Structuring of international real estate through holding companies

Mainstream

Structuring international real estate through holding companies is not a one-time transaction to buy an object for a company. It's a ownership architecture that's designed for decades to come.

The main question is not where to register the holding. The main question is whether the structure will protect the family assets in any scenario: Generational change, tax audit, legal dispute, divorce, political instability, or banking crisis.

Effective structuring begins with three checks:

Who is the ultimate beneficiary and what are the family plans?Whether the structure will be recognized by the tax and regulatory authorities of all the jurisdictions involved.

If these three issues are not resolved in advance, the family risks facing additional tax charges, criminal prosecution for non-payment, seizure of real estate, locking of accounts or loss of an asset in inheritance.

When it is necessary to structure international real estate

Holding structure for foreign real estate is necessary if:

• The family owns real estate in several countries
• The portfolio value exceeds several million euros
• Confidentiality of beneficial ownership
• There is a risk of foreclosure on personal property
• Transfer of assets to the next generation
• Minimize taxes during life and after death
• The objects are acquired using borrowed financing
• The investor is a tax resident of a country with strict CFC rules
• The structure must meet the requirements of banks when opening an account
• Exit is planned by selling the corporate shell instead of direct sale of real estate
• assets are located in jurisdictions with an unstable legal environment
• Consolidation of family portfolio management is required

The mistake most investors make

Many people start with the question:

In which jurisdiction to register the company?

That's the wrong first question.

The right question is:

What structure will provide the maximum protection of family capital at the minimum legal cost and taking into account real life scenarios?

Sometimes the best result is given by a private holding company. Sometimes a combination of a holding and a discretionary trust. Sometimes a foundation. Sometimes it's just a camaraderie. Sometimes, it is the preservation of direct possession with a correct will. The decision is always individual and secondary to the family’s goals.

Structuring international real estate does not require choosing the lowest tax rate, but building a stable and transparent system that does not collapse at the first due diligence of the buyer or the request of the tax authority.

Step 1. Determine family goals and exit strategy

The first thing to formulate is not a list of objects, but family priorities.

Key questions:

• Capital retention or aggressive growth
• Long-term ownership or development with subsequent sale
• confidentiality or public status
• single management centre or decentralization
• transmission to children during life or only after death
• Willingness to participate in substance or outsource completely
• allowable level of tax risk
• Changes in the Tax Residence of Family Members
• The need for funding and income transfer to the personal level
• settlement of family disputes

If the objectives are not agreed in writing, the structure will be built on a shaky foundation, and any change in circumstances may destroy it.

Step 2. To carry out an inventory of real estate and jurisdictions

A complete register of all objects must be compiled:

• real estate
• inventory number
• jurisdiction
• Type of right (freehold, leasehold, other)
• current titleholder
• method of acquisition (direct purchase, inheritance, gift)
• tax value and market price
• Charges (mortgages, easements)
• current use (lease, personal residence, development)
• acquisition date and acquisition costs

For each jurisdiction of the location, it is necessary to understand:

• Purchase tax (transfer tax, stamp duty)
• Property tax (property tax, wealth tax)
• rent-income
• capital gains tax on sale
• source-tax
• fine-cap
• Double taxation agreements with other relevant countries
• mandatory registration of beneficiaries
• Restrictions on Property Ownership by Foreign Companies
• local rules of the CI
• inheritance law and compulsory share

Without this dataset, it is impossible to model the structure.

Step 3. Choosing a legal form of ownership

There are several basic tools:

Direct personal ownership.Private limited liability company (holding).Partnership/simple partnership (transparent for taxes).Discretionary trust.Private Foundation.Hybrid forms (for example, a company with shares issued on a trust).Combination of several levels.

The choice depends on:

• Tax Status of Beneficiaries
• Taxation of Passive Income
• The need to distinguish between economic rights and control
• inheritance
• banker
• structure maintenance

Often the best solution is a holding company that owns subsidiaries or directly objects, combined with a stock trust or fund at the top level.

Step 4. Select the jurisdiction of the holding company

The holding’s jurisdiction is not about zero tax, but about a combination of factors:

• tax-agreement
• No or low withholding tax on dividends and interest
• lack of exchange control
• recognized legal system
• political and economic stability
• reasonable requirements for substance
• administration
• banking
• Reputation (absence from blacklists)
• The possibility of applying the “participation exemption”
• Protection against forced disclosure
• flexibility of corporate law

Often considered: The Netherlands, Luxembourg, Malta, Cyprus, Great Britain, Switzerland, the UAE (in certain structures), as well as domestic holding regimes, if this is consistent with the overall plan.

The mistake of choosing a jurisdiction exclusively at the tax rate without taking into account the rules on CFCs in the beneficiary’s country of tax residence may lead to the fact that all profits of the holding company will be recognized as income of the beneficiary with immediate taxation.

Step 5. Conducting a tax analysis

Tax analysis model the movement of money from the tenant to the ultimate beneficiary.

