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Old 02.11.2020, 17:45
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Establishment of holding company

I am a Swiss tax resident making investments through my Swiss bank account. I would like to hear experiences, pros / cons of transfering everything to a holding company. Is there a tax optimisation case? I am not necessarily talking about a Swiss holding company (although could be the case), but it could be a Lux or Cyprus based one.

Any benefits on dividend, coupons, capital gain? How about wealth tax? Is there a minimum necessary to justify the cost?
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Old 02.11.2020, 18:33
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Re: Establishment of holding company

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I am a Swiss tax resident making investments through my Swiss bank account. I would like to hear experiences, pros / cons of transfering everything to a holding company. Is there a tax optimisation case? I am not necessarily talking about a Swiss holding company (although could be the case), but it could be a Lux or Cyprus based one.

Any benefits on dividend, coupons, capital gain? How about wealth tax? Is there a minimum necessary to justify the cost?
It will be a very expensive exercise, unlikely to be any benefit unless you have tens of millions. Directors fees, Audit etc. Set up costs with due diligence could easily top 50k with annual running costs not far below. Very few people will want to touch it.
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Old 02.11.2020, 19:16
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Re: Establishment of holding company

You can certainly do this, and it will not cost you CHF50,000 but depending on jurisdiction expect to pay +- Ä5,000 to incorporate and first years fees, and then running costs of about Ä 3,000 a year thereafter.


You will also need to have an accountant submit annual accounts and the cost varies again depending where and how many trades you've done.



Some jurisdictions are much cheaper, such as Romania or Bulgaria and some levy tax on holding companies and other don't.


To be worthwhile, you need to hold at least CHF 1 million in assets, below that it does not make sense.


As for Swiss tax, whatever you take out will count as a dividend, which you account for here as income. Wealth tax is estimated on the share capital of the company.


Personally, unless you're a professional trader, I don't think it makes real sense.
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Old 03.11.2020, 00:27
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Re: Establishment of holding company

Basically I had in mind lower cost jurisdictions.


If the annual cost is 5k, assuming someone has 1mil. and assuming you can save from dividends, capital gains, wealth tax it is still a benefit.

Obviously, the higher the amount the higher the benefit for the same cost. However, why do you say that it is not worth the effort?


Any risks?
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Old 03.11.2020, 02:13
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Re: Establishment of holding company

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However, why do you say that it is not worth the effort?

Because you don't have capital gains in Switzerland and the wealth tax is really low. The main reason to do it would be to avoid the WT as you're taxed on the share capital, not the assets.


If you have Swiss shares there's no way to avoid the witholding tax as that's deducted wherever in the world the shares are held.


You may want to arrange your assets in a holding company to facilitate distribution to heirs. You could also consider for example a Delaware llc. which allows for multi tiered shareholdings.
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Old 03.11.2020, 04:02
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Re: Establishment of holding company

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If the annual cost is 5k, assuming someone has 1mil. and assuming you can save from dividends, capital gains, wealth tax it is still a benefit.
The tax authorities are not dumb, they have teams of smart, experienced and well educated individuals who spent their days making sure you donít avoid your taxes.

So youíre going to need to employ similar individuals for starters. Now these kind of vehicles need to sail very close to the wind in order to avoid taxes so they are specific to the client and need to be updated constantly as they tax authorities challenges them...

Bottom line, 5K would not even get you off the start blocks on something like that.
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Old 03.11.2020, 18:38
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Re: Establishment of holding company

"Bottom line, 5K would not even get you off the start blocks on something like that." (Quote button did not work!)


Not at all. There is standard international practice, and the Swiss will only tax on any income or distribution received in Switzerland. You could have 2 million sitting there and they will still only consider for wealth tax the paid up share capital.


However, what does come into play, is from where the company is being managed. If all the instructions, meetings and management of the portfolio takes place in Switzerland, they will take a different view and you'll need a tax advisor to establish a ruling.


So you'll need to provide "substance" in the jurisdiction. But equally OP could make a Holding Co. in say Schwyz or Lucerne. There is no reporting to the tax authorities from Canton to Canton.
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Old 03.11.2020, 18:50
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Re: Establishment of holding company

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Bottom line, 5K would not even get you off the start blocks on something like that.
I know someone who 40 years ago set up a Liberian holding company to hold UK shares in a trust that did not want to directly hold UK shares. Annual costs are about 30k for about 1 million of assets. Since you could hold funds based in Ireland or Luxembourg for about 1/4 of the cost or even ADR's in the USA, it's clearly a waste of time for a small holding. The trustee Directors required an additional 10k to carry out due diligence a couple of years ago as tax rules tightened, lawyers fees are expensive.
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Old 03.11.2020, 22:32
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Re: Establishment of holding company

My company does this all the time for clients.


Costs are more like the 10k a year mark, (depends on jurisdiction) but various valid points have been made by other posters.


It ain't as easy as it once was to set these things up.


KYC and AML rules are an expensive pain.


Everyone in the process has to judge the "risk" of some sort they are taking, this will be priced in at every stage - and you will be paying.


Latest legislation changes have made all jurisdictions much hotter on establishing the centre of command and control for holding companies. The Swiss are extremely sensitive about this.


It isn't just clever people looking at your business. With automatic exchange of information, computers are matching data to find similarities.


1m in assets is not quite enough in my view to make all the hassle worthwhile.


You may actually get turned down everywhere for being "too small".



Kind regards




Ian
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