Headquarter companies are generally interposed between the ultimate holding
company and the operating subsidiaries of a group of companies. The functions of a
headquarter company are mainly to manage investments and to centralize the income
of the group prior to remittance to the ultimate holding company. Therefore, generally,
the rationale for setting up a headquarter company is based on economic and
structural needs of the group in which the headquarter company is to be set up.
However, it is also common cause that the decision to set up a headquarter company
is, more often than not, influenced by the need to take advantage of tax instruments
available in the particular jurisdiction. This allows the group to reduce its overall tax
liability and therefore increase its after tax earnings.