- Business
- October 4, 2010
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International Holding Structure
by Bhairav KothariSetting up offshore companies, especially at exotic locations is exciting. Following is a quick 10 point checklist that you should consider before setting up companies across the globe, to ensure the structure is efficient.
1. Taxation:
Tax Structures are different across different jurisdictions. Check for taxation provisions, especially for the following transactions, and evaluate which jurisdiction has the best structure for the kind of transactions you plan to undertake:
- Income Tax
- Capital Gains Tax
- Wealth Tax
- With Holding Tax
- Sales/Service Tax
2. Double Taxation Treaty:
Check for any specific benefits under the Double Taxation Avoidance Treaty, with the proposed jurisdiction country. 
These could be in the form of certain tax exemptions and/or lower withholding taxes.
3. Eventual long term Fund Raising / IPO Plans:
Ensure your top holding company is structured such that it allows you to undertake your long term fund raising / IPO goals.
4. Special Benefits from Local Government:
Certain jurisdictions offer incentives / subsidies for setting-up businesses and/or for providing employment to localities and for bringing in foreign investments. Study these closely to select the most favorable destination.
5. Compliance Requirements:
Certain countries have very complex and multiple compliance requirements for a company to operate; while many others have simplified this substantially. Check this aspect with reference to the level of activity you wish to undertake in those jurisdictions.
6. Investor Perception:
Certain jurisdictions are not very popular with investors due to many reasons – political stability, currency fluctuations, tax regime, transparency, investor protection norms, etc. If you are contemplating fund raising through that foreign entity, do evaluate any investor perception issues before finalizing your plans.
7. Manpower cost:
If you are planning to hire lot of manpower, do study local costs and talent availability. Some countries have serious shortage of quality talent, and also have very difficult manpower laws in addition to manpower being expensive.
8. Accounts Reporting:
Check on Accounting GAAP used by the proposed jurisdiction and if it is convenient for you to consolidate and report in that relevant Accounting GAAP.
9. Local Funding Opportunity:
By setting up your business in certain jurisdictions, you could tap into local bank funding which could be at very low interest cost.
10. Local Business Protection Regulations:
Certain jurisdictions require specific participation from local residents. Check on such local business protection regulations before making your final decision.
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2 Comments
Dear Bhairav,
You have very rightly described the minimum points to be checked before entering into any new country for business.
Extending your comments ahead, would like to place below 5P’s (told to me by a management expert) are extremely important for success of any business –
1) Power of Product – Create such a product which is either easily acceptable in market and has ability to change views of public.
2) Power of People – People are extremely important either within or outside the organisation. Strive to get associated with right people.
3) Power of Price – Place your product at right and acceptable price in the market. Because many parts of the world are price sensitive and apart from product what matters is the price.
4) Power of Place – To be competitive, always see that the product is manufactured in places which encourages industries so as to get maximum advantage may be in terms of duties and taxes, manpower, etc.
5) Power of Politics – Always see and try to operate in a politically stable environment, because all the above 4 P’s will not work, if the country / place are not politically stable.
Regards,
Abhay Pingle
CA, CS.
9820377229
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