Denmark Company Formation
Legal form:There are two types of Danish company: (i) a public limited company – an Aktieselskab (A/S), which must have a minimum paid up capital of DKK 500.000. (ii) a private limited company – an Anpartsselskab (ApS), which must have a minimum paid up capital of DKK 125.000. Foreign investors most often set up a public limited company or a branch office. All public limited companies, private limited companies, limited liability business enterprises and organizations, corporate funds, EEIGs and branch offices of foreign corporations must register with the Danish Commerce and Companies Agency. The registration is published in the Registration Gaz
ette on the Danish Commerce and Companies Agency's Web site. A Danish Company can start trading after application has been filed with the Danish Commerce and Companies Agency.
Name of the company: Name must end with the initials "A/S" or "ApS". Name need not be in the Danish language. Name should be sufficiently individual, so as to prevent confusion with existing companies and names, which indicate an activity, are only acceptable if the implied activities are to be performed by the company. Name must be searched in advance through the Danish Commerce and Companies Agency.
Memorandum and Articles of Association: The following formation procedure is mandatory:
1. The company's promoters must draw up and sign a memorandum of association which must contain a draft of the articles of association, the price at which shares are offered for subscription, the period within which the first general meeting is to be held, etc.
2. The articles of association must be drawn up in conformity with the memorandum of association and contain, as a minimum, the provisions required by the Companies Act.
3. There may be any number of promoters, as long as at least one of them is a resident of Denmark (the Danish Commerce and Companies Agency may grant an exemption from this requirement).
4. A resolution on the company's formation must be taken at the first general meeting.
5. The board of directors must apply to have the company registered with the Danish Commerce and Companies Agency not later than six months from the date of the memorandum of association.
The company cannot be registered unless the subscribed capital has been paid up.
Shareholders: A minimum of one shareholder is required. Details appear on the public file but our firm can provide nominee shareholders. The company must have one "founder", domiciled in Denmark. Private companies cannot issue bearer shares whereas Public companies can.
The minimum share capital: Before incorporation can proceed, it is necessary to deposit the shareholding capital. The minimum capital required, DKK 500,000/DKK 125,000, may be in forms other than cash (non-cash contributions), including tangible assets, goodwill, patents, trademarks, etc. The non-cash contributions must have a value, which can be expressed as money equivalents. Such contributions may not be an obligation to perform work or render services.
A minimum of three directors is required for an A/S and more than half of the members of the board must be domiciled in Denmark. Details of directors will appear on the public file. In the case of a private company neither directors nor managers need be domiciled in Denmark.
Registered office: As requested by law, every Danish company is required to have a registered office in Denmark, and must also register itself with the Danish Commerce and Companies Agency. The administration of the company should be undertaken by at least one person residing in Denmark. Our firm provides such service as part of our domiciliary service fee.
- Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary's jurisdiction.
- Dividend Income Received: Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company's jurisdiction.
- Capital Gains Tax on Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company's jurisdiction.
- Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company's jurisdiction.
There has been much discussion regarding Denmark's suitability as a holding jurisdiction following the change in Danish legislation that took effect from 1 July 2001. An additional condition was added in order to achieve an exemption on Danish dividend withholding tax; namely that the dividend in question needed to be covered by the EU parent subsidiary directive or a double tax treaty. Despite the change in the law, Denmark is still extremely interesting as a holding jurisdiction in a number of situations. The basis of Denmark as an interesting holding jurisdiction include the following factors:
i) Dividends received by a Danish company are tax- exempt under certain conditions;
ii) Capital gains on the sale of shares held for three years are tax- exempt under certain conditions;
iii) There is 0% withholding tax on dividends paid by a Danish company under certain conditions;
iv) There is 0% interest withholding tax in Denmark;
v) There are no Danish taxes on liquidation distributions;
vi) There are no Danish taxes on the transfer of shares in a Danish company by non residents;
vii) There are not capital taxes or stamp duties on capital or loans;
viii) Denmark has an extremely strong tax treaty network.
Withholding Taxes on Incoming Dividends
As a member of the EU, Denmark is governed by the provisions of the EU's Parent-Subsidiary directive, whose effect is that where a Danish holding company controls at least 25% of the shares of an EU subsidiary for a minimum period of 12 months any dividends remitted by the EU subsidiary to the Danish holding company are free of withholding taxes.
Where the provisions of this directive do not apply (or where anti-avoidance provisions are in place) Danish holding companies can rely on an extensive network of double taxation treaties the effect of which is to obtain a reduction in withholding tax rates on dividends remitted to Denmark from the subsidiary jurisdiction. Denmark has 74 double taxation treaties in place. (Belgium has 66 and the UK has 110). The greater a country's network of double taxation treaties the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction.
Most offshore jurisdictions of course do not impose withholding tax on dividends remitted internationally. It follows that almost all dividend income received in Denmark will be free of withholding tax. However, incoming dividends received by a Danish holding company from its foreign subsidiary are exempt from corporate income tax in Denmark provided the holding company satisfies the following criteria (NB: Bill L99 passed in 2001 introduced changes to the legislation which are incorporated below and had effect from 2002):
20% Shareholding: The Danish holding company must hold a minimum of 20% of the shares in the foreign subsidiary (the required minimum was 25% until 2001).
