You should read this article if you are an entrepreneur starting or running a business in Ireland and are considering the potential for future growth and a possible company sale.
There are two main types of holding companies: (1) group holding companies and (2) personal holding companies. This article focuses on personal holding companies.
A personal holding company can offer you significant tax savings if used correctly.
Key Takeaways
A holding company in Ireland can help entrepreneurs significantly reduce their tax liability when selling their business.
Personal holding companies are standard limited companies that "sit behind" your trading company in terms of ownership structure.
When selling your trading company, proceeds can flow tax-free into your personal holding company instead of directly to you.
Careful planning is needed to balance EIIS eligibility (requiring less than 50% corporate ownership) with Entrepreneur Relief requirements (minimum 5% personal ownership).
A phased approach to transferring shares to a holding company can help maintain both EIIS eligibility and Entrepreneur Relief qualification.
A holding company in Ireland primarily provides tax efficiency and asset protection. It allows entrepreneurs to defer Capital Gains Tax when selling their business and provides a structure for managing multiple business interests.
2. How does a holding company work in Ireland?
A holding company in Ireland owns shares in other companies rather than trading directly. It allows business owners to receive proceeds from selling their trading company tax-free into their holding company, avoiding immediate 33% Capital Gains Tax.
3. How to avoid paying capital gains tax on shares in Ireland?
You can minimise Capital Gains Tax in Ireland by using a holding company structure to receive sale proceeds tax-free, or by qualifying for Entrepreneur Relief which offers a reduced 10% rate on gains up to €1 million.
4. How much does it cost to maintain a holding company?
The main costs are annual return fees and professional services for tax returns and compliance. You could maintain it for as little as €20 per year if you know what you are doing.
5. Will a holding company structure affect my ability to raise investment?
Yes, it can affect EIIS qualification if corporate ownership exceeds 50%. However, you can manage this by keeping sufficient shares in personal names during EIIS rounds and transferring them to your holding company later, or by maintaining a balance between personal and holding company ownership.
6. Does a holding company need to register for tax?
Yes, a holding company in Ireland must register with Revenue and file annual returns, even without immediate business activities. However, it doesn't need a bank account until it plans to handle funds.
7. Do I need separate accountants for my holding company and trading company?
While not required, using the same accountant for both companies often makes sense as they can better coordinate the overall structure and tax planning.
8. Can I use my holding company for other investments?
Yes, many entrepreneurs use their holding companies to invest sale proceeds in other businesses or assets, often with tax advantages.
