Miller Rosenfalck - European Business Lawyers

Doing business in Denmark 2011

Posted in Business law, Guides, Publications | On: May 19, 2011

The purpose of this guide is to provide an introduction to those considering conducting business in Denmark, either by establishing a company or a branch or in other ways.

Our intention is to provide a description of the main aspects of the legal framework. For readers actually planning to set up a new business in Denmark, we recommend that you seek professional advice.

London and Copenhagen, 1 January 2011.

BUSINESS FORMS

Business can be conducted through companies, by partnerships or by individuals acting as sole traders.

The business of sole traders and partnerships is not distinct from the personal affairs of the proprietor(s) of such businesses. The proprietor has unlimited liability for the debts of his business.

A limited company – the most common form being a public or private limited company – is a separate legal entity. The limited company is separate from the personal affairs of its owner; i.e. its shareholders.

A company can only cease to exist when it is wound up in accordance with current law. This means that a company can carry on as long as there are individuals appointed to act on its behalf despite e.g. the death or retirement.

Investors are free to choose their preferred form of entity. However, permission is required for most non-EU/EEA residents to set up branch operations.

The following forms of companies are regulated by law:

• Public limited companies (Aktieselskab, abbreviated: A/S).
• Private limited companies (Anpartsselskab, abbreviated: ApS).
• Branches (of foreign limited companies).

As most foreign investors prefer to set up a new business under one of the above types of companies, other ways of establishing a business will not be dealt with here.

However, it is also possible to establish a SE company (European Company) and a SCE (European Cooperative Company) in Denmark.

Public limited companies (Aktieselskaber)
The liability of each shareholder is limited to the amount of shares subscribed or alternatively the purchase price of the shares acquired.

A public limited company must have a share capital of a nominal value of at least DKK 500,000. Only 25% or DKK 125,000 of the initial share capital must be fully paid up before registration. The capital may be obtained by injection in cash or in other assets.

The management is required to provide an account of the financial affairs of the company to its shareholders if 50% or more of the share capital has been lost. The Management may be held liable for any mismanagement of the company.

There are generally no restrictions in terms of foreign ownership by individuals or companies.

The management
The management may be organised in one of two ways: it can either (1) consist of a board of directors and the managing director(s) (a minimum of 1 person) or (2) consist of a board of managing directors (direktion) supervised by a supervisory board (bestyrelse). For both the board of directors and supervisory board the requirement for members is a minimum of 3 persons.

The Managers may also sit on the board of directors but they cannot constitute more than half of the Board. A Manager is prohibited from chairing the Board of Directors. A managing director is prohibited from sitting on the advisory board.

The board of directors is elected by the shareholders at the annual general meeting and its primary task is to ascertain a sound organisation and to set out guidelines for the managing director.

Where a company for the previous 3 years has employed on average more than 35 people, the employees are entitled to representation on the board of directors or on the supervisory board as applicable.

The board of directors appoints the managing director. The managing director’s primary task is the day-to-day management of the company.

Statutory publication
The following details of the company must be filed with the Erhvervs- og selskabsstyrelsen (the Commerce and Companies Agency):

• Denomination of the share capital.
• Names and addresses of the founders of the company.
• Names and addresses of the members of the board of directors and the managing director(s).
• Articles of association.
• The annual report which includes names and addresses of shareholders with a voting power of 5% or more.
• The authorised signatories.

Further, shareholders holding at least 5% of the capital are recorded in a register which is publicly available.

Private limited companies (Anpartsselskaber)
In general, private limited companies are regulated by the same laws as described above for public limited companies.

The main differences are:

• The management may consist of either a board of directors and the managing director(s) (a minimum of 1 person) or a board of directors or managing directors or managing directors supervised by a supervisory board.
• A minimum share capital of DKK 80,000 is required. The initial share capital must be fully paid up before registration.
• A board of directors is not required unless the company employs more than 35 people. If so, the employees are entitled to be represented on the board of directors or on the supervisory board.
• If the share capital decreases below DKK 62,500, an account of the financial situation must be provided to the shareholders, and the management may be held liable for any mismanagement.

