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EUROPEAN HOLDING COMPANIES

The Danish Holding Company

Overview Related Resources Denmark Key Elements

HOW TO PROCEED

OVERVIEW

Definition

The Danish Holding Company is an ordinary company which falls within the scope of general tax law and may benefit from the double taxation treaties concluded by Denmark and the European tax directives.

There are no limitations on the activities of the company.

Legal Form

A Danish Holding Company can be constituted as

an “Anpartselskab” (private limited company- ApS) or

an “Aktieselskab” (public company- A/S)

Formation

The minimum share capital for incorporation of a Danish Holding Company is:

DKK500,000 for an “A/S” (approximately €67,000)

DKK125,000 for an “ApS” (approximately €10,700)

or the equivalent in other currency which must be fully paid up. While for a company incorporated as an " A/S " may hold up to 10% of its own shares, an “ApS” is not allowed to own shares in itself.

Taxation

Resident and non-resident companies are taxed at a rate of 25%. A company is deemed resident if it is managed and controlled in Denmark. Resident companies are taxed on their worldwide income. A tax credit is available for foreign taxes paid. Under the treaty, tax relief may be granted by the application of the exemption method.

A 1% capital duty is applied to the par value of issued shares.

Income

The taxable income of a Danish Holding Company is based on the annual financial statements prepared in accordance with generally accepted accounting principles subject to adjustments and provisions. Expenses incurred exclusively for the purposes of the business (including interest and royalty payments and foreign exchange losses) are deductible while others including formation expenses are not deductible.

Dividends Exemption

As a member of the EU; Denmark is governed by the provisions of the EU's Parent-Subsidiary directive.

The Tax Reform introduced on 1st January 2010 provides a distinction in the taxation of gains and losses between companies that hold 10% or more of the shares in a company (a subsidiary), and companies that hold less than 10% of the shares in a company (a portfolio investment).

For companies that hold a subsidiary:

  • Tax exemptions on all dividends and capital gains. The tax exemption is no longer limited by ownership period or percentage, previously to qualify for tax exemptions required a 10% or more + one year holding and capital gains were exempt only after three years of ownership. Special anti-avoidance measures are introduced in order to prevent structures being established with the sole purpose of meeting the 10% threshold.
  • Taxation according to the market-to-market principle at full corporate income tax rate of 25% on capital gains on convertible bond.

For companies that hold a portfolio investment:

  • Full corporate income tax rate of 25% on all dividends and capital gains (irrespective of ownership period and percentage).
  • Taxation according to the market-to-market principle.

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 around 80 double taxation treaties in place.

Capital Gains Exemption

Capital gains are taxed at a rate of 25%. With effect from the income year 2010 capital gains derived from a disposal of shares in a group company, a subsidiary and own shares (shares issued by the company) are exempt from tax regardless of the ownership period. Losses incurred on such shares are not deductible.

Interest and Royalties

See income above.

Some Advantages of the Danish Holding Company

Besides the common advantages of a Holding Company, the Danish Holding Company may also enjoy from the following:

Exemption from withholding tax on payment of dividends

There is no withholding tax on dividend distribution from a Danish Holding Company to a Foreign Parent Company providing that:

The Foreign Parent Company holds 10% of the share capital of the Danish Holding Company for at least one year during which the dividend is distributed.

The Foreign Parent Company is located in a country with which Denmark has a tax treaty.

Exemption from withholding tax on payment of interest

Payments of interest made by a Danish Holding Company to others than individuals that had been residents in Denmark for 5 of the previous 10 years are not subject to withholding tax.

Exemption from withholding tax on payment of royalties

Royalties paid by a Danish Company for copyrights of literary, artistic or scientific works and for the right of use of industrial, commercial or scientific equipment are not subject to withholding tax. Withholding tax for other royalties and interest is at 25% or the rate agreed upon in the double tax treaty, if applicable.

RELATED RESOURCES

Double Tax Treaties Back to top

DENMARK KEY ELEMENTS

Formation
Legal Form: Private limited company (ApS);
Public company (A/S)
Minimum Subscribed Capital: DKK500,000 (A/S)
DKK125,000 (ApS)
Minimum Paid-Up Capital: DKK500,000 (A/S)
DKK125,000 (ApS)
Number of Shareholders: 1 founder (A/S)
1 founder (ApS)
Type of Shares: Registered or bearer (A/S)
Registered (ApS)
Substance Requirements: Nil
Taxation
Capital Duty: 1%
Net Worth Tax: 0%
Corporate Income Tax: 25%
Double Tax Treaties: 80
Dividends Exemption: 100%
Holding Requirements: 3 years
10% corporate tax
Capital Gains Exemption: Yes
Holding Requirements: 10% and 1 year 15% corporate tax
Tax Credit: Yes
Relief of Losses: Carry forward indefinitely
CFC Rules: Yes
Debt-to-Equity Ratio: 4:1
Withholding Taxes
Dividends: EU Parent Co- 0%5
Treaty Countries- 0%5
Others- 0%5 or 25%
Interest: EU Parent Co- 0%6
Treaty Countries- 0%6
Others- 0%6
Royalties: EU Parent Co- 0%8
Treaty Countries- 0%-20%8
Others- 25%
Liquidation: Nil

5 The parent company must own 10% of the shares for a period of 1 year.

6 If the recipient is not an individual resident in Denmark for 5 of the preceding 10 years.

8 A 0% rate is levied on payments of copyrights or for the use of industrial, commercial or scientific equipment.

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