HomeDoing Business in Denmark
MGI International Tax and Business Guide
Denmark
CONTENTS
3 THE COUNTRY AND ITS GOVERNMENT
5 FORMS OF BUSINESS ENTERPRISE IN DENMARK
Public Limited Company (Aktieselskab - A/S)
Private Limited Company (Anpartsselskab - ApS)
Branch Office (Filial)
Corporate Fund (Erhversdrivende Fond)
Sole Proprietorship
General Partnership
Accounting
Audit
IncomeTaxes on Individuals
Income Taxes on Corporations
IncomeTaxes on Non-Residents
Withholding Tax Rates
Computation of Taxable Income
Inheritance and Gift Taxes
Other Taxes
Value Added Tax
Stamp Duty
Land and PropertyTax
Duty on Sale of Shares
Other IndirectTaxes
Payroll Tax
Housing
Education
Communications
APPENDICES
Appendix 1 Individuals - Tax Rate
Appendix 2 Dividends and Royalties
Appendix 3 Companies - Tax Note
Appendix 4 Inheritance Tax Rates
Appendix 5 Gift Taxes
Appendix 6 Stamp Duty
This information has been prepared by the Danish member firms of MGI for the information of clients and fellow member firms of MGI.
Whilst every care has been taken in the preparation of this information, no responsibility can be accepted for inaccuracies. Clients are also advised that the law and practice may change from timeto time.
1.1 This booklet is intendedas a brief summary of information about Denmark for persons or companieswishing to do business with or invest in Denmark. It also gives a summaryof the general matters to be considered by new residents in Denmark.
1.2 This booklet can serveonly to draw attention to what are considered to be important matters andit is important that the businessman or potential investor in Denmark obtains professional advice before proceeding.
1.3 Additional copies of this booklet may be obtained from any member firm of MGI.
2.1 It is the official policyand the general attitude of the people that foreign investors are welcomedin Denmark. Foreign-owned companies are treated the same as national companies and the open economy is based on free enterprise.
2.2 Denmark is a tax-haven for holding companies because Denmark has special laws for group taxation with foreign subsidiaries. We also have a very highly developed network of double taxation treaties with other countries. Denmark and Holland have, for a number of years, been competing for the best terms in the EU forforeign investments.
2.3 Denmark is member of theEU. For the non-EU investor, the advantage is access to a market consisting of 350 million consumers. If the investment includes production, a number of incentives may be available from Danish funds and directly from the community. Along with the implementation of common standards of goods asbe a further advantage, once a product has been approved in Denmark it can be marketed in all the other EU countries without further approval.
2.4 The Danish labour force is renowned for its skill and quality of workmanship, which is a result of extensive and efficient educational facilities covering all fields of trade and industry. Denmark is therefore especially suitable for manufacturing industries demanding high standards of quality and precision. Furthermore, the Danish labour force is stable and absenteeism and days lost through strikes are lower than most other countries.
3 THE COUNTRY AND ITS GOVERNMENT
3.1 The Kingdom of Denmark consists of the geographical areas of Denmark, Greenland and the Faroe Islands. Denmark is situated in Northern Europe at the point where Scandinavia and Continental Europe meet.
3.2 With an area of 43,080 sq. km. (16,633 sq. miles) Denmark consists of the peninsula of Jutland, the two main islands, Zealand and Funeen and more than 400 islands of varying sizes. The capital, Copenhagen, is situated on the east coast of Zealand. The total population is 5.2 million of which 1.3 million live in the areaof Greater Copenhagen and 2.3 million in Jutland.
3.3 Greenland has a population of approx. 50,000 and an ice free area of 341,700 sq. km. (131,900 sq. miles).The Faroe Islands have about 45,000 inhabitants and an area of 1,400 sq.km. (540 sq. miles). Business activities are concentrated on fishing andindustrial processing of the catch.
