The term Holding is becoming increasingly prevalent in everyday vocabulary. However, a still significant number of investors believe that using such a structure is reserved for large corporate groups.

Unfortunately, this misconception often causes these investors to miss the opportunity to optimize the ownership of their investments properly.

To help you better understand this concept, we will present the main characteristics of a Holding company before considering its key tax advantages.

What is a Holding?

A Holding is a company whose main activity is the acquisition and management of interests in other companies, which can be either commercial or civil.

The companies in which the Holding owns interests are called subsidiaries. All these companies form a group with the Holding at the helm, which can be compared to a command center.

In a group operation, individual associates will no longer be directly associated with each company. Instead, they will be direct associates of the Holding company, which holds the interests of each subsidiary.

The Holding company can take the form of a commercial company or a civil company. Today, the simplified joint-stock company (or “SAS”) is the most commonly used form by investors due to its operational flexibility. For structuring real estate assets, it is possible to opt for a Real Estate Civil Company (or “SCI”).

Traditionally, two types of Holding companies can be distinguished:

• Passive Holding (or “pure”): It has only the activities of acquiring and managing its interests;

• Active Holding (or “operating”): In addition to holding interests, the active holding also has a commercial activity, providing services to its subsidiaries (legal, accounting, administrative services).

What are the main tax advantages of a Holding?

The two main tax advantages related to Holding companies are:

• The Parent-Subsidiary regime,
• The tax consolidation regime.

The Parent-Subsidiary regime:

This regime allows the Holding company to benefit from a corporate income tax exemption on dividends received from its subsidiaries, subject to the taxation of a 5% share for expenses.

This regime is subject to two main conditions:

• the Holding company must hold at least 5% of the voting rights and financial rights of its subsidiary;
• and it must retain its shares for at least two years.

Take the example of a Holding company that has a accounting profit of 50,000 euros, of which 40,000 euros corresponds to dividends received from its subsidiaries.

Without the implementation of the Parent-Subsidiary regime, its taxation would amount to 13,250 euros (with a corporate tax rate of 26.5%). With the regime in place, the taxable result would be 50,000 – 40,000 (the exempted dividends) + 2,000 (5% share) totaling 12,000 euros, and its taxation would now amount to 3,180 euros.

The tax consolidation regime:

Like the previous regime, tax consolidation allows an exemption from the taxation of dividend distributions, with the taxation of a 1% share for expenses.

Beyond this minimal fiscal friction, the implementation of such a regime will result in a common taxation of the group at the Holding company level (head of the group). This common taxation will generate a considerable fiscal advantage since the profits made by certain companies in the group can be offset with the losses incurred by others.

The main conditions for implementing this regime are:

• the head of the group must hold 95% of its subsidiaries;
• companies must be subject to corporate income tax;
• and the companies must close their books on the same dates.

Other advantages:

Setting up a Holding company will also allow for an exemption from capital gains tax on the sale of shares it has held for more than 2 years (or participating interests), subject to the taxation of a 12% share for expenses.

In addition to these numerous tax advantages, the Holding company will enable considerable financial benefits. In addition to being a strong argument for obtaining loans from banks (especially real estate loans), the low tax friction on dividend distributions will also allow, in the long run, a shift towards internal financing of the group.

However, despite its many advantages, the establishment of a Holding company and the structuring of a group can sometimes be complex and risky.

The use of a tax lawyer to advise and assist in setting up a Holding company is therefore more than necessary.

The tax lawyers at LEXPERTAX are experts in all areas of taxation, especially in the establishment of Holding companies and Parent-Subsidiary or tax consolidation regimes.

We are committed to providing you with our expertise to analyze your situation thoroughly and offer you the most suitable structuring.