In many European States, holding companies are exempt from taxes on dividends proceeding from abroad.
A holding company is a legal structure whose purpose is to hold shares of other companies in order to provide stability and consolidate revenues from different entities and thus their taxes.
Holding companies in Europe are even more attractive by virtue of two European Law directives, established in 1990 and 2003, eliminating withholding taxes at the source when remitting dividends between subsidiaries and their parent companies.
The purpose of the parent-subsidiary directive in France and Europe
The directive on European parent-subsidiary policy allows European Union companies to be held by a company located in another EU country. A subsidiary can then remit its profits to their parent company without being taxed at the source.
Holding company regulations in London impose a 0% tax rate on dividends.
Therefore, dividends remitted by a French company to its European parent company are exempt from withholding tax at the source, under certain conditions.
Specifically, the parent company must:
- Be liable for corporate tax (4% in London and 10% in Gibraltar)
- Has directly held at least 5% of the subsidiary’s shares over the past two years, or commits to holding these shares over the course of the two years to come
- Have its registered office in a European Union state
It is therefore particularly attractive for the shares of a company to be held by a holding company located in a neighboring European country with more beneficial tax rules, with the goal of increasing available liquidity for future investments. For example, a company based in London could hold other subsidiaries and reinvest in its commercial companies, fixed assets, SCIs, as well directly or indirectly acquire financial stakes, thus building an ideal asset portfolio.
Attractive holding company regulations in Europe
Many European states provide a structure for holding companies. Here are some of the main ones.
- Holding companies in the United Kingdom: benefit from the attractive UK tax laws and exemption from taxes for dividends received from abroad.
- Holding companies in Luxembourg: SPF and SOPARFI.
- Holding companies in the Netherlands: benefit from particularly flexible business laws and “participation exemption” tax policies.
- Holding companies in Belgium: benefit from low tax rates on dividends and capital gains, and a “RDT” (“revenus définitivement taxés”, or definitely taxed income) tax policy.