It should cover:

• withholding tax in the country of real estate (when renting, selling)
• holding-tax
• Ability to deduct interest on intragroup loans
• dividend tax from a subsidiary of the holding company
• withholding tax on dividends from holding to beneficiary
• Taxation of the Beneficiary in the Country of Residence
• application of the CFC rules
• Application of the rules on the beneficial owner of income (anti-treaty shopping)
• capital gains tax on exit
• inheritance and gift tax when transferring shares of the holding

Only after the completion of the full tax card can decisions be made on the structure of financing and jurisdictions.

Step 6. Provide a real presence (substance)

It's a critical element. A holding company cannot be just a mailbox.

Substance means:

• real-time
• qualified personnel (directors, employees)
• making key decisions in the territory of the holding jurisdiction
• accounting
• Bank accounts controlled by local directors
• actual costs of maintaining the office, adequate to the functions
• regular meetings of the Board of Directors with minutes
• Documentary evidence of operating activities

The absence of substance is the main reason why the tax authorities refuse to apply benefits under agreements, recognize the holding as a tax resident of the beneficiary’s country and additionally accrue taxes, penalties and fines. For Family Office, substance provision is not an option, but a requirement of a viable structure.

Step 7. Develop a funding structure

The way capital is invested in the structure affects the tax consequences for years to come.

Possible options:

• contribution
• stock-loan
• Equity and debt combination
• financing through preferred shares
• Use of Intermediate Financial Companies

It is necessary to observe the rules of thin capitalization, set market interest rates, correctly draw up loan agreements and ensure the real movement of funds. Errors here lead to reclassification of loans into capital or refusal to deduct interest.

Step 8. Establishing a Corporate Governance and Inheritance Plan

A holding company is not only a tax instrument, but also a family management mechanism.

Key elements:

• share structure (ordinary, preferred, veto-wielding)
• shareholders’ agreement
• constitution
• power of attorney
• directorship
• mechanisms for resolving deadlocks
• wills and inheritance contracts synchronized with the corporate structure
• Transfer of shares to the next generation

If these issues are not addressed, the generational change will paralyze asset management or lead to forced sale of properties.

Step 9. Provide exit strategy and liquidity

The structure should allow:

• Selling a single object without destroying the entire system
• Selling shares of the holding company instead of selling real estate (share deal vs. asset deal
• attract an external investor
• refinance
• distribute dividends or other profits to beneficiaries
• liquidate the structure without catastrophic tax consequences

Share deals are often beneficial to the buyer (savings on transfer tax), but require the seller to be clean of the structure, lack of hidden obligations and willingness to provide assurances. Therefore, the exit strategy is laid not at the time of sale, but at the stage of creating a structure.

Step 10. Ensure continuous compliance and reporting

International organizations are under close scrutiny:

• Automatic Exchange of Information (CRS)
• Required Beneficial Ownership Registers (UBO Registers)
• FATCA
• Compulsory Disclosure (DAC6 in the EU)
• anti-laundering legislation
• Banks’ due diligence requirements and KYC

Compliance includes:

• timely filing of tax returns in all jurisdictions
• Accounting and auditing, if required
• Disclosure of beneficiaries where necessary
• Monitoring of legislative changes
• substance-relevance
• Regular update of property valuation for wealth tax and inheritance planning purposes

Failure to comply with at least one of these requirements can lead to account blocking, fines and even criminal liability of management.

Direct ownership or holding company: pick

The choice is not determined by the “best” option, but only by the family’s goals, type of assets, and aggregate tax profile.

How to strengthen your position before purchasing real estate

The best structuring begins before the signing of the contract of sale.

Prior to acquisition, it is desirable:

• Approval of the structure and registration of the company
• open a bank account
• conducting tax modelling of the transaction
• Checking the restrictions on foreign ownership
• Evaluate the possibility of using an investment trust or fund
• prepare a loan or capital investment
• Check the country-by-country reporting rules
• obtain the preliminary opinion of a local tax adviser (tax ruling, if applicable)
• To draw up a “wish letter” or a protocol of intent for future inheritance

Attempting to “introduce” an object already purchased by an individual into a holding company often leads to immediate tax consequences, including capital gains tax and transfer tax, so changing the structure after the fact should be extremely cautious.

Common Mistakes in Structured International Real Estate

1. A structure created according to the template or without taking into account intercountry agreements may be more expensive than taxes that were tried to save.
2. Ignoring the rules of the CFC The profits of the holding are automatically taxed from the beneficiary, unless exemption is provided.
3. A company with a single nominee director and zero expenses will not pass the tax authority’s audit.
4. Choosing a holding jurisdiction without checking the network of agreements A tax on dividends or withholding interest can reduce savings to zero.
5. Having an ideal corporate structure will not save you if the will contradicts corporate documents or applicable law.
6. The use of a shell company in the offshore list of EBanks refuses to open an account, and the reputational risks for the family are high.
7. The sale of shares of the holding company may be impossible if the structure was not prepared for the due diligence of the buyer.
8. Transactions with a foreign company may require notice or authorization.

