Damalion Denmark desk
Doing business in Denmark
The Kingdom of Denmark, one of the oldest states in Europe and an esteemed Scandinavian nation enjoys a lively, progressive economy that is one of the most stable in the world. While it is one of the Member States of the European Union, Denmark chose to opt out certain facets of the treaty, such as the non-adaptation of the Euro as its official currency.
Denmark is world-renowned for its high standard of living, educated citizenry, and considered as one of the happiest countries. It also plays an integral role in the general economic and political landscape of the European Union. It continues to be a popular hub for investments, innovation and technology.
- No existing exchange control or currency regulations in Denmark, except for money laundering prohibition.
- Payments to foreign companies that are sanctioned by the United Nations or European Union may be assessed with currency restrictions and exchange control.The legal system in Denmark is founded on civil law and has developed unique Scandinavian characteristics. There is no prevailing federal system in Denmark.Provisions and Restrictions on Foreign Investments
Foreign investments are highly encouraged by Denmark. No authorizations are required from investors who seriously consider establishing their presence in Denmark. Despite leniency is registration, the country has restricted foreign investment entry in some sectors, such as national security.
Prior approval issued by the Danish Financial Supervisory Authority is mandatory for Danish and non-Danish investors before they are allowed to engage in certain qualified interests in companies under specific sectors, including banking and finance.
The acquisition of real estate property by foreign investors, including those from EU and European Economic Area (EEA) member nations, typically requires a permission issued by the Ministry of Justice. However, certain exceptions exist.
Limitations in Doing Business with Certain Countries
Local Danish companies are required to follow the Council Regulation (EC) No. 428/2009 of 5 May 2009. This provision enumerates the community regime surrounding the regulation of exports, brokering, and transfer of dual-use items. They have released a list of the products that are subject to export control.
As Denmark is an EU Member State, the Kingdom of Denmark is deemed to enforce the economic sanctions developed by the European Union on a number of countries, including Iran, Syria, and North Korea, as well as certain natural persons and legal entities.
Currency Regulations and Exchange Control Provisions
Available Grants and Interests for Investors in Denmark
Currently, there are no special incentives available for international investors looking to do business in Denmark.
- Foreign investors are more likely to establish public limited liability companies (A/S) or private limited companies (ApS)
- Limited companies are governed by the Danish Companies Act.
- A Danish partnership consists of partners that can either be individuals or companies.
- Each partner has unlimited joint and several liability for partnership activities.
- Not governed by the Danish Companies Act.
- Certain provisions of the Act on Certain Commercial Undertakings, law no. 249 of 2 January 2021 is applicable, in some instances, such as the name of a partnership.
- Partnerships in Denmark are tax transparent.
- There should be at least one partner in a limited company.
- Must be registered under the Danish Business Authority.
Public Limited Company (Aktieselskab)
- Capital contributed by the shareholders are divided into shares.
- Shares may be offered to the public through a stock exchange listing.
- Shareholder’s liability for activities of a public limited company will be restricted to their respective capital contributions.
- Governed by the Danish Companies Act.
Private Limited Company (Anpartsselskab)
- Capital contributed by shareholders are divided into shares.
- Traditionally used for businesses with a few shareholders with no intention of raising capital from a wide range of investors.
- Prohibited from listing shares on any stock exchange.
- Liability of shareholders regarding activities of a private limited company is limited to their contributions.
- Governed by the Danish Companies Act.
Limited Partnership (Kommanditselskab)
- General partner is deemed liable for any liabilities of the entire limited partnership structure.
- Can be structured as a private or public limited company.
- Limited partners are only liable to the extent of their contributions.
- Tax transparent company structure.
- Governed by the Danish Companies Act.
- Certain provisions under the Act on Certain Commercial Undertakings no. 659 of the 1 July 2019, which may include name of the limited partnership, power of procuration, and requirement for financial and administrative powers of the general partner.
- Partnerships where the general partner is not a limited company structure must be registered before the Danish Business Authority.
- A limited partnership’s annual report must be made available to the public.
Limited Partnership Company (Partnerselskab)
- Structured as a public limited company.
- Limited partnerships that contributed a certain percentage of the capital will be divided into shares.
- General partner holds unlimited liability.
- Categorized as tax transparent for tax purposes.
- Governed by the Danish Companies Act with the needed adjustments.
The Danish Companies Act provides flexible regulations for private limited companies compared to those imposed on public limited liability companies.
By rule, private limited companies can be used to start up any kind of business but cannot be listed on any stock market. While there are fewer restrictions imposed on private limited companies, the most essential feature of both private limited liability companies and public limited liability companies is that they have a separate legal personality. This limits the liability of shareholders and subject them to a few tax provisions and restrictions.
Public and private limited liability companies in Denmark may be incorporated by foreign initiators or fund managers and may therefore be used as excellent business vehicles for joint ventures.
Lastly, there are no restrictions on shareholders, except in certain highly regulated sectors.
Primary Registration and Reporting Requirements for Foreign-Owned Investment Vehicles
Registration and Formation
A limited company in Denmark must submit the following requirements before the Danish Business Authority (DBA):
- Memorandum of association
- Articles of association
- Registration from setting up pertinent company details
The company registration procedure will take one to three days to complete when done online. On the other hand, paper registration will usually take up to eight weeks to complete.
