Using Holding Companies in International Wealth Structures

In international wealth and business structuring, the holding company is the most fundamental building block. Almost every multi-jurisdiction group — whether a family business empire, a private equity-backed structure, or a family office holding structure — uses one or more holding companies to organise its assets. Understanding how they work, which jurisdictions are most appropriate, and what the BEPS framework requires is essential for internationally mobile individuals and their advisers.

What Is a Holding Company?

A holding company is a company whose primary purpose is to own shares in other companies (subsidiaries) or to hold investment assets. It does not typically trade in goods or services. Its role is structural: organising ownership, facilitating the tax-efficient flow of dividends and capital gains, and providing a legal separation between different assets or activities.

The holding company structure works best when there is a tax advantage to holding assets through the company — specifically when dividends and capital gains passing through the holding company are sheltered from additional taxation. This is the function of the "participation exemption."

The Participation Exemption

The participation exemption is the most important feature of any holding company jurisdiction. It is a relief from corporation tax on dividends received from subsidiaries and, in many jurisdictions, on capital gains arising from the disposal of subsidiary shares.

Without a participation exemption, profits taxed at the operating subsidiary level would be taxed again when received as a dividend by the holding company — double taxation that makes the group structure economically inefficient. The participation exemption eliminates this double tax at the holding company level.

Most developed holding company jurisdictions operate a form of participation exemption. The key differences are in the qualifying conditions: what percentage shareholding is required, what minimum holding period, and what conditions the subsidiary must meet.

The UK Holding Company

The United Kingdom, despite its withdrawal from the EU, remains an attractive holding company location for many international groups.

The Substantial Shareholding Exemption (SSE). The SSE provides a complete exemption from UK corporation tax on gains arising from the disposal of shares in a qualifying trading subsidiary. The key conditions are:

• The disposing company must have held at least 10% of the subsidiary's shares for a continuous period of at least twelve months in the six years before disposal.
• The subsidiary must be a trading company (or the holding company of a trading group) at the time of disposal.

The SSE is broad, well-established, and generally reliable. It is a significant reason why many international groups locate their holding company in the UK.

Dividend exemption. Dividends received by UK companies from subsidiaries are generally exempt from UK corporation tax, provided the dividend falls within one of the exempt categories under the UK's complex dividend exemption regime. For most commercial dividends from trading subsidiaries, the exemption applies.

UK DTAs. The UK has one of the world's largest treaty networks — over 130 Double Tax Agreements. A UK holding company may therefore access favourable withholding tax rates on dividends received from overseas subsidiaries under treaty protection.

The Netherlands

The Netherlands has historically been one of the world's most popular holding company jurisdictions, primarily because of the breadth of its participation exemption (the "deelnemingsvrijstelling").

Under the Dutch participation exemption, dividends and capital gains derived from a qualifying shareholding of at least 5% are fully exempt from Dutch corporation tax. The exemption applies to dividends from most subsidiaries, subject to the condition that the subsidiary is subject to "reasonable taxation" in its own jurisdiction (to prevent the exemption being used to shelter income from low-tax territories).

Dutch holding companies have been subject to increasing scrutiny under the BEPS (Base Erosion and Profit Shifting) project, particularly regarding the substance requirements (see below). A Dutch holding company with no genuine economic substance — no real employees, no real management activity in the Netherlands — is vulnerable to challenge.

Luxembourg

Luxembourg is the fund domicile capital of Europe and home to many European holding companies, including those of major multinationals. The Luxembourg participation exemption provides full exemption from income tax on dividends and capital gains from qualifying shareholdings (at least 10% or €1.2m acquisition cost, held for at least twelve months).

Luxembourg's treaty network and its position within the EU single market make it attractive for European holding structures. As with the Netherlands, BEPS substance requirements must be respected.

Cyprus

Cyprus operates one of the most investor-friendly participation exemption regimes in the world:

• Dividends from subsidiaries: exempt from Cyprus corporation tax with no minimum holding period or shareholding percentage requirement in most cases (subject to conditions to prevent obvious abuse).
• Capital gains on disposal of shares: fully exempt from CGT in Cyprus (for shares in companies that do not hold immovable property in Cyprus).
• Corporation tax rate: 15% on non-exempt profits (increased from 12.5% with effect from 1 January 2026 as part of Cyprus's comprehensive tax reform, aligning with the OECD Pillar II global minimum).
• No withholding tax on dividends paid to non-resident shareholders: Cyprus does not impose withholding tax on dividends paid to overseas shareholders.
• Extensive treaty network: Cyprus has DTAs with approximately 65 countries.
• EU membership: access to the EU Parent-Subsidiary Directive and EU Interest and Royalties Directive, reducing withholding taxes within the EU.