3.4 Denmark has developed a large and effective industrial sector, though it must rely on the importof nearly all essential raw materials. The export of manufactured goods plays an important role. Oil and natural gas have been extracted from the North Sea for several years, and on a total basis Denmark is now self sufficient. Although the number of farmers is still declining, the agriculture and agricultural industry are important sectors in the Danish economy. The fishing and the fishing industry are also important sectors. The service sector plays a still more important role. Denmark has a surplus in the trade balance with other countries.
3.5 Denmark is the oldest monarchy in the world and has been a kingdom since A.D. 930. The present monarch is Queen Margrethe II whose power rests solely with the government, which is appointed in accordance with the political party (or parties)in majority in the Danish Parliament (Folketinget).
3.6 The Folketing consists of 179 members of which 2 are elected on Greenland and 2 on the Faroe Islands. Like most European countries, Denmark enjoys stable political conditions. Although power shifts from time to time between Social-Democrat and Conservative/ Liberal governments, there is a tradition for legislation to be passed in step with the trend of developments in trade and industry and society as a whole. Although Greenland and the Faroe Islands are part of the Danish Kingdom, they have their own parliament and government.
4.1 Since 1973 Denmark has been a member of the European Community, the European Union (EU), which now consists of 15 countries. Greenland and the Faroe Islands are not members.
4.2 As a result of the membership there are certain overriding policies which affect all member countries and many circumstances are now regulated according to EU directives. There is direct and general election to the European Parliament. The parliament deals with the budget of the EU and the proposals of directives from the EU commission are also dealt with by the parliament.
4.3 Important areas of theco-operation were in the beginning the customs union and common agricultural and fishing policy.
4.4 Over the last ten years, the co-operation has developed. On 1st January 1993, the internal market was established. The main purpose is the free mobility of goods, persons, services and capital. On 1st November 1993, the so-called Maastricht treaty came into force. The treaty deals with an economic monetary union, common foreign and security policy, judicial and internal matters, police, customs, justice and immigration. Denmark has made reservations regarding the economic and monetary union, common defence and matters regarding police and union citizenship.
5 FORMS OF BUSINESS ENTERPRISE IN DENMARK
5.1 In Denmark, it is possible to conduct most kinds of business enterprise under one of the following legal forms:
- Public Limited Company (Aktieselskab - A/S)
- Private Limited Company (Anpartsselskab - ApS)
- Corporate Fund (Erhvervsdrivende Fond)
- Sole Proprietorship or One-man Firm (Enkeltmandsfirma
- General Partnership (Interessentskab - I/S)
- Limited Partnership (Kommanditselskab - K/S)
- Limited Partnership Company (Kommanditaktieselskab)
- Co-operative Society (Andelsselskab - a.m.b.a.)
5.2 Most foreign investors prefer to establish a limited company - either public or private depending on the character and level of activity. The concept of a branch officeis rarely used. All limited companies and branch offices must register with the Danish Commerce and Company Agency irrespective of ownership.
5.3 The limited partnership, limited partnership company and co-operative society will not be dealt with in this booklet, but further information can of course be given on request.
5.4 Public Limited Company (Aktieselskab- A/S)
The Companies Act came into force on January 1,1974. It has currently been updated to meet the requirements of harmonization of limited companies in the European Union (EU). The shareholders of a limited company are not personally liable for the debts of the company.
The share capital must be a minimum of DKK 500,000, which may be held by one shareholder. A company can be set up by one or more promoters, of which at least one must be resident in Denmark or another member state of the EU. Legal entities may also act as promoters. The promoters must draw up and sign a memorandum of association which contains draft articles of association. The memorandum of association must give information about the promoters, their residence, the price at which shares are offeredf or subscription and the date and place of the first constitutional general meeting.
5.6 The articles of association must be drafted to conform with the memorandum of association and contain, among other things, the name(s) of the company, the proposed activity, the amount of capital issued, the number of board members, the number of auditors and the agenda of the ordinary annual meeting.
5.7 Shares may be bearer or registered and both are transferable. In principle, all shares enjoy equal rights, but the articles of association may provide for different classes of shares.
