Holding companies: why are they necessary?

Contributed by Laveco Ltd. [www.laveco.com]

The holding company, whose primary activities are not active trade, service provision or production, is one of the most important tools in offshore asset protection.  If we are speaking about a pure holding company, then the enterprise’s sole purpose and profile is the ownership and administration of asset elements entrusted to it.  These assets can be of a very broad nature.  In general, the most common company assets are money in bank accounts, stocks, shares and interests in other companies or subsidiaries, legal rights (copyright, know-how) and real estate.  Since the whole aim of the company is to safeguard assets, it is not advisable to become involved in risky trading or activities which may end in court cases.  Such active operations can be performed, for example, by one of the subsidiaries held by the holding company.  As the basic purpose of holding companies is the safeguarding and accumulation of assets, as well as legal tax planning and the avoidance of inheritance problems, in certain cases it may be important for the country in which the holding company is registered to have the necessary agreements for the avoidance of double taxation.

Cyprus: 350 Euro annual super-tax

The Cyprus government is trying to ease the financial problems caused by the recession and the explosion in the power station with the introduction of some rather extravagant measures.

One of these is the 350 euro super-tax which the Cyprus Registrar of Companies is supposed to collect.  According to the new law, existing companies must pay the tax for 2011 by December 31st 2011, then from 2012 must pay by June 30th each year. If the tax for 2011 is not paid, then fines will be imposed as follows: for payment made between January 1st and February 29th 2012, 10% (35 Euros); between March 1st and May 31st 2012, 30% (105 Euros).  If the company does not pay by June 1st 2012, it will automatically be struck off the company register.  For the next two years it will be possible to have the company reinstated upon payment of the outstanding tax and fines, as well as a 500-euro restoration fee.  In order to have the company restored after 2 years, the fee will rise to 750 Euros.  Owners of companies registered in Cyprus, therefore, should make sure they meet the deadlines for payment, as even a small delay can result in significant fines, which until now was not the case in Cyprus.

EU: Union tax number investigations

Each year in the EU some 100 billion Euros is reclaimed unlawfully.  The new EU directive aims, in part, to tackle this problem from July 1st 2011.  In accordance with the terms of European Council directive 282/2011/EU, the EU company issuing the invoice is required to verify the legal tax status of the company being invoiced, as well as several other circumstances which it was previously not required to do.  VAT-free invoices can only be issued, if the company ordering the service enjoys tax-payer status in the EU.

At the same time, in the future the place of economic establishment test will also be required.  The official seat and the place of central management, however, need not be the same.  In this case, the actual place of management should be considered as the place of establishment.  The picture becomes murkier still if the company being invoiced also has a place of business in the country in which the invoice is issued.  The issuer is also required to investigate whether the place of business was involved in the given service.  If it was, then again a VAT-free invoice cannot be issued.    

Read More Contributed Articles