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Synopsis

Denmark is a kingdom situated to the west of Sweden and to the north of Germany. Greenland in the Arctic region and the Faroe Islands in the North Atlantic Ocean are self-governing parts of Denmark.

The North Sea defines Denmark to the west, while the islands are on the sea lane from the Baltic to the main oceans of the world and at the same time on the trade route from the Nordic countries to central Europe. Throughout the entire history of the country, this position has been influential on the circumstances governing developments in trade and on political and military strategy.

Towards the end of the 10th century, Denmark was united into a single kingdom. It has been an independent country ever since, and is thus one of the oldest states in Europe. It is a highly developed stable democracy with a modern economy. English is a compulsory subject in the public school system and is widely spoken. The form of government is a parliamentary democracy with a royal head of state. By international standards, the standard of living is high, and the differences between rich and poor are smaller than in many of the countries with which Denmark is traditionally compared.

Denmark is a member of the European Union. The proximity of Germany has traditionally orientated the country south in an economic and political sense, but close co-operation with Sweden, Norway, Finland and Iceland, with which Denmark enjoys a passport union, also ties Denmark to the North. The population stands at around 5.3 million.

TAX PLANNING THROUGH DENMARK

Denmark is not traditionally regarded as an attractive financial centre. Corporate rates of tax are high at 28%. However, a new Danish holding companies regime which came into operation on 1st January 1999 now provides outstanding opportunities for using Danish corporations in structuring international financial transactions.

The new tax rules aims at introducing more uniform taxation principles for dividend payments and capital gains received by one Danish corporation from another in which 20% or more of the shares were held. From 1st January 1999 a Danish holding company can receive dividend payments and capital gains from its foreign subsidiaries without any Danish tax being applied, provided that certain criteria are being met.

As Denmark is a full member of the European Union the Danish holding company structure should be able to benefit from European Union Directive 90\435. The effect of this directive is to require member states to refrain from withholding tax on dividends paid between countries. Thus a Danish holding company, provided it meets certain relevant criteria, should be able to collect dividends from any other member state without tax being withheld on those dividends. Additionally, Denmark has signed a wide range of tax treaties with over 60 countries including most major trading countries both within and outside the EU which serve to reduce or eliminate withholding tax which would otherwise be suffered on dividends paid to Denmark. A correctly structured Danish holding company should be able to take advantage of the treaties signed by Denmark. A full list of countries is available on request as is detailed advice on the effect of such treaties.

DANISH HOLDING COMPANIES

The key features of the regime are as follows:

• The Danish holding company is permitted to receive dividends from foreign subsidiaries free of tax (income from non-EU sources is given the same treatment as income from EU sources) provided that the company holds at least 20% of the share capital in the subsidiary for a consecutive period of 12 months during which the dividend is declared and the activities in the subsidiary are NOT mainly of a financial nature and simultaneously taxed at a low tax rate (normally below 22%).
• There is withholding tax on dividends paid to foreign parent companies located in non treaty jurisdictions (28%) but dividend distribution from Denmark to offshore can, if carefully structured, be paid with no withholding tax. There is no withholding tax on liquidation proceeds making a Danish Intermediary Holding Company attractive as a Capital Gains Tax instrument.
• The Danish authorities will not charge capital gains tax on the sale of shares in (or liquidation of) overseas subsidiaries provided the shares are held for more than three years.

The rules of the scheme are summarised as follows:

• The Danish Holding Company must own a minimum of 20% of the shares of the subsidiary for a consecutive 12-month period to qualify on tax exemption of dividends received.
• A Danish Holding Company must hold shares in a foreign subsidiary for more than 3 years to qualify for CGT exemption (NO MINIMUM PARTICIPATION is needed for this exemption).
• If the parent Company is located in a tax haven and the Danish Holding Company is being liquidated there is no withholding tax when the proceeds are remitted offshore. If structured correctly dividends can ALSO be distributed to an offshore parent company without any withholding tax.
• The administration of the company must be carried out by at least one person (manager) residing in Denmark.

TYPES OF COMPANIES

There are two types of Danish company:

1. an Aktieselskab (A/S) which must have a minimum paid up capital of DKK 500.000 (approximately €70,000) – equivalent to “PLC”
2. an Anpartsselskab (ApS) which must have a minimum paid up capital of DKK 125.000 (approximately €17,000) – equivalent to “Limited”

Please note that capital has to be paid in cash or by the cash equivalent in assets to be assigned to the company at the time the filing of the “statutes” (the constitutional documents) of the company. A certified accountant must issue a statement declaring the liquidation value of non-cash assets. If the value of its holding in the underlying company exceeds the minimum capital requirements, no cash injection would be required.

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Last reviewed: Wednesday, May 26, 2010

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.