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:
 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
on treaty jurisdictions (28%) but dividend distribution from
Denmark to offshore can,
if carefully structured, be paid with no withholding tax.
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 Company There are two types of Danish company:
i) an Aktieselskab (A/S) which must have a minimum paid up
capital of DKK 500.000 (approximately €70,000) – equivalent
to “PLC”
ii) 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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