Foreign investors need to consider that some companies cannot be set up through online registration. For instance, companies where the initiator is a non-Danish legal entity. As an alternative, foreign investors may purchase the dormant companies from a formation agent based in Denmark.
Once registration is complete, the natural persona acting as representative of a limited company will be deemed liable for all obligations undertaken by the company. Upon registration, all obligations will then be assumed by the company itself.
All shareholders that hold more than 50% shares in a Danish-formed company must be duly registered before the Public Shareholders’ Register.
Additionally new companies in Denmark must register the names of their respective shareholders no later than two weeks after successful company formation.
The annual report of a limited company must be filed with the Danish Business Authority (DBA) promptly and without delay. By rule, a report must be submitted no later than five months after the end of the financial year for unlisted companies and four months after the end of the financial year for listed companies.
Changes in business address, articles of association, company management, and auditor must be promptly reported to the Danish Business Authority (DBA) within 14 days from the date the change/s were made.
A limited company cannot be registered until the subscribed capital and premium are paid in full, or unless the shareholders have agreed on partial payment of the share capital.
- Public limited companies must pay the minimum share capital of DKK500,000.
- Private limited companies must pay the minimum share capital of DKK50,000.
In Denmark, there is no set maximum share capital. Shares cannot be issued below par value, but can be issued at a premium, as such premium is recognized as a distributable reserve.
Shares may be issued in Euro. The Danish Business Authority can create an executive order allowing for share capital to be paid in other currencies.
In relation to cash contributions, shareholders may opt to limit the paid share capital up to an amount of 25% of the total share capital, but no less than DKK50,000. Where a premium is fixed, it must be fully paid up. A company’s main governing body may call up unpaid share capital. Unpaid share capital is payable on demand.
Shares can be issued for non-cash consideration, although a formal valuation process is a requirement in most cases. A non-cash consideration must be expressed in monetary terms and cannot be an obligation to perform work or render services. Claims of initiators cannot be contributed, regardless of whether collateral security was provided for such claims.
Attached Rights to Shares
All shares carry equal weight, thus equal rights. Restrictions on rights attaching to shares can be delineated in the articles of association, or indirectly in a shareholder’s agreement.
Voting rights and rights to receive dividends are automatic. Unless otherwise stated in the articles of association, shareholding in a limited company grants shareholders voting rights and a share of any declared dividend that is proportionate to an owner’s respective share.
Management of a Business Owned by Foreign Company or Investors
Traditional Danish Governance Structure
- Applicable to private and public limited liability companies, an executive board will perform daily management of a company. The board of directors on the other hand conducts overall management functions, as well as assume other supervisory roles.
German-Inspired, Two-Tier Governance Structure
- Applicable to both private and public limited liability structures, an executive board will perform daily management of a company. The board of directors, or at least three members of the board for public limited companies, are responsible for conducting strategic management functions, as well as supervisory functions. With this structure, the one-and-one-half tier governance structure is implemented.
Other Management Requirements
- A private limited liability company may also choose the Anglo-Saxon inspired governance structure. In this structure, a company will be managed by an executive board. On the other hand, a public limited liability company may lend the governance structure that resembles that single-tier governance structure. This allows all members of the executive board to function as members of the board of directors.
- In the Anglo-Saxon governance structure, the majority of board directors must assume a non-executive role, In public companies, a chairman and vice-chairman of the board of directors or supervisory board will not be allowed to perform daily management activities.
Restrictions on Management
In Denmark, there are no restrictions when it comes to the appointment of foreign directors or managers.
The Liabilities of Directors and Officers
In essence, the basis in Danish Law for managing liabilities is the same general rule of liability for negligence.
The Danish courts remain reluctant to impose any liability unless there is proof of specific obligations were neglected.
Liabilities arise in the following situations:
- Neglect of specific, clearly defined roles imposed by the Danish Companies Act, the Financial Statements Act, a company’s articles of association, and fundamental legal principles in Denmark.
- Conscious pursuit of management of officers’ and directors’ own interests, or at least interests related to these companies.
- Failure to perform duties professionally. This is the most common issue that results in creditors seeking compensation from a company’s management. This is applicable in the event of a loss that creditors suffered as a result of negligence in management of officers and directors.
If found negligent of their duties, board members, directors, and members of a company’s supervisory board may face claims of indemnification and damages from any aggrieved party, which can lead to their disqualification.
Parent Company Liability
Group companies are recognized as separate legal entities. Keeping this in mind, a parent company will not be held liable for negligent acts of its subsidiaries based in Denmark, except where the parent company acting as shareholder has acted in a negligent manner.
Denmark Tax Regime
Tax Resident Businesses
Business entities based are considered tax residents if they were established and incorporated in Denmark. In case the headquarters of the management of a foreign-owned company is in Denmark, the company is also recognized as a Denmark resident, and therefore will assume full tax liability.
