Most people start a holding company because it allows for tax-free savings from the operating company's profits to the holding company. There are several great advantages to this, and in this article, we will dive deeper into what a holding company is, its benefits, and the rules you need to be aware of.
We will also take a closer look at how you can use Reportability to calculate and book dividends and joint taxation between an operating company and a holding company.
What is a holding company?
A holding company is not, in principle, a mysterious or peculiar entity. It is a company just like any other and is subject to the same rules and requirements as a private limited company (ApS), such as the preparation of an annual report.
Although a holding company is a completely standard company in a legal sense, there are, of course, a few things that stand out when compared to other companies.
A holding company typically functions within a structure where it acts as the full or partial owner of an operating company. This is why the term "holding" is used, as it holds shares or stocks in one or more other companies. This is also stated in the articles of association regarding the company's primary purpose. The articles must state that the company's primary purpose is to own shares and stocks.
Since the holding company only owns shares and stocks in other companies, it is generally not registered for VAT or payroll tax, unlike operating companies. However, it is worth noting that there are exceptions. For example, there may be sufficient activity in the holding company to require VAT and payroll tax registration. This can happen if the owner has a side business providing consulting services that are invoiced through the holding company.
What are the rules for a holding company?
When it comes to rules for holding companies, the same regulatory framework applies as for a standard operating company. This means you must:
- Prepare and file an annual report with the Danish Business Authority
- File the holding company's tax return with the Danish Tax Agency (Skattestyrelsen)
- Keep records of the company's activities
- Comply with the requirements of the Danish Financial Statements Act
Do you need help complying with the requirements and rules for your holding company?
Reportability is an online tool you can use to generate your holding company's annual report and calculate taxes to ensure compliance with all requirements. All you have to do is follow our 5 steps to complete the process and file with the Danish Business Authority and the Danish Tax Agency.
We have made it easy for you, and you don't need to be an accountant or a finance expert. We guide you all the way from A to Z and are ready to help you in the chat. If you also have an operating company, you can manage both companies on Reportability and get help with dividends and joint taxation.
What are the benefits of a holding company?
There are several benefits to having a holding company, many of which are tax-related. As we mentioned at the very beginning of this post, it is possible to reinvest the profits of an operating company without paying tax on them. The tax has already been paid by the operating company, and if you do not distribute the dividend to yourself, you do not have to pay any further tax because you are keeping the money in your holding company.
It is the structure itself, where a holding company owns an operating company, that makes this possible.
If you only have an operating company, you can either leave the money there or distribute the dividend to yourself and then pay personal income tax on it. The holding structure therefore provides a significant advantage if you do not need the money for your personal finances. It is also an advantage to have the money in your holding company because it can be kept safe. If the money were instead in your operating company, it would be lost in the event of bankruptcy, and many people appreciate that security.
Other benefits include:
- Tax-free sale of the operating company
- Easier handling of dividends if all owners have a holding company
What are the rules for dividends between an operating company and a holding company?
A dividend is a distribution of a company's profit to its owner(s). If there is no profit, you cannot distribute a dividend. Dividends are always distributed in connection with the filing of the company's annual report and must therefore be approved by management and adopted at the general meeting.
The dividend is distributed among the owners according to their respective ownership stakes in the operating company. This means that if an operating company has two owners, where owner A has 70% and owner B has 30%, owner A will receive 70% of the dividend, while owner B will receive 30%.
The distribution must be recorded and reported to the tax authorities, and below you can learn how to do this using Reportability.
Example of dividend accounting
For a dividend to be executed correctly, it must be recorded and handled properly. In this section, we provide an example of how this can be done in practice using Reportability.
After a financial year, it becomes clear to the owner of an operating and holding company that a dividend of up to DKK 250,000 can be distributed.
The operating company decides to propose a dividend of DKK 200,000 to be moved to the holding company.
The dividend of 200,000 must now be recorded in the income statement under the appropriation of profit in the "Proposed dividend" account.
After this, you must create a contra-entry in equity in the "proposed dividend recognized under equity" account.
At Reportability, we have an automatic function that records it correctly for you. You can do it with a single click.
