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Holding Structure within an Investment Fund

Most tax advisors will tell you that “one operating company is not enough”. In most cases, setting up a fund holding structure is more advantageous than using a normal holding structure with the business owner as the personal shareholder. There are certain situations in which a holding structure would always be recommended. One example would be if you are operating in a more risky industry. A fund holding establishes an extra shield between your person and your business activity. 

Another good reason for considering a holding structure is if there is a good chance that you will sell your company in the future. The profit you stand to make from selling “your” business can be transferred to your holding company free of tax. 

A holding structure can save you money and provide you with a safer way to do business. 

A holding structure consists of an operating company, which handles the business activity, and of an investment fund that holds shares in the operating company. 

How does the setup of a holding structure work? 
The company is usually incorporated at the notary. The operating company is used for the company’s operations. The investment fund is incorporated under the laws of Liechtenstein or of any other jurisdiction. The investment fund owns the shares of the operating company. 

This structure does not have to be complicated, and it does not have any beneficial owners at all. 

Why choose a fund holding structure? 
There are three main reasons why entrepreneurs choose to structure their business as a fund holding structure: less taxes, no risk and no administrative work with banks and other financial institutions.

First, there can be tax advantages to a holding structure. The most important one is the participation exemption. For example, profits made from the sale of the company that are transferred to the fund will not be subject to profit tax. 

Second, there is less risk when you operate via a fund holding company structure. The fund functions as an extra layer between yourself as a natural person and the business activity. There is no need to think about a structure to protect the company’s equity. The protection of the fund assets including all operating companies is embedded in the law. 


Practical advantages of a fund holding structure 
You transfer (a part of) your shares into the fund. The profit you could make in this sale will be transferred to the fund. A fund holding is exempt from taxes on a realized profit from the sale of shares in the operating company. You could use these resources in the fund holding to reinvest in a business or to provide a pension for old age. If you have not set up a holding structure, but you personally hold the shares in the operating company, you shall pay corporate income tax on the sales profit. 

If your fund holding has a stake in multiple companies, you do not have to pay out a salary from each of the stakes. This way, you can save on income tax and administrative burden and fees. 

In case the fund holding holds a specific percentage of the shares of the operating companies, these companies can apply to be considered a fiscal unit by the tax authorities. This ensures that you can easily settle costs between companies and thus gain an advantage in your tax return. The fund (parent company) and the operating company (subsidiary) are then treated as one single tax-payer. This way, you would only have to do one tax filing for the operating company. 

By placing profit reserves and shares (and for example real estate, a company car or pensions savings) in a separate fund holding, you are protected from losing your accumulated gains in case of bankruptcy of the operating company. 

Clarissa Gögele
Compliance Officer
Scarabaeus Wealth Management AG