5.8 A limited company must have a board comprising at least 3 members. If a company has employed 34 or more persons on average during the past 3 years, the employees are entitled to elect from among themselves members to the board of directors for a period of 2 years. The number of members elected by the employees is equivalent to half the number elected to the board at the annual general meeting, but not less than 2.
5.9 The board of directors must appoint a general management consisting of one or more members. The majority of the board of directors must not be managers in the company. The managers and at least half of the board members must be resident in Denmark or another member state of the EU. The board of directors and the general management are responsible for management of the company's affairs.
5.10 The shareholders' rights to make decisions and pass resolutions in the company are exercised atthe general meeting. Any shareholder is entitled to attend the general meeting -- either in person or by proxy -- and speak at the meeting. The ordinary general meeting must take place within 5 months after the expiry of every financial year. A distribution of company profits for the year (after deduction on unsettled deficits) to the shareholders may only be made as a dividend on the basis of the latest approved annual accounts. The payment of interim dividends is not permitted. The dividend must not exceed what is considered reasonable under the circumstances.
5.11 Private Limited Company (Anpartsselskab - ApS)
The Private Companies Act of January 1, 1974 is similar -- both in formand content -- to the Companies Act, but with less stringent rules regarding capital requirement and organization. The provisions for the establishment of private limited companies are similar to the German G.m.b.H. and FrenchS.A.R.L.
5.12 The main distinctions between private and public limited Companies can be summarized as follows:
- Minimum capital requirement DKK 125,000 - no maximum limit.
- No requirement for the issue of share certificates.
- Private limited companies are permitted to have either a board of directors, a general management or a board of directors and a general management.
If a company employed 35 or more persons on average during the past three years, a board of directors must be appointed. As with public limited companies, the employees are entitled to elect from among themselves members to serve on the board of directors for a period of 4 years. The number of members elected by the employees is equivalent to half the number elected to the board at the annual general meeting, but not less than two.
A foreign public limited company which is lawfully registered in its home country may carry on business in Denmark through a registered branch office, providing this is in accordance with international agreements or where permission is granted by the Ministry of Commerce. Such branch offices are subject to the Danish Companies Act.
5.14 The establishmentof a branch office must be notified to the Danish Commerce and Company Agency. The application must be signed by the branch manager and must be accompanied by the following documents:
- Official evidence that the company is lawfully registered in its home country.
- A declaration confirming that the company is prepared to acknowledge Danish law and court decisions in all legal matters arising from activities in Denmark.
- Powers of attorney for branch managers.
- A copy of the articles of association of the company.
- Evidence that the branch managers fulfil the requirements of the Companies Act.
5.15 The name of the branch office must show the name of the foreign public limited company, adding the word "filial"and the nationality of the company. The branch office cannot commence business until registration has been effected.
5.16 Corporate Fund (ErhvervsdrivendeFond)
The Corporate Funds Act came into effect on January 1, 1985. The main characteristic of funds is that there are no equity owners. A fund is subject to the Corporate Funds Act if it:
- Transfers goods or intangible assets, or provides services or the like.
- Operates by selling or leasing real property.
- Acts as a parent company of another limited company.
5.17 A corporate fund must use the word "fond"in connection with the name. A corporate fund must be registered with the Danish Commerce and Company Agency. For every financial year the committee and management must prepare annual accounts in accordance with legislation and the instrument of foundation. Provisions regarding the annual accounts are mainly found in the Danish Company Accounts Act, but if the fund performs activities other than commercial activities, the economic effect of such activities should be separately disclosed in the accounts. The accounts of a corporate fund are subject to audit by one or more independent auditors appointed by the committee in accordance with the instrument of foundation.
A sole proprietorship involves the least number of formalities before a business can commence but it does carry with it the following disadvantages:
There is no limitation of personal liability for trading debts.
There may be higher liability taxation on trading profits than would be the case within a company.
Sole proprietors are taxed as individuals. The accounts of sole proprietorships and partnerships are to be drawn up according to the Danish Accounts Act. The accounts do not need to be audited.
