Juliano Marini Siqueira
Lawyer at Marcos Martins Advogados
The term “holding ‘ comes from the English ’to hold ” which means to hold, control, maintain, so the so-called Asset Holding Company is a company that controls the assets of individuals or companies.
In practice, instead of individuals or companies owning assets in their own names, they hold them through a company, which is considered to be the asset controller, and can adopt any form provided for by law.
The main reasons, but not the only ones, for setting up a holding company are: i) to carry out estate and succession planning (inheritance); ii) to preserve personal assets from creditors of a legal entity in which the individual participates as a partner or shareholder; iii) to better manage assets and; iv) to reduce the tax burden on the individual’s income.
With this restructuring, individuals pay up the capital of this company by transferring their assets and rights to the holding company. The assets are paid in at the same value as in the income tax return for that year in force or at their market price.
This situation is permitted by Article 23 of Law No. 9,249/95, which amended the legislation on Corporate Income Tax and Social Contributions on Net Profit:
Art. 23: Individuals may transfer assets and rights to legal entities, by way of payment of capital, at the value stated in the respective declaration of assets or at market value.
However, if the capital is paid in not at the value stated in the declaration, but at a higher value, the positive difference will be subject to Income Tax as a capital gain.
However, setting up a holding company is not as simple as it sounds.
One of the most important tasks that must be done prior to setting up the company is to identify which tax regime the Holding Company may fall under, because depending on the form of taxation, it may experience an effective reduction in the tax burden on the income it earns.
Focusing exclusively on the tax benefits of individuals setting up a Holding Company by opting for the Presumed Profit tax regime, which is the simplified form of taxation for determining the basis for calculating Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL).
Legal entities whose total gross revenue in the previous calendar year was equal to or less than R$78 million or R$6.5 million multiplied by the number of months of activity in the calendar year may opt for presumed profit.
Based on the presumed profit system, the basis for calculating IRPJ and CSLL will be, depending on the activity, 8%, 16% or 32% of the company’s gross revenue, applying the following rates:
- IRPJ – 15% on profit, plus an additional 10% on amounts exceeding R$ 20,000.00 per month (art. 3 and § 1 of Law 9,249/95);
- CSLL – 9% on profit (art. 3, II, of Law 7.689/88).
In addition to IRPJ and CSLL, gross revenue earned by the legal entity is subject to PIS and COFINS contributions, at the following percentages:
- PIS – 0.65% of gross revenue (art. 8 of Law 9.715/98);
- COFINS – 3% of gross revenue (art. 8 of Law 9.718/98).
So, after the assets and rights are paid in by the individuals and the Holding Company is effectively set up, the income (e.g. rents) from those assets will be taxed in that legal entity and no longer in the individual.
At first glance, when comparing taxation on individuals and legal entities, one might come to the conclusion that opting for a holding company doesn’t seem that advantageous, since while the income received by the individual will only have to pay one tax (IRPF), the legal entity will have to pay at least four of them (IRPJ, CSLL, PIS and COFINS).
However, a holding company opting for presumed profit will have a tax burden of between 11% and 14% on gross revenue, while for individuals this percentage is up to 27.5%, twice as much.
Let’s look at a practical example: an individual who receives R$500,000 a month in rents will be taxed at up to 27.5% as a result of the IRPF (R$137,500.00), while the Holding Company will be taxed at 11.33%, as a result of 3% COFINS, 0.65% PIS, 4.80% IRPJ and 2.88% CSLL – the percentage between the amount paid as these taxes and gross revenue – (R$56,650.00), saving approximately R$80,000 reais.
It is worth remembering that the distribution of profits and dividends to the holding company ‘s partners will not be subject to the IRPF, as they are considered non-taxable income, according to article 10 of Law No. 9,249/95, which is a case of tax neutrality:
Art. 10: Profits or dividends calculated on the basis of results as of January 1996, paid or credited by legal entities taxed on the basis of actual, presumed or arbitrated profit, shall not be subject to income tax at source, nor shall they form part of the basis for calculating the income tax of the beneficiary, whether an individual or legal entity, domiciled in the country or abroad.
Although the text has only taken a cursory look at the tax structure of an asset holding company, the tax advantages are undeniable when comparing the taxation of this type of company with that of an individual. However, it is necessary to carry out a thorough study beforehand, including the types of operations that will be carried out by the company, which assets will be paid in and the income earned, in order to determine the appropriate tax regime in view of any benefits.
Having made these brief considerations, it is possible to conclude that there is a tax advantage in using an asset holding company.
The law firm Marcos Martins Advogados is able to advise those interested in this tax planning and is entirely at your disposal.
