A Guide to Setting Up a Holding Company in the UK

Often referred to as a ‘parent’ company, a holding company follows the same incorporation process as a normal company, although it provides different purposes for business owners.

Here, we give you a better understanding on what a holding company is, why you should choose the UK for incorporation, tax advantages of a holding company, and how to set up a company in the UK.

What Is a Holding Company?  

A holding company is an ‘umbrella’ or ‘parent’ company, which has a bunch of ‘smaller children’ living under its hood, known as subsidiaries. It is relatively easier to set up a holding company, as it does not provide products or services like a normal company. It simply owns the assets of the companies under its umbrella.

Therefore, a holding company can oversee and manage its company’s management decisions, it does not actively participate in their subsidiaries’ daily business operations such as manufacturing, sales or providing services.

If I Want To Open a Holding Company, What Kind of Assets Can It Own?

Anything with a value can be owned by a holding company as one of their assets. Some examples include:

• Shares of stock in their subsidiaries or other companies
• Private equity funds
• Public stocks
• Bonds
• Real estate
• Limited liability companies
• Limited partnerships
• Brand names
• Patents
• Trademarks

When Will a Company Be Counted as a Subsidiary of My Holding Company?

A company will be counted as a subsidiary of a holding company if:

• The parent company owns more than half of the voting rights in the subsidiary
• The parent company is a member of the subsidiary
• The parent company has the authority to make changes to the board of directors

In the UK, a holding company that owns more than 50% of another company’s shares will be known as the ‘parent’ company of that company.

Why Choose the UK To Set Up Your Holding Company?

If you’re reading this, you’re probably looking into opening a holding company in the UK. One question remains though, there are other countries that you can open a holding company with, why choose the UK?

One of the points we look for is how simple it is to get your company started, which is the very first step in entrepreneurship. Company incorporation, which means to set up your company to be recognised in the eyes of the law, should be simple and straightforward. Nonetheless, if it still sounds like a tad too much for you, there are experienced professionals to help you with incorporation of your company here at East river.

Other points to look out for when choosing a jurisdiction to set up for company are:

• What are the corporate tax rates?
• Are there any tax treaties?
• Is there tax on dividends, interest or royalties?
• Will I be maximising my earn rate if I set up a company in this country?
• What are the corporate legal laws for this country?

Benefits of Setting Up a Holding Company in the UK

Apart from tax benefits, which is a huge part of the reason why entrepreneurs choose the UK for a holding company, there are some other benefits you’ll get when setting up a holding company here.

Firstly, the UK provides a relatively stable legal, political and economic system. Secondly, there is no minimum share capital, which means the money a company raises through the sale of shares by issuing common or preferred stocks.

Tax Advantages of Setting Up a Holding Company in the UK

Moving on to the main reason why the UK remains an attractive country for holding companies.

1. Low corporate tax rate

The current corporate tax rate in the UK is 19% since April 2017, which is considered to be an internationally low rate.

2. Tax treaty network

Apart from benefiting from the low tax rate, the UK also houses the largest network of double tax treaties worldwide. This means that it has treaties with many countries to avoid double payment of tax, so entrepreneurs do not have to pay tax twice when they have dealings between the UK and any other country in the treaty list.

This can potentially reduce withholding taxes to zero or very low percentages. Usually, when a UK holding or normal company owns more than 10% of the issued share capital of an overseas subsidiary, the rate for withholding tax on dividends paid by the subsidiary can be reduced to 5%.

3. Tax Exemption for Foreign Income Dividends (SMEs)

Small companies can receive a full exemption from paying taxes in foreign income dividends if dealings are done with a country that has a double tax agreement with the UK. This is subjected to the following criteria:

• The company must have less than 50 employees
• The company’s turnover should be less than €10 million
• The balance sheet total is less than €10 million

4. No Withholding Taxes

There is no withholding tax on the distribution of dividends to shareholders or holding companies. This applies even if the shareholder is not a UK resident or residing in any part of the world.

5. Corporation Tax Exemption

Any chargeable gain on a disposal by the holding company of a subsidiary will be exempt from corporation tax, provided that conditions are met. This is an automatic exemption. This means that the holding company can dispose of its shares without a tax liability if it owns at least 10% of the ordinary shares in the subsidiary for 12 consecutive months beginning not more than 2 years before the disposal date.

This is, however, only if both the holding company and the subsidiary are active trading companies working for a 12 month period before and after disposal.

HMRC is really strict on the above conditions, especially the 10% rule, if you ever need any advice on this occasion, consult with an Accountant beforehand. Our accountants are friendly and experts at what they do.  

6. Tax exemptions for VAT- taxable supplies

A holding company can enjoy VAT registration exemptions if its functions only include:

• Continues acquiring shares in subsidiary companies
• Receives dividends from shares bought
• Disposes shares in its subsidiaries
• Prevents itself and its subsidiaries from acquisitions from third-party companies

How To Register a Holding Company in the UK?

Now that you’ve gotten a gist of what it means to open a holding company, let’s go through the steps to open one in the UK. The steps are generally similar to opening a normal private or limited company, so you would find them similar if you’ve set up a company here before.

Here are some basic information that you need:

1. Your company name and registered office address
2. Standard Industrial Classification codes (SIC)
3. Director’s details (at least one)
4. Shareholder’s details (at least one)
5. Memorandum and articles of association
6. Share information issued to shareholders
7. Supporting documents for the use of sensitive words in the company name, if any

You will have to legally register your business at the Companies House and submit all filing requirements before your company is considered and recognised in the name of law.

Incorporating your company is not difficult, but it can be a hassle if you do not know what you need. Here at East river, we help entrepreneurs like yourself with all the back-end business matters such as company formation, bookkeeping, and accounting for companies in the UK.

A holding company in the UK can be very advantageous for entrepreneurs due to its location, tax rates, tax exemptions and extensive double tax treaty networks. However, always remember that a holding company is also subjected to corporate governance in the UK just like a normal company, and there are rules to follow.

If you need assistance on any business matters, East river has a team of dedicated experts to guide you every step of the way.