Further, shareholders holding at least 5% of the capital are recorded in a register which is publicly available.

For further information on Public limited companies (Aktieselskaber) and Private limited companies (Anpartsselskaber) please refer to the guide “Limited companies in Denmark”.

Branches (of foreign limited companies)
Foreign limited companies may carry out activities through a branch in Denmark.

A branch is required to register with the Commerce and Companies Agency, and must not commence business activity in Denmark until a registration application has been filed. Branches of foreign companies which are not based in the EU, the EEA or in countries with which mutual recognition agreements are not in place will be required to submit a declaration from a relevant governmental authority in the jurisdiction of the parent company recognising establishment of branches of Danish companies in the foreign jurisdiction.

A branch operating in Denmark is subject to Danish law. The name of a branch must include its origin as well as its status as a branch of a foreign limited company. The branch must be managed by a designated branch manager, who is not required to reside in Denmark.

Each year the annual report of the foreign company must be filed with the Commerce and Companies Agency, where the report will be made publicly available.

Representative offices
Presence through a representative office is an option, if the activities are limited to being of an “auxiliary and preparatory nature”. Such activities cannot include any kind of sales activities, nor power to enter into binding contracts on sales on behalf of a non-resident company.

The activities included in the definition of a representation office could be the gathering of information for the foreign company or maintenance of a showroom. However, in case of maintaining a showroom no individual in the representation office can have the authority to enter into contracts.

The foreign company must register the activities of the representation office with the Commerce and Companies Agency and designate a representative in Denmark. The representative must sign a declaration confirming that he or she is the representative of the foreign company.

ACCOUNTING REQUIREMENTS

The board of directors and the managing director are responsible for the bookkeeping and for the preparation of annual reports, covering each financial reference period.

The management report prepared by the board of directors and the auditors’ report are integrated parts of the annual report.

The annual report must be approved by the shareholders at the company’s annual general meeting. The annual report must be filed with the Commerce and Companies Agency without undue delay after the approval at the general meeting and no later than five months after the end of the financial year. Governmental and listed companies must file the report no later than four months after the end of the financial year.

Form and contents of the annual report
The disclosure requirements and the form and contents of the annual report are set out in the Financial Statements Act. In addition, the annual report must comply with Danish accounting standards. If a company is listed, the annual report must comply with the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS). Non-listed companies may choose to comply with IAS and IFRS as well.

According to the Act a company must prepare an annual report consisting, as a minimum, of:

• A statement by the board of directors and the management on the annual report.
• A balance sheet.
• A profit and loss account.
• Disclosures, including disclosure of accounting policies.
• A statement of changes in equity as well as a management report.
• An auditors’ report.

Small and medium-sized companies may be exempt from some of the disclosures.

AUDIT REQUIREMENTS

All limited companies must be audited by an independent auditor (in certain cases very small companies may be exempted). The auditor is appointed by the shareholders at the general meeting.

During the financial year the auditor reports to the board of directors. In addition, the auditor provides the shareholders with an auditors’ report, which is an integrated part of the annual report.

The auditors’ report must state whether the annual report complies with the disclosure requirements of the Danish Financial Statements Act and whether it provides a “true and fair view” of the company’s state of affairs at the balance sheet date as well as of the profit or loss in the financial period.

Auditors must comply with the auditing standards published by the Danish Institute of State Authorised Public Accountants (FSR), which is a member of the International Federation of Accountants (IFAC). Thus, the audit must be performed in accordance with the International Standards on Auditing (ISA).

ESTABLISHMENT

A foreign investor planning to set up a subsidiary in Denmark may either form a new company or purchase the shares in an already existing company; a ready-made company which has not traded.

Formation procedures
A memorandum of association must be prepared and signed by the founders. The memorandum of association must contain draft articles of association, including the following information:

• Name of the company.
• Objective of the company.
• Share capital.
• Board of directors.
• Annual general meeting.
• Financial year.

