Holding structure

What it means

A holding structure is one in which a company, the holding or parent company, owns stakes in other companies, its subsidiaries, and manages them. The holding itself often has no day-to-day operations; its assets are the stakes and perhaps property or trademarks it leases to the subsidiaries.

Entrepreneurs set up holdings for several reasons: to separate the risks of different activities, to move one company’s profit into another without further tax, and to prepare the sale of part of the business or succession in a family business.

Dividends from subsidiaries in Slovakia and most EU states are generally not taxed in a Slovak holding. On the sale of a stake in a subsidiary the gain may be tax-exempt if conditions are met, mainly the holding period and the size of the stake.

How it works in practice

Most often a holding is created by the owner contributing their stake in the operating company as a non-cash contribution to a new holding company. At this step we deal with valuation, the tax consequences of the contribution and making sure the transaction has a business purpose, not just a tax one.

The holding and its subsidiaries are related parties, so services, loans and rents between them must be priced under the transfer pricing rules. Management fees the holding charges its subsidiaries must correspond to real services, otherwise the tax office will not accept them.

Once the size criteria are exceeded, the holding must prepare consolidated financial statements. Smaller holdings have no such duty, but for the bank and for management we often prepare at least a simplified combined view of the whole group.

What to watch out for

A holding set up purely for tax, with no real function, management or economic purpose, may be challenged by the tax office under the general anti-abuse rule. With a foreign holding in a low-tax state, the CFC rules must also be considered.

A holding adds administration: more accounting entities, more accounts and returns, and intra-group transactions to document. For a small business the running costs can exceed the savings, so we recommend one only when it has a clear purpose.