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ih8socialism

New member
Hello guys,

Just wanted to get some more input about possible setups.

I need a company to hold Shares from companies in EU (most of them are located within Germany). Company itself should not pay any tax on dividends or exits.

Currently I am planning to use an US LLC to hold these assets. Dividends should be a matter of personal tax then.

Any opinions about an UK Ltd? As far as I understood dividends from a foreign company are exempt to a certain level.

Glad for any input you guys might have.

Best Regards
 

JustAnotherNomad

Mentor Group Gold

Also read the links from there.

UK seems risky due to Brexit.
What you’d need to check is also what kind of substance would be required both by the country the holding company is registered in, but also by the country the subsidiary company is located in. And definitely make sure what the minimum holding period and minimum ownership percentage is for the disposal of shares to be exempt from tax.
Cyprus is probably the best option, since they seem to have a “whatever, we don’t care” approach. No capital gains tax, no withholding tax, no conditions. Just do what you want.
But even with countries that usually charge withholding tax, you might be able to avoid it by having another non-EU company own the EU holding.

Do not go for Estonia as they charge full 20% tax on exits, once you distribute the profits.

Don’t go for a US LLC. If you want to make it transparent, the LLC cannot use treaty benefits. So it would probably be treated as if you had received the dividends directly. The best case would be that it would be treated as a company that’s tax resident where you are. For the company to count as American, you’d have to make it a corporation, but then you’d have to deal with US withholding tax and estate tax.

Please let us know what you end up with, I’m also interested in this.
 

ih8socialism

New member
I checked out those options mentioned in the thread you linked. Spain looks indeed interesting. Switzerland is too expensive imo for my needs, atleast right now. Cyprus is, well it always looks a little bit "shady", personally I do not care and I am all in for shady things lol, but if sooner or later another investor might join some Venture Capitals or goverment startup projects / funds are secptical about Cyprus.

Yes, I thought the same that Brexit might cause some troubles, but I don't think that this will bit too big of a hassle, esepcially after Brexit will finally take place it might become a very interesting place since they do not have to take part in all the EU regulation stuff. As far as I understood, most of the time the UK ltd does not pay tax on dividends if they are from a foreign source.

For the US LLC dividends might most likely be considered as personal income, which I literraly do not care, since I am not planning on being a resident in Germany anytime soon (even aiming for bahraini passport right now). Also as a US LLC its fairly easy to hold shares in Germany atleast, compared to other non EU companies.

I will check out spain and cyprus again. Spain seems like a very good alternative.

Thanks already for all your input!
 

JustAnotherNomad

Mentor Group Gold
Spain looks indeed interesting. Switzerland is too expensive imo for my needs, atleast right now.

I wouldn’t be surprised if Spain was just expensive because of Spanish substance requirements. Always double check the WHT to wherever you are tax resident. Switzerland has 35% and it can be lowered under a tax treaty, but they usually still charge 10% or something on distributions to individuals. It might work if you had another holding company in Bahrain or wherever you are based.

if sooner or later another investor might join some Venture Capitals or goverment startup projects / funds are secptical about Cyprus.

Why would they see your holding company? Wouldn’t they invest into the startup company directly? Or you mean when you sell shares from your Cyprus holding to them?

As far as I understood, most of the time the UK ltd does not pay tax on dividends if they are from a foreign source.

That’s not the issue. The issue is that Germany or wherever your subsidiary company is may charge WHT if the PSD no longer applies after Brexit. I still think it’s likely that the UK will negotiate a good deal, but there’s definitely a big risk.
Ireland might be better, and it’s popular with startups. But I don’t know how much substance you’d need in Ireland.

For the US LLC dividends might most likely be considered as personal income, which I literraly do not care, since I am not planning on being a resident in Germany anytime soon (even aiming for bahraini passport right now).

That doesn’t matter. The German taxman will regard your “US” LLC as if you were holding the company shares as a Bahraini tax resident (individual or company). Bahrain has few tax treaties, so there will be full WHT. Google says the German WHT rate is 26.375%. Don’t do it. You’re facing the same risk with a UK holding.
 

ih8socialism

New member
Relocate yourself and your business to the UAE it may be the best solution if you want to avoid tax totally. Otherwise look into Switzerland or wait until you have grown your business so it is worth it.
Im residing in KSA and Bahrain, but I need / want a company to hold shares in germany.
 

ih8socialism

New member
I wouldn’t be surprised if Spain was just expensive because of Spanish substance requirements. Always double check the WHT to wherever you are tax resident. Switzerland has 35% and it can be lowered under a tax treaty, but they usually still charge 10% or something on distributions to individuals. It might work if you had another holding company in Bahrain or wherever you are based.



Why would they see your holding company? Wouldn’t they invest into the startup company directly? Or you mean when you sell shares from your Cyprus holding to them?



