Investing through a personal Holding Company

[swisstash]

Does anybody here use a Holding Company to own their investments? How does that work out for you?

I am a small business owner and I am in the process of transferring (selling) my operating company to a personal holding company. The advantage is that the holding company won't pay tax on dividends (whereas I would personally). The disadvantage is that my income will be parked in a holding company instead of my personal account. (I don't want to leave it parked in the operating company due to risks and liabilities.)

I would like to invest the profits for my family's long-term financial independence. I am considering opening a trading account for the holding company and buying index funds with the intention to hold them for 10+ years. Then question is whether this is a good idea or a bad idea. I'd love to know what others can tell me based on their own experiences.

I am based in Switzerland so this is a Swiss Holding Company http://www.kpmg.com/CH/en/Library/Articles-Publications/Documents/Tax/pub-20130719-swiss-holding-companies-en.pdf.

[bigchrisb]

Hi,

I do this, but in Australia.  I don't know what the Swiss tax laws are like, so some of this may apply.

Pros:
- What I didn't pay as a wage came as dividends into my holding company. This means I was waxed at the corporate tax rate (now 30%, soon 28%) rather than my marginal tax rate (48%).  That is an immediate gain on the money, provided I want to hold and invest it, rather than spend it.
- Any earnings from the investments made are taxed at the corporate tax rate (as above).
- Company tax in Australia has something called dividend imputation.  This means that is a dividend is paid, any company tax already paid provides an offset to any personal tax payable by the receiver.  These credits remain in a company until a dividend is paid. This means that I can shift income from a high income (tax) year to a low income (tax) year
- It provides a degree of legal protection of the assets.

Cons:
- You can't spend the money until you pay it out to yourself (and the differential tax).  Not a problem if you want to invest it anyway.
- Extra paperwork / fees.  It costs me about $1000 a year to operate this structure
- No capital gains tax concession (capital gains in individual names in Australia get a 50% discount on capital gains tax).  This eats into the benefits if there are lots of capital gains you want to realize.


On balance, having this structure has probably saved me about $30k to date.  I'm pleased I've used it.  I'm using it with the philosophy of building up enough of an investment base in there that the dividends cover my core cost of living, and to then treat it like a self funded pension.