Non-Tax Resident Businesses
Non-tax resident business entities are assessed with limited tax liability in Denmark respective to their income attained from various sources related to Denmark. Such is the case if a company has permanent establishment, immovable property, royalties, dividends, and controlled debt in Denmark.
Tax resident business entities are subject to a flat corporation tax rate of 22% (2022) on their worldwide income, after the deduction of costs.
It is important to note that Danish companies are not taxed on income and gains arising from permanent establishment and real property located outside of Denmark under the following conditions:
- Origin country has not waived the right to levy the income and gains arising from the branch or real property.
- The permanent establishment would not have been assessed with the Danish Controlled Foreign Corporation (CFC) taxation rules, had it been a company in the first place.
- The Danish company opted out of the Danish International Joint Taxation.
The following groups will be jointly taxed in Denmark on their Denmark source of income:
- Group-related companies or subsidiaries that are tax residents of Denmark.
- Permanent establishments in Denmark or group of related companies that are not considered as Denmark tax residents.
- Real estate properties based in Denmark and owned by companies listed above.
At the request of the parent company, joint taxation may be extended to include non-resident, group-related entities. Income derived from all group-related foreign companies will be fully subject to Danish corporate taxation.
Dividends, Interests, and IP Royalties
Dividends Paid to Foreign Corporate Shareholders
- By rule, foreign shareholders are subject to tax on dividends distributed by companies in Denmark at 27%. Exception to this rule is tax exemption or relief granted under the Danish holding regime or an applicable double tax treaty.
- Dividend tax is assessed will be in the form of final withholding tax.
- Reduced tax rate under certain tax treaties is not applicable at source, Taxpayers are required to apply for a refund.
- No withholding tax will be imposed on dividends paid to a foreign shareholder holding subsidiary or group shares. This is only applicable if Danish withholding tax is reduced or exempted by the Council Directive 904/435/EEC pertaining to taxation of parent companies and subsidiaries or based on an existing tax treaty.
Dividends Received from Foreign Companies
Dividends received by a Danish parent company from both Danish and foreign subsidiaries are tax exempt. The tax exemption only covers dividends from subsidiary shares or group shares.
Interest Paid to Foreign Corporate Shareholders
- A 25% withholding tax is applicable to interest payments made between controlled companies.
- Withholding tax is generally applicable to interest payments made to affiliated companies in low tax countries that are not a part of the European Economic Area (EEA) and the European Union.
- Withholding tax can be reduced or waived under a tax treaty under the Interest and Royalty Directive.
Intellectual Property Royalties Paid to Foreign Corporate Shareholders
- A 25% tax is withheld from royalty payments arising from Denmark in relation to trademarks, patents, technical knowledge, and many more.
- Withholding tax can be reduced under a certain treaty.
- Withholding tax is not applicable when a royalty is attributable to a receiver’s permanent Danish establishment, or if a received is subject to the protection of the Interest and Royalties Directive in Denmark.
Denmark Thin Capitalization Rules
Denmark’s rules on thin capitalization are applicable to the following:
- Danish legal entities that owe debt to a Danish or foreign legal entity that controlled the Danish entity.
- Foreign legal entities that are being controlled by a Danish entity
- Foreign or Danish entity under joint control by a Danish entity.
Controlled debt can also include third-party loans guaranteed by the controlling shareholder and its affiliates. If the debt-to-equity ratio exceeds 4:1, the interest on the excess part of a controlled debt will be deductible only if the controlled debt exceeds DKK 10 million.
- Interests can be deducted if a taxpayer can show proof that a similar loan can be obtained from a third-party without security from the controlling shareholders or affiliates.
- If the total debt consists of controlled debt and debt from an independent third-party, limitation on deductibility will only be applicable for interest on the controlled debt.
Denmark Transfer Pricing Rules
- All transactions between two parties must be finalized in market terms and in accordance to prevailing OECD Guidelines.
- Danish transfer pricing legislation will be based on the principle of arms-length transactions.
- All transactions between connected parties must be finalized on general market terms as if the parties were independent from one another.
- A connect exists between two parties if a company or natural person directly or indirectly owns more than 50% of shares in the relevant company or has more than50% exercising votes in the relevant company.
It is a requisite for Danish companies to prepare a written transfer pricing agreement. Exemption usually applies to small and medium-sized businesses and controlled transactions deemed immaterial, regardless of frequency and volume.
Denmark Custom Duties
- Imports to Denmark from outside the European Union are subject to 25% Value Added Tax (VAT) and payable by the importer.
- Customs duty and excise tax duties are payable by the importer.
- Export goods to countries outside the European Union and to VAT-registered traders in other EU member states are zero-rated.
Denmark Double Tax Treaties
To date, Denmark has concluded up to 70 tax treaties, all of which are countries based on the OECD Model Tax Convention on Income and Capital.
For foreign investors, entering an entirely different market means full compliance to different company formation requirements, legal and regulatory framework, taxation rules, and all aspects of business management. Damalion has a dedicated team of experts that will assist you to ensure you are in adherence to all applicable rules and prevailing regulations. With our expensive global service network, we make company formation a smooth and seamless process. Reach out to a Damalion expert today to learn more about how you can establish your presence in Denmark in the most efficient way possible.
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