Lower tax with a holding company: how to protect your assets

Starting a holding company can be a smart strategy for business owners who want to reduce their tax and protect their assets. But what is a holding company, and how can it benefit you as a business owner? We go through the most important tax advantages.

What is a holding company?

A holding company is a parent company that owns shares in other companies, known as subsidiaries. The holding company does not run any business of its own. Instead, it acts as an ownership structure for bringing together and managing the assets of different companies. This can bring tax advantages and protect capital that has been moved up from the operating company.

Advantages of a holding company:

Tax-free dividends
If the holding company owns shares in an unlisted subsidiary, the dividend is normally tax-free, regardless of the size of the shareholding. For listed shares, the holding company must have at least 10 per cent of the votes. This gives you the opportunity to build up capital in the holding company and reinvest those funds without being taxed on every dividend.

Asset protection and risk reduction
By transferring profits from an operating company to the holding company, you protect the assets from risks in the operating business, such as bankruptcy or legal claims. This is particularly important if the company operates in a high-risk industry.

Tax advantage when selling a company
If you own the shares in an operating company through a holding company, you can, under certain circumstances, sell the subsidiary completely tax-free. The untaxed profit can be kept in the holding company for new investments or future dividends.

Option of group contributions
If the holding company owns more than 90 per cent of several companies, you can take advantage of the option to move capital between the companies through group contributions (koncernbidrag). This allows a profitable company to contribute financially to a loss-making company within the same group, evening out the tax burden.

How do you start a holding company?

You start a holding company by registering an ordinary limited company (aktiebolag, AB). You then transfer the shares in your operating company to the holding company. It is important to carefully document and analyse the tax consequences to make sure you set up the structure correctly.

Do you need help starting your holding company?

At Ekonomico, we help business owners with everything from tax planning to setting up the company structure. Contact us and we will go through whether a holding company suits you and how it should be set up.