A partnership is simply two or more persons trading under a common name with common objectives. The partners share profits and losses in accordance with a partnership agreement. Partnerships have unlimited liability and no tax advantages over sole proprietorship. Partners are jointly and severally liable for the debts of the partnership.
It is possible for non-residents to enter into partnerships with either residents or non-residents of Denmark to do business in Denmark, but partnerships are not often used for this purpose due to the lack of limited liability.
Accounting and Audit
Provisions regulating the presentation of Annual Accounts in Denmark are to be found in the Danish Accounts Act and the Danish Company Accounts Act. The Institute of State-Authorized Public Accountants have currently issued, annotated and translated editions of the International Accounting Standards issued by the International Accounting Standard Committee (IASC) and the Institute have issued guidelines compatible with Danish legislation. The Standards and Guidelines must be observed to meet the requirementsof General Accepted Accounting Practice.
5.21 The Danish Company Accounts Act applies to public limited companies, private limited companies, limited partnership companies, cooperative societies and to a certain extentcorporate funds. Banks, insurance companies and some mortgage and loan institutions are exempt from this Act. Other business enterprises prepare annual accounts mainly in connection with the owner's liability to tax and decisions on the distribution of profit. Accounts prepared for such purposes normally comply with the provisions of the Danish Company's Accounts Act, if applicable. The main object of the Act is the implementation of the 4th EU-Directive.
5.22 For each financial year annual accounts must be prepared, comprising a balance sheet, a profit and loss account and notes on the accounts. In addition, an annual report must be prepared and in parent companies, consolidated group accounts. One month after adoption at the ordinary general meeting a signed copy of the audited annual accounts, including consolidated group accounts, if any, and the annual report must be filed with the Danish Commerce and Company Agency, where the documents are available for public inspection. When dictated by special consideration, companies which at the balance sheet date do not exceed the following limits may modify the layout of the profit and loss account, and net turnover is not required to be disclosed.
The limits referred to above are:
- Balance sheet total: DKK 75 million
- Net turnover: DKK 150 million
- Average number of employees during the financial year: 250
- Income tax on all incomeof individuals and on income from Danish sources of non-residents.
- Corporation tax on all corporate profits including corporate capital gains.
- Capital gains tax on capital gains on individuals.
- Inheritance tax on gifts of property prior to or upon death.
In Denmark, an audit is compulsory in all the legal forms of business mentioned under the preceding section except branch offices, general partnerships and sole proprietorships. However, branch offices often use the expertise of an auditor for the completion and filing of the tax return. General partnerships and sole proprietorships take advantage of the expertise of the auditor when preparing annual accounts and in dealing with tax assessments.
5.24 The general provisions regarding compulsory audit are part of the Danish Company Accounts Act. Special requirements related to specific kinds of enterprise, ie, banks,mortgage institutions, insurance companies and corporate funds, are regulated in the specific Acts.
5.25 According to the Danish Company Accounts Act, the general meeting appoints one or more auditors in accordance with articles of association. The appointment may be with limited tenure or indefinitely. At least one of the auditors must be state-authorized or registered (two recognized categories of auditors exist in Denmark). Limited companies whose shares or bonds are quoted on the stock exchange must have two auditors, one of whom must be state-authorized.
5.26 The auditor shall audit the annual accounts in accordance with general accepted auditing practice and will undertake a critical examination of the accounting evidence and the state of affairs of the company. In parent companies the auditor must examine the consolidated group accounts and the mutual relations of thegroup companies.
5.27 After completion of the audit, the auditor shall certify by signing the accounts and any consolidated group accounts, to show that they have been audited by him. As a specific Danish concept, the auditor must keep an Audit Minute Book, which is in principle for the benefit of the board of directors, but in practice authorities (such as tax authorities) can demand access to the entries. The audit minute must describe the scope of the audit performed and any irregularities in the company's bookkeeping and accounts discovered by the auditor.
6.1 The principal direct taxesin Denmark are: