific characteristics of each case, including the size of the group, the nature of the activities, and the applicable legal and tax opportunities.
The following are the most common situations in which a holding company can be an excellent option:
A holding company is especially useful for organizing various business areas and subsidiaries under an efficient structure.
Centralization: It facilitates management and decision-making from a single entity.
Coordination: It improves coordination and operational efficiency within the business group.
Families with multiple businesses or assets can benefit significantly.
Protection of heritage: It allows family assets to be safeguarded against risks.
Generational transmissionl: Reduces the tax burden associated with inheritances and donations. For example: Wealth Tax Exemption, and 95% Reduction in Inheritance and Gift Tax.
For companies looking to expand nationally or internationally, the holding offers several advantages:
International tax and administrative benefits: Especially in jurisdictions with agreements to avoid double taxation.
Economies of scale: Taking advantage of synergies between companies in the group, reduction of operating costs and better purchasing conditions and competitiveness in the market.
Participation in public and private tenders: It projects an image of strength and stability that enhances business opportunities.
If you plan to sell a company in the group:
Capital Gains Tax Exemption: The capital gain obtained through the sale is exempt from taxation, allowing:
- Reinvestment: In other lines of business or assets.
- Flexible distribution of dividends.
A holding company projects professionalism and solidity:
- Facilitates access to new markets and investors.
- Improves relationships with customers and suppliers.
- Increase funding opportunities.
A holding company allows:
Compensation of results: The negative bases of one subsidiary can be offset by the positive bases of another, optimizing taxation.
Simplified internal taxation: It avoids withholding payments of interest, dividends or other income between companies in the group, and improves liquidity by deferring the payment of taxes.
Avoid double taxation: Thanks to international tax agreements, especially useful for companies with subsidiaries abroad.
Fiscal Consolidation: The group pays taxes on the consolidated result, reducing the total burden.
The grouping of companies under a holding company offers:
Diversification of risk: Minimizes business and personal exposure.
Property protection: It centralizes assets under the parent company, reducing the impact of commercial or financial risks.
The holding allows:
Centralization of shared services: Human resources, administration and marketing are managed in a unified way, reducing overhead costs.
Administrative simplification: Internal transactions between companies in the group require less documentation and comply with simpler tax obligations.
A holding company is adaptable to various business needs:
Entry and departure of members: Simplified through the redistribution of shares.
Structural evolution: It facilitates changes in organization and management according to business needs.
The creation of a holding company not only optimizes business management, but it also offers fiscal and structural benefits that are essential for growing, family or expanding companies. Below, we explore some of the key advantages that holding companies can take advantage of:
Tax-exempt dividend distribution: Holding companies can redistribute dividends between companies in the group without additional taxes, improving liquidity and allowing for strategic reinvestment.
Sale of shares without taxation: When subsidiary shares are sold, the capital gains generated can be exempt from taxes, facilitating the group's reinvestment or financial planning.
This specific tax regime for holding companies makes it possible to optimize VAT management in the business group:
Compensation of VAT balances: Group entities can balance positive and negative VAT balances, improving fiscal efficiency.
Elimination of VAT in internal transactions: Transactions made between entities in the same group may be exempt from VAT in the advanced mode.
Important Considerations: To access the advanced modality, it is mandatory to keep detailed accounts of transactions between entities. This regime simplifies compliance with VAT related tax obligations and improves operational fluidity.
Holdings offer key advantages in terms of tax and succession planning:
Wealth Tax: Investments in subsidiaries that are considered assets related to an economic activity may be exempt from this tax, generating significant savings for shareholders.
Succession planning: Holdings facilitate the transfer of shares to heirs with a considerably lower tax burden compared to taxation as a natural person. This is especially advantageous for family businesses, since tax burdens related to Inheritance and Gift Tax are minimized.
The holding company acts as a tool to facilitate compliance with the requirements necessary to access the tax benefits associated with the family business regime, such as:
- 95% reduction in Inheritance and Gift Tax.
- Exemptions applicable to Wealth Tax for family businesses.
Although the creation of a holding company can offer significant advantages, it also has certain drawbacks, among which the following stand out:
The formation and management of a holding company requires complex management, since each subsidiary must comply with multiple tax and legal obligations.
Setting up a holding company involves high expenses in legal and tax advice, in addition to the costs associated with the daily administration of the structure. For small businesses, these costs can pose a significant challenge.
Holdings tend to be subject to more stringent control by tax authorities, who seek to prevent evasion practices. This can result in frequent audits and controls.
Not all companies can benefit from the tax advantages of a holding company, since certain benefits are subject to specific requirements that not all companies meet.
Smaller holding companies may have problems accessing credit due to special regulations that govern them, which could limit their chances of growth.
Diversifying activities within a holding company can dilute focus and resources, which could reduce performance in more profitable areas and limit long-term growth.
If a holding company is not properly structured, it may face legal risks, such as regulatory breaches and difficulties in transferring assets and shares between subsidiaries.
At Gestoria Ibérica, we are based in Dubai and have the necessary experience to help you create a holding company in Spain, ensuring that you pay the minimum amount of taxes possible.
Creating a holding company is a strategic decision that requires a detailed study of your company and its objectives. Depending on your particular situation, you could take advantage of a variety of tax, operational and structural advantages, which vary depending on the size, nature and needs of the business.
If you are interested in exploring this option and would like more information, schedule a free consultation with us by clicking the button below. We're here to advise you and help you optimize your business operations.
