How to Set Up a Holding Structure for Asset Protection and Tax Efficiency

A holding company as a tool for protection and optimisation: How it works and why proper structuring is critical

A holding company generally means a company that owns interests or shares in other companies. Under Czech law, this is not a special legal category—it is a practical solution governed by the standard rules for limited liability companies (s.r.o.) or joint-stock companies (a.s.).

Entrepreneurs most often choose holding structures in order to:

• Separate risks: If a subsidiary encounters a financial or legal issue, the parent (holding) company will not automatically be liable for the consequences. Creditors of one company cannot easily reach the assets of the other.
• Optimise taxes: Both at the level of the operating companies themselves and through specific tax regimes (e.g., corporate income tax exemptions for profit distributions subject to certain conditions) for dividend payments, profit reinvestment, and other tax-relevant transactions.
• Make ownership clearer: Where there are multiple businesses, real estate assets, or a long-term investment portfolio, it is a cleaner solution in which the holding company owns everything, and it is clear what a new owner or investor is buying into.
• Prepare a transfer to the next generation: Instead of chaotically dividing businesses among descendants, the structure can be prepared gradually over time and it can be defined in advance who will receive what.

The problem is that many entrepreneurs say “I have a holding company” and assume they are protected, even though in practice it may be highly vulnerable. Typical mistakes include:

• An incorrect legal form of the holding company (not chosen optimally for the given scenario).
• Non-existent or vague internal legal documentation (articles of association, rules of procedure, agreements between shareholders/stockholders).
• Lack of financial structuring (the holding does not function in reality, proper accounting is not maintained, loans are not formalised and repaid, etc.).
• Ignoring tax obligations, especially where there is a foreign element or specific tax duties.
• Uncontained legal or business risks that spread from the operating company to the holding company.

Our attorneys in Prague at ARROWS focus on exactly these aspects—not only the theoretical setup of a holding company, but its real-life operation and protection. There is a marked difference between “you have a holding company” and “you have a functionally secured holding company that truly protects your assets”.

Practical risks and mistakes associated with poorly structured holding companies

Before we discuss the right solution, you need to understand what the specific risks are.

Piercing the corporate veil (commingling of assets)

If the holding company and its subsidiaries are not clearly separated (both in substance and legally), creditors of one company may seek satisfaction from the assets of the other. This happens especially in situations where:

• The owner or management acts as if all entities form a single whole. For example, the holding company provides and receives funds without proper documentation, transfers assets without contracts, etc.
• Operating companies do not have their own bank accounts, separate management, or administration—everything is run by the holding company “from one office”.
• Financial statements are not kept separately; the real flows of money between entities are not visible.

If the operating company then becomes insolvent, a Czech court could conclude that the holding company and the subsidiary were in fact a single entity (so-called piercing of the corporate veil) and could also reach the holding company’s assets.

Tax risks and audits

The Czech Financial Administration scrutinises holding structures very carefully, especially with regard to:

• Dividend payments without evidencing profits or in breach of statutory requirements.
• Retaining profits in subsidiaries without clear economic justification.
• International transfers or structures using jurisdictions with preferential tax regimes (so-called tax havens).
• Unjustified claiming of tax benefits or incentives intended for small and medium-sized enterprises.

If the Czech Financial Administration finds that your structure primarily serves tax optimisation without genuine business substance (especially in light of increasing international regulation such as the EU directive to combat the misuse of shell companies, the so-called Unshell Directive, expected to apply in 2026), it may recharacterise it and assess additional taxes plus penalties.

Problems during a sale or transfer

Investors and buyers will always first commission a thorough due diligence review of legal and tax cleanliness. If the holding company is not properly documented, lacks internal policies, has unclear rights and obligations, or hidden risks emerge, the transaction will be delayed or fail.

Personal liability and loss of protection

If the holding company owner personally secures an external loan, or behaves as if the holding company is merely their personal wallet, a court may, in the event of difficulties, disregard the legal separation and reach the owner’s personal assets.

Tax and legal aspects: Where do you really stand?

