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A holding company is a type of limited liability company that holds shares in other companies, which are referred to as operating companies. The holding company's structure typically includes the abbreviation A/S or ApS, and sole proprietorships are not eligible to be part of a holding company. Holding companies often manage the property of other companies and may not be registered for VAT. The number of shares a holding company owns in different companies does not affect its classification, but it can impact its tax rules. Holding companies offer benefits such as lower taxation on dividends and profits from share sales, the ability to distribute deficits among companies, and the option to carry profits forward as dividends. This helps protect profits from potential lawsuits or claims.
The name of a company does not determine whether it is a holding company or not. The main factor that determines whether a company is a holding company is its activities, rather than its name. Regardless of what a holding company is called, it is still considered a holding company as long as it holds shares in other companies. The scope of its activities is what is important in determining its classification.
There are two main types of income that a holding company can generate. The first type is dividends, which are payments received from operating companies in which the holding company owns shares. The second type of income is generated from profits resulting from the sale of shares that the holding company owns in other companies.
The costs that a holding company typically incurs can include accounting or banking fees. However, it is also possible for a holding company to experience losses due to a decrease in the value of shares it owns or from the sale of shares. These losses can also be considered as costs for the holding company.
In Denmark, a holding company is subject to a 22% corporate income tax, which is the same rate that other limited liability companies are required to pay. However, profits that a holding company earns from the sale of shares in other companies are typically exempt from tax.
When a holding company owns less than 10% of another company, the shares that it owns are called portfolio shares. For these types of shares, there are special tax rules associated with private companies. Typically, 70% of dividends that the holding company receives from the portfolio shares are subject to tax. However, gains that the holding company earns from the sale of portfolio shares are generally exempt from tax.
When you have a 10% or greater ownership stake in a private company, you are not subject to any tax on dividends.
If you own less than 10% of a private company (known as portfolio shares), 15.4% of your dividends will be taxed.
However, even if you own less than 10% of a private company, only 70% of your dividends will be taxed at a rate of 22%.
Owning 10% or more shares in a public company will result in a 22% tax on dividends.
If you own less than 10% of the shares of a public company (public portfolio shares), you will only be taxed 2% on your dividends.
The annual report can disclose the value of non-public shares bought by the holding company either as the actual purchase price or as their intrinsic value. If the intrinsic value method is used, the share value will be adjusted each year in the annual report to match the operating company's annual report. If the share value increases, any income should be reported in the annual report, even if the shares have not been sold. Alternatively, if the purchase price is disclosed, profits will only be displayed after the shares have been sold or dividends have been received.
In Denmark, if a company owns more than 50% of another company, it is responsible for managing the joint taxation system between the two companies. When both companies are based in Denmark and register with SKAT Erhverv within one month of beginning joint taxation, using a joint taxation system is mandatory. However, in some cases, companies can opt to use a joint tax system, particularly if the companies are located in different countries.
When two or more companies engage in joint taxation, the holding company shares liability with the operating companies. This liability is also shared among the different operating companies that are taxed jointly with the holding company. If the holding company owns 100% of the company, then the liability can be fully shared. If the holding company owns only a portion of the company, then the liability is only partially shared.
It is possible to register two companies simultaneously, which is commonly referred to as "working capital".
It is possible to establish a holding company after creating an operating company, but this process can be complex. If you plan on transferring your personal shares in the operating company to the newly-formed holding company, it is important to consider the potential tax implications.
Dividends are paid to shareholders during either the annual general meeting or an extraordinary general meeting.
When companies are taxed together, they must synchronize their tax year, and usually, the operating company needs to adjust its tax year to match the holding company's tax year.