Family Holding

TABLE OF CONTENTS

1. Introduction

2. Legal Framework

3. Origin and Concept

4. Formation and Structure

5. Purposes and Advantages

6. Asset Protection

7. Succession Planning

8. Continuity of Family Businesses

9. Taxation

10. Risks and Limitations 10.1 Tax Transparency Regime

11. Practical Considerations

12. Future Perspective

13. Conclusion

14. Legal References

1. Introduction

The word 'holding' derives from the English verb 'to hold', meaning to hold, possess, or own. In this context, a holding is a company created to 'hold' assets or shareholdings in other companies. The family holding emerges as a practical application of this concept, with the aim of centralising and managing a family's assets.

In Portugal, family holdings have gained relevance in succession planning and asset protection, even though no specific legal rules regulate this legal figure.

2. Legal Framework

The family holding does not have its own specific legal regime in Portugal and is governed by the general rules of the following legal instruments:

• Commercial Companies Code (CSC) – Rules on the formation and operation of companies;

• Civil Code (CC) – Succession rules and rights of forced heirs;

• Corporate Income Tax Code (CIRC) – Taxation of companies;

• Personal Income Tax Code (CIRS) – Taxation of partners' income;

• Stamp Duty Code (CIS) – Gratuitous transfers, inheritances, and donations.

3. Origin and Concept

The concept of a holding originated in Anglo-Saxon law, referring to companies that hold participations in other companies. Its application to the family context results in the creation of an entity intended to manage the joint assets of a family, ensuring the continuity and protection of family wealth.

4. Formation and Structure

A family holding may be established as a private limited liability company (sociedade por quotas – Lda.) or a public limited liability company (sociedade anónima – SA). The articles of association should include clauses that guarantee family control and continuity of management.

5. Purposes and Advantages

The main purposes of a family holding include: asset organisation, succession planning, asset protection, business continuity, and tax optimisation.

6. Asset Protection

Asset protection arises from the separation between personal assets and the company's assets. Pursuant to the CSC (Articles 197 and 271), partners are liable only up to the value of their capital contributions. Thus, personal creditors of the partners cannot directly seize assets belonging to the holding.

7. Succession Planning

The family holding simplifies the succession process by allowing heirs to receive quotas or shares instead of individual assets. This avoids fragmentation of the estate and reduces conflicts among heirs. The forced heirship regime applies (CC, Articles 2157 to 2185).

8. Continuity of Family Businesses

The continuity of family businesses is ensured by centralising asset control. The rules on the transfer of quotas and shares (Articles 242 and 373 CSC) and shareholders' agreements (Article 17(1) CSC) make it possible to secure professional management and intergenerational stability.

9. Taxation

Family holdings are subject to the Corporate Income Tax Code (CIRC). Pursuant to Articles 3, 17, and 87 CIRC, the general rates of 21% and 17% for SMEs apply. The regime for eliminating double economic taxation on distributed profits and reserves (Articles 51 to 54) allows exemption from taxation on dividends and capital gains.

In the scope of Personal Income Tax (IRS), dividends paid to partners are taxed under Articles 5 and 71 CIRS, with 28% withholding tax at source. Gratuitous transfers (Articles 5(6) and 28 CIS) are exempt for spouses, descendants, and ascendants.

10. Risks and Limitations

The creation of a holding involves formation and maintenance costs.

In addition to risks related to management and maintenance of the company, specific tax implications that may affect family holdings must also be considered.

Among these, the Tax Transparency Regime, provided for in Article 6 of the CIRC, stands out as it can significantly alter the way the holding is taxed when it does not carry out effective economic activity. Below is an analysis of this regime and its practical consequences.

10.1 Tax Transparency Regime

The tax transparency regime, provided for in Article 6 of the Corporate Income Tax Code (CIRC), constitutes an exception to the general principle of taxation of legal entities. Under this regime, income earned by certain companies is directly attributed to their partners, proportionally to their share in the share capital, and the company itself is not subject to Corporate Income Tax (IRC).

In practical terms, the company becomes “transparent” for tax purposes, meaning that profits are not taxed at the company level but rather in the partners’ personal tax sphere (IRS if they are natural persons, or IRC if they are legal entities).

Article 6(1) CIRC provides that this regime applies, in particular, to:

• Non-commercial civil companies;

• Companies for the mere administration of assets;

• Professional companies.

In the context of family holdings, this provision is particularly relevant. If the holding is limited to administering assets or participations without any management activity or provision of services, it may be considered a company for the mere administration of assets and thus subject to the tax transparency regime.

In such a case, the profits, rents, or dividends generated by the holding are automatically attributed to the partners, who must declare and tax them in their IRS or IRC.

This results in the loss of the tax advantages associated with the standard IRC regime.

To avoid the application of the tax transparency regime, the family holding should:

1. Carry out effective economic activity, even if limited to the active management and administration of its participations;

2. Have its own organised structure (organised accounting, bank account, service contracts, operating expenses);

3. Include in its corporate object activities of management and investment;

4. Demonstrate autonomous patrimonial and functional existence, clearly distinct from the personal assets of the partners.

   
   

In summary, a merely passive holding without any real activity will be considered “transparent”, and its income will be taxed directly at the partners’ level.

On the other hand, an active holding that effectively participates in the management of family companies and performs coordination functions will benefit from the standard IRC regime and the exemptions provided for in Articles 51 et seq. CIRC.

11. Practical Considerations

Before establishing a family holding, an analysis of the family’s assets and structure should be carried out. Each case must be assessed in terms of economic, tax, and succession viability.

12. Future Perspective

The use of family holdings tends to grow in Portugal, following common practices in other European countries. In the future, the legislator may create a specific regime for these structures.

13. Conclusion

The family holding is a legitimate and effective instrument for the organisation, protection, and transmission of family wealth. Even without specific legislation, the Portuguese legal system provides sufficient foundations for its practical application.

14. Legal References

Commercial Companies Code (CSC): Articles 197, 228, 242, 271, 373, 405.

Civil Code (CC): Articles 202, 947, 2157 to 2185.

Corporate Income Tax Code (CIRC): Articles 3, 6, 17, 51 to 54, 87.

Personal Income Tax Code (CIRS): Articles 5, 71. Stamp Duty Code (CIS): Articles 1, 5, 28.

Cristiana Alexandra – 2025