Checklist of Family Office before building a structure

Before establishing a holding company, 15 questions must be answered:

Who are the ultimate beneficiaries and what is their tax status?What are the jurisdictions of all the facilities?What is the strategy: Long-term lease or resale?Planned use of borrowed financing?Necessity of ownership?Active management or passive ownership?What is the inheritance horizon and who will enter the next generation?In which country will key management decisions be made?Would the family office be willing to bear the cost of a real presence?Are CFC rules applied to beneficiaries?Are there a risk of forced disclosure?What are the double taxation agreements available?What is the position of banks in the chosen holding jurisdiction?What is the exit procedure for one of the beneficiaries without destroying the entire structure? CRS and local money laundering laws?

What a Strong Structuring Strategy Looks Like

A strong strategy usually includes five levels:

1. Family Governance & Goals: Reconciling family goals, ownership policies, and wealth transfer roads.
2. Tax & Legal Architecture: Selection of form, jurisdictions, multi-level system, analysis of CFC agreements and rules.
3. Substance & Compliance: Providing real office, staff, corporate procedures, reporting and banking relationships.
4. Succession & Asset Protection: Shareholder agreements, trusts, foundations, wills, protection against coercive claims and family conflicts.
5. Exit & Liquidity Planning: Share deal readiness, refinancing, income distribution and liquidation of the structure without loss.

Without the fifth level, the structure is at risk of becoming a golden cage. assets are inside, and access to capital or exit is blocked.

FAQ

Can I own foreign real estate directly without holding?

Yeah. Direct ownership is easier and cheaper to maintain, but does not offer advantages in inheritance, privacy and often leads to higher taxes when sold or inherited.

Which jurisdiction is best suited for a holding?

There is no universal answer. The choice depends on the location of the property, the residence of the beneficiaries, the objectives of the structure and the available budget on the substance. A combination is often used: a holding company in one country, an intermediate financial company in another, and subsidiaries at the location of the assets.

What is substance and why is it important?

Substance is the actual presence of a company in the jurisdiction of registration: Office, staff, decision-making. Without substance, the tax authorities refuse to apply double taxation treaties and can recognize a company as a tax resident of the beneficiary country, completely destroying the planned savings.

How to avoid the application of CFC rules?

Exemption from CFC is possible under certain conditions, which vary by country: Real presence, active commercial activity, distribution of a sufficient share of profits in the form of dividends, etc. An individual analysis is required taking into account the legislation of the country of residence of the controlling person.

Can I transfer real estate purchased on an individual to a holding company without taxes?

As a rule, such transfer is a realisation for tax purposes and entails a capital gains tax as well as a transfer of ownership tax. Some jurisdictions have neutral reorganization procedures, but they require prior planning.

Is the inheritance taxed by the holding’s shares?

Depends on the inheritance law of the beneficiary’s country and the country of registration of the holding. The structure can significantly reduce or eliminate inheritance tax compared to direct ownership of real estate, especially if a trust or foundation is used.

Can you use one holding for real estate in different countries?

Yes, it is often advisable to consolidate management and reduce costs. However, it is necessary to check whether the network of agreements of the holding jurisdiction allows to work effectively with each country of the location of the real estate, and whether there are undesirable consequences for the CFC.

What is a share deal and an asset deal when selling?

Asset deal – sale of the property directly. Share deal – sale of shares of the company that owns the object. Share deals in many jurisdictions save on real estate transfer tax, but require the seller to have a “clean” company with a transparent history.

Related services

• Advising family offices and structuring private capital
• International tax planning and cross-border structuring
• Holding structures for residential and commercial real estate
• Trusts, funds and succession planning
• Substance-solutions and corporate governance for private structures
• CRS, FATCA and International Compliance for Family Capital
• International inheritance and property planning
• Corporate and intragroup financing of real estate portfolios

Related material

• How to choose a jurisdiction for a holding company for foreign real estate Family trust or holding: What is more effective in protecting assets
• Substance: How to build a real presence and protect the structure from tax risks
• Tax traps when buying foreign real estate for a company
• Share deal vs.
• Asset deal: exit strategy for real estate investor
• How to issue an intragroup loan for an international holding company without tax claims Automatic exchange of information (CRS): What Family Offices Need to Know About Inheritance Planning for International Assets: Synchronization of the will and corporate structure

Conclusion

Structuring international real estate through holding companies is not about finding the lowest tax rate, but creating an architecture that will reliably serve the family for generations, protect against external risks and remain manageable in any legal and political environment.

A sustainable structure is built on clear family goals, deep tax analysis, real presence of the holding, impeccable compliance and a pre-thought-out exit plan.

In international private capital, the winner is not the one who bought the object for the company in a tax-free jurisdiction. The winner is the one who understands in advance how the structure will behave in the audit, in the change of generations, in the sale and in the most adverse scenario.