Prospective public companies typically establish a holding platform for employees or related parties to hold shares. When setting up a holding platform, one must consider what type of holding platform entity to choose and where to establish it. This decision requires a comprehensive consideration of various factors, including control, taxation, operational convenience, and the impact on future IPO listings.

Should the holding platform be established in a tax haven?

Answer: Generally, no.

The reason is that tax planning in a tax haven is not suitable for long-term planning. The main tax consideration for a holding platform is the future sale of shares after the company goes public. Typically, from the establishment of the platform to the point where shares can actually be sold, it can take more than five years at the fastest, and it is quite normal for it to take around ten years. Before the sale, there is essentially no tax in a tax haven.

Typical tactics for tax havens to offer tax benefits include: (1) a high proportion of local tax revenue returned (through fiscal subsidies or rewards); (2) playing with the edges of policies in tax collection and administration (or engaging in non-compliant operations), such as offering a fixed tax collection method.

Tax havens themselves are not very compliant in terms of policy, and the related policies are highly uncertain. There are numerous cases where tax savings operations using tax havens have been followed by the need to pay back large amounts of taxes.

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Local governments across various regions offer various fiscal rewards or subsidies to attract enterprises from other areas to settle locally or pay taxes there. The essence of this is a competition for tax sources among localities, which is not an action encouraged by the state. The State Council even issued a document in 2014 to clean up and gradually standardize such practices. In the long run, the tax benefits promised when registering in a tax haven always carry the risk of not being honored.

When considering the location for establishing a holding platform, it is advisable to primarily consider:

① The convenience of business operations (for example, the ease of handling various procedures);② The ease of future relocation (when actually reducing holdings in the future, relocation operations may need to be carried out, which requires consideration of the local government's fiscal revenue situation, operating environment, etc.).

For companies planning to go public, the primary goal to achieve is still successful listing, while reducing the tax burden of share reduction is a relatively secondary objective.

What is a shareholding platform?

Understandably, a shareholding platform is a vehicle through which to hold equity in other companies. A common example is when employees hold shares, a platform is set up to provide for the incentivized individuals to hold the company's shares through this shareholding platform. This platform can be a limited partnership or a limited liability company, can use multi-layered nested structures, or individuals can hold shares directly without a platform.

What is a tax haven?

In certain administrative regions, the local government, in order to attract businesses to settle, expand local tax revenue, and promote the development of the local economy, enacts a series of preferential tax policies, local retention and return policies, and simplifies tax collection methods to attract businesses to settle in this area. Enterprises registered within the scope can fully utilize these preferential tax policies, thereby significantly reducing their tax burden. This administrative region is referred to as a "tax haven".