For these reasons, Cyprus has been widely used as a holding company location for groups with Eastern European, Russian, Israeli, Indian, and other international subsidiaries. The Cyprus-UK DTA and the Cyprus-Russia DTA (historic, now terminated) were particularly heavily used.

The limitation of Cyprus as a holding company is primarily one of perception and substance. HMRC and other tax authorities scrutinise Cyprus structures carefully. A genuine Cyprus holding company — with real directors, real management, and real employees — is defensible. A "brass plate" Cyprus company with no substance is not.

Malta

Malta's Full Imputation System is distinctive among EU member states. Under this system:

• The Maltese company pays corporation tax at 35% on its profits.
• When dividends are paid to shareholders, the shareholders receive a credit for the tax paid at the company level.
• Non-resident shareholders can claim a refund of 6/7 of the Maltese tax on trading income (reducing the effective rate to approximately 5%) or 5/7 on passive income.

The refund system effectively makes Malta a low-effective-rate holding jurisdiction for international structures, while maintaining a headline 35% rate that satisfies EU state aid rules. Malta is an EU member state with a full treaty network and is therefore attractive for EU-connected structures.

BEPS and the Substance Requirement

The OECD's Base Erosion and Profit Shifting (BEPS) project, and its implementation through the OECD's Inclusive Framework, has fundamentally changed the requirements for international holding company structures. The key principle is: substance is required.

The Principal Purpose Test (PPT). Under the OECD's Multilateral Instrument (MLI), treaty benefits can be denied where one of the principal purposes of an arrangement was to obtain those benefits. This means that a holding company created primarily to access a favourable DTA rate — with no genuine economic activity in the holding company jurisdiction — risks having its treaty benefits denied.

Country-by-Country Reporting (CbCR). Large multinational groups must file country-by-country reports disclosing profits, taxes paid, and employees by jurisdiction. This transparency makes it more difficult to sustain structures where the profit allocation does not match the economic substance.

The substance requirements. Regulators and courts in holding company jurisdictions increasingly require genuine substance:

• Real employees (not just a nominee director).
• Real office space.
• Real management activity (board meetings held in the jurisdiction, meaningful decisions made there, not simply ratified).
• Management and control in the stated jurisdiction.

The standard for what constitutes adequate substance continues to evolve. Structures that were considered compliant five years ago may not meet current expectations. Any international holding structure should be reviewed periodically by specialist international tax counsel.

When Does a Holding Company Structure Make Sense?

A holding company structure is most valuable where:

1. Multiple jurisdictions are involved: a UK individual with businesses in Cyprus, Spain, and Thailand may use a Cypriot holding company to aggregate income from the operating subsidiaries before remitting to the UK, reducing withholding taxes.
2. Capital gains are anticipated: a holding company in an SSE or participation-exempt jurisdiction can realise gains on subsidiary disposal free of corporation tax.
3. Dividend flows need to be managed: the participation exemption prevents double taxation of profits flowing up through a group.
4. Family succession is planned: a family holding company can hold business and investment assets and facilitate succession planning.

A holding company structure adds cost and complexity. Annual compliance, transfer pricing documentation, substance costs, and regulatory filings all increase the overhead. The benefits must be assessed against these costs.

Important Considerations

International tax planning is a rapidly evolving area. The BEPS framework, EU Anti-Tax Avoidance Directives, and national anti-avoidance rules all continue to develop. This article is a general overview only and does not constitute tax or financial advice. The application of participation exemptions, treaty protection, and substance requirements to any specific structure depends on the facts and the current law of each relevant jurisdiction. Always seek qualified independent advice from international tax specialists with specific knowledge of the jurisdictions involved. Tax rules can and do change, sometimes retrospectively.

How Global Investments Can Help

Global Investments works with internationally mobile clients and business owners to design and review international holding structures. We have specialist knowledge of the key holding company jurisdictions — UK, Cyprus, Malta, and others — and work alongside international tax law firms to ensure structures are properly established, maintain adequate substance, and are robust to scrutiny. We can also assist with the ongoing investment management and governance of holding company structures as part of a broader wealth planning mandate. Contact our team to discuss your requirements.