That’s not the issue. The issue is that Germany or wherever your subsidiary company is may charge WHT if the PSD no longer applies after Brexit. I still think it’s likely that the UK will negotiate a good deal, but there’s definitely a big risk.
Ireland might be better, and it’s popular with startups. But I don’t know how much substance you’d need in Ireland.



That doesn’t matter. The German taxman will regard your “US” LLC as if you were holding the company shares as a Bahraini tax resident (individual or company). Bahrain has few tax treaties, so there will be full WHT. Google says the German WHT rate is 26.375%. Don’t do it. You’re facing the same risk with a UK holding.
Ok, totally forget about that WHT stuff. The only way around would be building some substance in the designated country where the holding is located at. But then it depends how much "substance" you actually need. Atleast office and 1 employee. Maybe an onshore UAE company is a solution for this but well, UAE just screams "tax optimization" lol

Also, for example we are investing currently in a startup as as an angel investor. Later on, from my experience if more funding is required and you approach VCs they want to know the structure and shareholders. The more "shady" shareholders, the less the chance they will actually put in money.
 

JustAnotherNomad

Mentor Group Gold
Ok, totally forget about that WHT stuff. The only way around would be building some substance in the designated country where the holding is located at.

You would need substance either way, both because the holding company’s jurisdiction may require it, but also because the other country, from which the dividends will be sent, will require it.

Maybe an onshore UAE company is a solution for this but well, UAE just screams "tax optimization" lol

That will only work if the company is in a country that either doesn’t charge WHT in general (like a startup in Cyprus) or there’s a tax treaty that lowers the WHT to 0% for the UAE. Otherwise it would be just like your US LLC.

if more funding is required and you approach VCs they want to know the structure and shareholders. The more "shady" shareholders, the less the chance they will actually put in money.

That’s a good point and relevant for me as well. Please let me know what you decide.
Spain sounds very interesting indeed.

Oh! One more thing, have you looked into foundations? Though I guess investors might also find them suspicious. But a foundation could be an alternative to a holding company. The only downside being that a foundation in an “innocent” country could be expensive. Malta would be cheaper, but then you’d have the reputation issue again.
 

ih8socialism

New member
The companies we invest will obviously have of substance, warehouses, offices and employees and so on. I might have a intensive talk with my tax attorny about that.

Foundation is an interesting subject, but as far as I know from a friend who has one, it requires a lot of additional work. Quite frankly, then you can just open a local branch in Spain or UK or wherever, get an office and 1-2 employees who actually do something useful for the money you spend .

The biggest issue for other investors, especially if they invest large sums, its more a compliance thing than anything else. What happens if a large sum of their investment gets drained into a destination which requires a lot of work or even makes it nearly impossible to take any legal actions.

I know one case of a chinese company, which created a German branch, they wanted to establish a german production for their chemical products and easy access to european market. Besides making money with an IPO, all the invested moeny ended up either being spent in germany for big partys and dinners (Plenty of bottles of mouton rothschild which ended up getting mixed with cola :oops::oops:) or in China through various other companies. After the investors didn't see any progress, they even found out the chinese mother company was shut down. Suing and chinese individual in china from germany is nearly impossible, maybe unless you are so big that you have major influence in china.

Not saying this can also happen to any setup which looks super clean on the paper (Wirecard is a good example for this ), but it makes them sleep better at night lol

Also to keep in mind, if you want to take advantage of the many public programs in Germany / EU. There won't be any questions asked if there is another european entity shareholder compared to anything outside the EU or kinda fishy like cyprus. Reputation is a big thing
 

JustAnotherNomad

Mentor Group Gold
The companies we invest will obviously have of substance, warehouses, offices and employees and so on. I might have a intensive talk with my tax attorny about that.

It’s not about the substance in the companies, it’s about the substance for the holding. For example, I have read that the Netherlands require a holding to have a director with a salary of at least EUR 100k per year (give or take, depending on the country), otherwise they would not accept it as having enough substance and they would charge withholding tax. I don’t know what kind of rules Germany has in place for this, but this is something you should investigate.

Thank you for the other insight, that’s really valuable.
 

JustAnotherNomad

Mentor Group Gold
Hi @ih8socialism - any news?

I had another idea: Some countries have regulated in their tax treaties that withholding tax only applies to non-EU individuals, whereas WHT is not applicable to dividends sent to offshore parent companies, or where it's much lower. It seems like even Germany charges 10% WHT for UAE residents, but only 5% WHT for UAE holding companies.
Maybe you could set up a holding company in Europe, in a very reputable country, and then:

a) either own the holding company through an offshore holding company from a country that has signed a DTA with the EU country or
b) own the EU holding company as an individual (no offshore holding company in your structure, making your investors happy) and when you want to cash out, sell the EU holding company to an offshore holding company

I think this should work, but you'd obviously have to discuss this with a tax lawyer.
 
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