In this arrangement, each company fulfils its respective role. The operating company actively engages in business activities, while the holding company retains ownership.
Under this structure, the holding company possesses full ownership of the operating company, including its major assets and capital such as intellectual property, real estate, cash, and any liabilities. However, the holding company does not directly supervise the daily operations of the business.
On the other hand, the operating company assumes responsibility for performing regular business operations, which may include entering contracts with third parties, hiring employees, delivering products or services, and managing customer interactions.
A dual company structure refers to a business setup that involves the establishment of two separate entities, typically in different jurisdictions, to leverage the advantages offered by each jurisdiction. In the case of Malta and Cyprus, both countries have attractive features for businesses, making them popular choices for dual company structures. Here are some key points to consider:
– Tax Benefits: The corporate tax rate in Malta is 35%. However, the Malta tax refund system enables foreign shareholders of a company registered in Malta to claim up to a 6/7th tax refund of tax paid in Malta. This 6/7th refund is paid to the shareholder in the form of a dividend, therefore making the effective tax rate 5%.
– EU Membership: As a member of the European Union (EU), Maltese companies benefit from access to the EU market and the ability to operate freely within the EU. Residents can also enjoy visa-free travel to Schengen countries that includes most European states, Switzerland, Iceland, Liechtenstein, and Norway.
– Strong Financial Services Sector: Malta has a well-regulated and reputable financial services sector, including banking, insurance, and investment services.
– Company Formation: Setting up a company in Malta involves meeting certain requirements, such as minimum share capital, local directorship, and compliance with legal obligations.
– Malta Participation Exemption: it is a tax exemption for shareholders that applies to dividends received and potential capital gains resulting from the sale of shares. When holding shares in another entity, including companies and limited liability partnerships, a Maltese company may claim a Participating Exemption from Maltese tax on income and capital gains, as it qualifies as a Participating Holding.
– Tax Advantages: Cyprus offers a competitive tax regime, including a low corporate tax rate (currently 12.5%), double taxation agreements with over 60 countries, and tax exemptions for certain types of income.
– EU Membership: Similar to Malta, Cyprus is an EU member state, providing businesses with access to the EU market and the benefits of the EU legal framework.
– Strategic Location: Cyprus is strategically located at the crossroads of Europe, Asia, and Africa, making it an ideal base for international trade and investment.
– Business-Friendly Environment: Cyprus has taken steps to create a business-friendly environment, with streamlined company formation processes, investor protection laws, and a strong legal system.
– Tax-free dividends: Dividends received by companies in Cyprus are exempt from taxation. This favourable policy enables businesses to distribute profits to shareholders tax-efficiently, providing benefits for the company and its stakeholders.
– Tax-free capital gains: Cyprus does not impose capital gains tax. This means that any profits realized from the sale of assets or investments, such as stocks or securities, are not subject to capital gains tax.
It should be noted that a dual company structure in these jurisdictions could be used interchangeably. A holding company could be set up in Malta with an operating company in Cyprus or vice versa.
When establishing a dual company structure, it is crucial to seek professional advice from legal and tax experts who are familiar with the regulations and requirements in both jurisdictions. They can help you navigate the complexities and ensure compliance with all relevant laws.
A dual company structure can bring several benefits to your business. Here are some ways it can help:
1. Risk Mitigation: By having two separate entities within the dual company structure, you can separate the different aspects of your business. This helps in mitigating risks and liabilities. If one entity faces legal or financial troubles, it won’t directly impact the other entity.
2. Tax Optimization: Dual company structures can provide tax advantages by allowing you to take advantage of different tax laws or rates in different jurisdictions. You can optimize tax planning strategies and potentially reduce your overall tax burden.
3. Asset Protection: Separating your business into two entities can offer protection for your assets. If one entity is sued or goes bankrupt, the assets of the other entity can remain untouched and protected.
4. Expansion Opportunities: Dual company structures can facilitate expansion into new markets or geographies. You can set up one entity in your domestic market while establishing the other entity in a foreign country, enabling you to tap into new customer bases and access business opportunities abroad.
5. Organizational Flexibility: With a dual company structure, you have flexibility in managing different aspects of your business independently. Each entity can have its own management team, staff, and operations, allowing for more focused decision-making and streamlined operations.
However, it’s important to note that implementing a dual company structure requires careful planning and consideration of legal and accounting aspects. Consult with professionals such as lawyers, tax advisors, and business consultants to determine if this structure is suitable for your specific business needs and goals. For more information about corporate and compliance services in Cyprus, contact CX Financia.