12 Month Period: The 20% shareholding must have been held for a minimum continuous period of at least 12 months.
The foreign subsidiary must not be a "CFC". A company is a CFC if it meets the following 2 criteria:
a.) 33% of Assets or Income: 33.3% or more its assets are "financial assets" or if it earns at least 33.3% of its income from "financial activities", including net bank interest (it was gross interest until 2001), dividends, royalties, lease premiums and any profits on the sale of financial assets being assets which give rise to these sorts of income. Related tax-deductible expenses can be netted off against the other kinds of CFC income in calculating total CFC income. As from 2002 income from real estate is no longer included in the definition of financial income. An insurance company or a bank will almost always be a financial company, although CFC waivers can often be obtained for banking and insurance subsidiaries of Danish companies. And:
b.) Lower Level of Taxation: The foreign company's income has been subject to tax at less than 75% of the rate of tax as calculated under Danish law (this was administrative practice until 2001 but is now statutory).
For holding companies qualifying under the above rules, Denmark is alone among European countries in not taxing dividends received from offshore jurisdictions. Qualifying dividends received by a Danish holding company from an offshore subsidiary are not subject to corporate income tax irrespective of whether or not tax has been paid in the offshore location on the profits out of which the dividends have been paid.
Prior to 1999 the level of tax paid in the subsidiary jurisdiction was a relevant factor in determining whether Danish corporate income tax was to be levied on the dividends received by a Danish holding company from a foreign subsidiary.
In the seven other principal EU onshore holding company jurisdictions (Austria, Belgium, France, Germany, Luxembourg, the Netherlands and the UK) incoming dividends received by an intermediate holding company from a foreign subsidiary are exempt from corporate income tax in the intermediate holding company only if the foreign subsidiary has paid tax in the foreign jurisdiction on the profits out of which the dividends are paid.
Along with Denmark only Switzerland, Malaysia and Australia in the main exempt incoming dividend income from corporate income tax.
Capital Gains Tax on the Sale of Shares: Capital gains tax in Denmark ranges from 39%-59%. However by way of exception capital gains taxes are not levied on any profits realized by a Danish holding company on the sale of its shares in a foreign subsidiary provided the following criteria are satisfied:
a.) Shares held for 3 Years: The shares sold must have been held for at least 3 years.
b.) Not a Controlled Foreign Corporation: The foreign subsidiary must not be a "CFC". A company is a CFC if it meets the following 2 criteria:
c.) 33% of Assets or Income: 33.3% or more its assets are "financial assets" or if it earns at least 33.3% of its income from "financial activities", including net bank interest (it was gross interest until 2001), dividends, royalties, lease premiums and any profits on the sale of financial assets being assets which give rise to these sorts of income. Related tax deductible expenses can be netted off against the other kinds of CFC income in calculating total CFC income.
As from 2002 income from real estate is no longer included in the definition of financial income. An insurance company or a bank will almost always be a financial company, although CFC waivers can often be obtained for banking and insurance subsidiaries of Danish companies. And:
d.) Lower Level of Taxation: The foreign company's income has been subject to tax at less than 75% of the rate of tax as calculated under Danish law (this was administrative practice until 2001 but is now statutory).
International Comparison: Holding companies incorporated in France and the UK are taxed on any capital gains realized on the profitable sale of shares held in a foreign subsidiary. Holding companies incorporated in Austria, Belgium, Germany, Luxembourg, the Netherlands, Spain & Switzerland are not taxed on the capital gains realized on the sale of shares in a foreign subsidiary (provided the appropriate criteria can be met).
The standard rate of withholding taxes levied in Denmark on outgoing dividends is 28%. This rate can be reduced by both the provisions of a double taxation treaty and by the provisions of the EU Parent-Subsidiary Directive. Alternatively where the dividends are remitted by an intermediate Danish Holding Company to a foreign parent corporation no withholding taxes are deducted provided that there is a double tax treaty in force between the two countries, and:
a.) The foreign parentcorporation holds a minimum of 20% of the shares in the intermediate Danish holding company. (N.B. If the shareholding is less than 20% then the double tax treaty rate will apply);
b.) The parent corporation is non-resident; and
c.) The shares must have been held by the parent corporation for a minimum continuous period of at least 12 months (if the shareholding is 20% but the shares have not been held for 12 months then a withholding tax rate of 30% will be levied on 66% of the dividend income making an effective rate of 22%).
Dividends paid out by a holding company incorporated in Austria, Belgium, France, Germany & Netherlands are subject to withholding taxes of 25% unless the provisions of a double taxation treaty apply in which case the rate of withholding taxes is usually reduced to 5%-10% or unless the provisions of the EU Parent-Subsidiary directive apply in which case no withholding taxes are deducted. In the case of Luxembourg double taxation treaties reduce the rate of withholding tax on outgoing dividends to 15% whereas in the case of the Spanish ETVE the rate is 0% provided the non resident parent corporation holds at least 25% of the Spanish holding company shares, is not located in a tax haven and the source of income did not originate in a tax haven (in default of which conditions the rate of withholding tax is 25%). Provided certain conditions are met the UK, Greece and Ireland do not deduct withholding taxes on dividends remitted by intermediate holding companies to foreign parent corporations.
Audit and financial returns: Annual reporting to the Danish Authorities includes the filing of annual audited accounts, information of registered shareholders (who can be foreign corporations) and a corporate income tax return. There are also requirements to file declarations of dividends, declarations to the Central Bank of international transfers for statistical purposes and to notify when there has been any changes of management, auditors, registered office address, shareholders, etc. This information must be filed as and when the event occurs.
Time needed for Denmark company formation: Usually it is 8-12 weeks. Ready-made companies are available and can be purchased paying extra fees, which will depend on the age of the company that will be purchased.