A holding company is a type of limited liability company that owns shares in multiple other companies, which are known as operating companies. The holding company structure is typically denoted by A/S or ApS, and a sole proprietorship cannot be a part of a holding company. The main activity of a holding company is to manage the assets of its subsidiaries, and it may not register for VAT. The number of shares a holding company owns in its subsidiaries does not determine its status as a holding company, but it does affect its tax treatment. Holding companies offer tax benefits in terms of lower taxation on dividends and profits from share sales, and the ability to distribute losses among subsidiaries under a common tax regime. Holding companies also allow profits to be carried forward as dividends, which can protect them from legal claims.
The name of a company does not determine whether it is a holding company or not. As long as a company's primary activity is holding shares in other companies, it is considered a holding company, regardless of its name. What matters is the company's scope of activities.
There are two types of income that a holding company can generate. The first type is income in the form of dividends that it receives from its subsidiaries, which are the operating companies. The second type is income from profits that result from the holding company selling shares in various other companies.
The expenses incurred by a holding company are typically related to accounting or banking fees. However, such expenses may also include losses resulting from the holding company's shares decreasing in value, or from losses incurred in the sale of shares.
In Denmark, holding companies are subject to the same corporate income tax rate of 22% as other limited liability companies. However, profits generated by holding companies from the sale of shares in different companies are generally exempt from tax.
If a holding company owns less than 10% of another company, the shares it owns are referred to as portfolio shares. In this case, special tax rules apply to private companies. Typically, 70% of dividends received from portfolio shares are subject to taxation, but any gains resulting from the sale of such shares are exempt from tax.
When a holding company buys non-public shares, it can choose to disclose their value in its annual report either as the real purchase price or as the intrinsic value. If the intrinsic value method is used, the value of the shares is adjusted each year to reflect the value shown in the operating company's annual report. If the shares appreciate in value, the holding company must show the income generated in its annual report, even if the shares have not been sold. On the other hand, if the value is disclosed as the purchase price, the profit will be displayed only after the shares have been sold or dividends have been received.
Joint taxation in Denmark can occur when one company owns over 50% of another company. In such cases, the company that owns the majority of shares becomes the administrator of the joint taxation system between both companies. Joint taxation is mandatory when both companies are located in Denmark and are registered with SKAT Erhverv within one month of the start of joint taxation. Companies can also choose to use a joint tax system, especially when the companies are located in different countries.
Under joint taxation, when two or more companies share a part of the liability with the holding company, the liability is also shared with the operating companies that are taxed jointly with the holding company. If the holding company owns 100% of the operating company, the liability is fully shared between the two. In cases where the holding company owns a partial share of the operating company, the liability is partially shared between them.
It is possible to register both companies simultaneously, which is known as "working capital". This approach can be useful for streamlining the process of establishing both companies at the same time.
It is possible to establish a holding company after an operating company has been established, but it can be a complicated process. If you plan on transferring your own shares from the operating company to the holding company, you should consider the tax consequences that may result from the transfer.
Dividends are paid to shareholders during company meetings, which can either be the annual general meeting or the extraordinary general meeting. The decision to distribute dividends is typically made during these meetings.
When companies are subject to joint taxation, they are required to have the same tax year. In such cases, the operating company usually has to adjust its tax year to align with the holding company's tax year. This ensures that the tax obligations of both companies are properly aligned and calculated.