A properly designed holding structure can bring tax advantages, but only if it is set up correctly and in compliance with the law. Let’s look at specific aspects:

Income tax

In the Czech Republic, a uniform corporate income tax rate applies to legal entities. A holding structure as such does not bring a direct reduction of the rate. The key tax advantages lie in the possibility to exempt profit shares (dividends) received by the parent company from subsidiaries, provided the statutory conditions are met (Section 19(1)(ze) of the Income Taxes Act). This means that dividend distributions from a subsidiary to the holding may not be taxed.

If these funds are then distributed from the holding to shareholders/partners, they are subject to withholding tax (15% for Czech individuals and, depending on the double tax treaty, for non-residents). The attorneys at ARROWS, a Prague-based law firm, will help you structure distributions correctly so they are efficient and part of a clear strategy. They will assess whether reinvestment, capital increases, or other transactions are appropriate.

Tax benefits for small and medium-sized enterprises

Small and medium-sized enterprises may, in some cases, be eligible for various tax benefits or support programmes. However, holdings that are not properly structured may not qualify for these advantages, or claiming them may be more complex. The attorneys at ARROWS will ensure that your structure is not an obstacle to applying these potential benefits.

Real estate tax

If a holding owns real estate, it is subject to real estate tax. In some cases, it is more efficient for the property to be owned directly by the owner or another entity; in other cases, it is advantageous to hold it in a specialised company. The solution differs case by case and must be based on your specific objectives and overall tax strategy.

Tax obligations relating to foreign jurisdictions

If your holding or its subsidiaries operate abroad or have foreign owners, additional obligations arise—reporting profits, tax residencies, transfer pricing, etc. The Financial Administration monitors this closely, especially in view of international initiatives focused on tax transparency and combating abuse.

The attorneys at ARROWS, a Prague-based law firm, will ensure your obligations are met and that the structure complies with international standards.

Asset protection, risk separation, and dispute resolution

One of the main reasons entrepreneurs choose properly set up holdings is asset protection. Let’s show how this works in practice.

Risk separation

If you have a holding that owns five operating companies and one of them gets into trouble (for example, it owes a large creditor), the creditor cannot automatically reach the assets of the other four companies or the holding itself. This is crucial. In practice, it means that a mistake or failure in one area does not have to destroy your entire asset base.

Protection in insolvency

If a subsidiary becomes insolvent and enters insolvency proceedings, those proceedings concern only that company. The holding and other subsidiaries remain outside. (Of course, provided they are legally and factually separated and there has been no piercing of the corporate veil).

Litigation management

In a situation where a dispute between your company and a third party is being resolved, it is important that the holding has its own legal position. The attorneys at ARROWS, a Prague-based law firm, will assist you with representation in court proceedings and ensure that your holding structure is not the weakest link in your defence strategy.

Transactions and sale

If you decide to sell one or more operating companies, it is easier when they are owned by a holding. The buyer purchases the interests or shares in the holding and it is clear what is being transferred. Our attorneys will help you with the documentation and ensure the sale is safe for both parties.

Table of potential issues

Final summary

A holding is not just a technical solution – it is a long-term strategy to protect your assets, optimize taxes, and prepare for the future. A properly set up holding also works as a “protective regime” in case of problems: it separates risks, makes it harder for one crisis to affect all your assets, and facilitates future transactions.

But beware: a holding created without professional oversight gives you only an illusion of protection. In practice, it hides tax risks, legal vulnerabilities, and issues that surface at the worst possible moment – during an audit, a dispute, or a sale.

If you aim to build a long-term stable and legally secure holding, it is not something to handle on your own. The attorneys at ARROWS, a Prague-based law firm, will help you create a structure that not only meets your business objectives but will also protect you in future difficulties. Contact us at consultation@arws.cz and consult your specific situation with us – in many cases, a consultation costs disproportionately less than fixing issues later.

Read also:

• CFO Checklist: 7 Legal Traps in Company Structures and Contracts in the Czech Republic
• Owner-to-Company Loans in the Czech Republic: Interest Rates and Tax Audits
• Fast-Track Company Closure: When It's Legal and How It Works
• Preparing Your Company for Sale: Legal, Financial and Tax Steps to Maximise Value
• Czech Full Tax 2026 Exemption on Share Sales After CZK 40m Cap Ends