Once you have recorded the dividend, it will automatically appear in your annual report. In addition to appearing in the annual report, the dividend must also be reported to the tax authorities. You do this by filing a dividend report, and the process differs depending on whether you are distributing to a holding company or perhaps to yourself. On skat.dk, you specifically select who you are distributing to.
The process is now as follows:
If you distribute dividends to a holding company, remember to record it in the holding company's books. The dividend should be recorded as tax-exempt income from the operating company. Reportability will handle this for you. The dividend will then appear in your holding company, and you can choose to keep it there or distribute all or part of it to individuals (the owner(s) of the holding company).
If you choose to distribute dividends from the holding company to individuals, you must pay 27% tax on a portion of the amount (61,000 in 2024), and then 42% tax on the remaining amount.
The distribution is carried out by logging into your holding company on skat.dk, locating the dividend reporting section, selecting dividend distribution to an individual, and entering the CPR number of the recipient. You can then withdraw the funds.
How to manage joint taxation between the operating company and the holding company on Reportability
Joint taxation involves consolidating tax payments across multiple companies so that tax is settled only once. This is typically done between an operating company and a holding company, where the holding company owns the operating company.
Joint taxation works by the operating company sending the tax payment to the holding company, which then settles the total tax on skat.dk. This offers several advantages. For example, a loss in the holding company can be used to offset a profit in the operating company before tax is settled, which reduces the total tax payment.
How to do it
If you have joint taxation, you need to be aware of this when reporting to skat.dk. First, you must report your operating company's tax return according to our guide in the final step of the tool.
All companies must report their taxable income in box 076, but if you have an operating company that is jointly taxed with a holding company, box 076 will not appear on your operating company's tax return; instead, it will have been moved to your holding company's return. This means that the entire taxable income for both your operating company and your holding company must be reported on your holding company's tax return.
By reporting the operating company's taxable income on the holding company's return, you ensure that you pay one consolidated tax amount.
When you follow Reportability's guide, we make sure to point out exactly what you need to report in this field and all other fields.
Example of reporting joint taxation on Reportability
After following our steps in the tool and reaching the final step where you need to report the tax, proceed as follows:
- We indicate that the operating company should report x amount in "Box 076 – taxable income." However, you will not find box 076 on your operating company's tax return because it is jointly taxed with the holding company. You should therefore ignore this field, and we will help you remember that.
- When you reach the reporting step for your holding company, we will similarly indicate that you should report x amount in "Box 076 – taxable income" on the holding company's tax return. Since your holding company is jointly taxed with the operating company, there will be two 076 boxes, each referring to a specific CVR number. You must enter the taxable income corresponding to each company's CVR number in these two boxes.
Create the annual report and tax return for the operating and holding company on Reportability
With Reportability, you can create your company annual reports and file them with the Danish Business Authority and the tax authorities yourself. Our tool helps you stay on top of professional standards and legislation while you manage the process. You always have the option to get help from our accounting-savvy staff in the chat.
NOTE: To get started, you must first purchase access to an annual report for your operating company and follow our steps until you have filed for your company. Then, you create your holding company and follow the 5 steps again until you have reached the finish line.
Save 20%
If you create the annual report for both your operating and holding company on Reportability, you get a 20% discount on the price for your holding company.
There is always activity in a holding company
Many people feel that nothing really happens in a holding company. That is completely understandable, especially considering that it is in the operating company that you spend most of your time.
However, there will always be some form of activity in a holding company, and that activity must be recorded. Even if nothing active happens during a year in a holding company, you still have to report registered capital. You must also report the money you have in the bank (your cash holdings) and your expenses for an accountant.
If you do not have a payment card linked to your holding company, you can make an expense claim with your private card
If you, like many others, have a holding company without a linked payment card to pay for our service, you can use your private card. In this case, you must record an expense claim in your holding company. You do this by recording an expense for "accountant" in your income statement. The expense must be under administrative costs and must have the contra account "owner expense claim" under liabilities.
With Reportability, you can do it yourself easily and quickly
We empower you to get a handle on joint taxation, rules for holding companies, dividends, and much more. If you experience problems or have any doubts, you can always reach our experts in the chat.