Furthermore, the memorandum of association must provide information such as the names, positions and addresses of the founders, the subscription price of the shares and the deadline for subscription and payment of subscribed capital.

The board of directors is obliged to register the company with the Commerce and Companies Agency within 2 weeks as from the date of the memorandum of association.

A company in the process of incorporation; e.g. a company which has not yet been registered, is not considered an independent entity. Therefore, the founders are liable for the activities of the company.

Upon registration the company assumes all liabilities, including the liabilities related to activities carried out between the date of incorporation and the date of registration.

Purchase of shares in a ready-made company (“Shelf – companies”)
In order to save time in connection with the incorporation of a new company, formation agents register companies which are not trading.

The acquisition of a Shelf-company allows investors to set up a business almost at once. Immediately after the acquisition an extraordinary shareholders’ meeting must be held in order to vote for the necessary changes to the articles of association, to elect new members for the board of directors, and to appoint the auditor. The articles of association must be changed in respect of the name, the objectives and frequently also the financial year. The changes adopted at the shareholders’ meeting must be registered with the Commerce and Companies Agency.

Registered branch office
A registered branch office of a foreign company is entitled to carry out any business activity included in the objectives of the foreign company. The foreign company must register the branch office with the Commerce and Companies Agency and submit the following documents:

• A certification of the legal existence of the foreign company in its home country.
• Documentation for the person authorised to sign for the foreign company.
• A copy of the articles of association of the foreign company.
• The incorporation certificate of the foreign company.
• A statement from the relevant foreign authority in question confirming that a Danish company can register a branch in the foreign country (only a requirement of mutuality if the foreign company’s home country is outside the EU/EEA).
• A certified power of attorney to a branch manager.

Choice of business form
Commercial considerations should be of overall importance in the investor’s choice of business form in which a particular activity should be organised.

However, some of the more essential tax aspects as well as other important factors are briefly listed below:

	Subsidiary	Branch	Representative office
Establishment	+ Can be bought readily incorporated and the shares can be owned irrespective of the nationality of shareholders. ÷ capital requirements	÷ May not be available to companies resident in certain countries. ÷ registration documents from home country must be translated into Danish. + no paid in capital	+ Only a few formal establishment procedures. ÷The scope of activities possible is rather limited and it cannot engage in sales activities or conclusion of contracts.
Annual report	+/÷ Must prepare and file audited annual report.	+/÷ Must file the audited annual report of the head office.	+ Annual report is not required.
Changes in structure	÷ Additional formal requirements in respect of e.g. changes in capital, capital requirements, winding- up, etc.	+/÷ Easy to close down, but may result in taxation of capital gains, as assets are considered sold/transferred or if the branch is converted into a subsidiary later on (exception possible for branches of SE companies).	+ Easy to close down.
Liability	+ Liability limited to the injected capital.	÷ Head office and branch manager are fully liable for the activities/liabilities of the branch.	÷ Head office is fully liable for the activities/liabilities of the representation office.
Cross border	+ Can be used for cross border activities, e.g. holding company and R&D company.	÷ Cannot be used for cross border activities.	÷ Cannot be used for cross border activities.
Dividends	+ No withholding tax on distribution of profit to corporate 10% shareholders or group company. + Possible to distribute interim dividend if provided for in the Articles of Association.	+ No withholding tax on payments of profits to the head office.	Not applicable – no profit to be distributed.
Transfer pricing	+/÷ Must comply with transfer pricing regulation similar to OECD guidelines.	+/÷ Must comply with transfer pricing regulation similar to OECD guidelines.	+ Not taxable in Denmark.

CORPORATION TAX

Tax rate
Taxable income – including capital gains – is subject to a corporate tax of 25%. The tax rate is identical for public limited companies, private limited companies and branches.

Company residence and territoriality

Unlimited tax liability
A company is resident in Denmark for tax purposes if it is incorporated in Denmark and has its registered office in Denmark. Furthermore, a company incorporated outside of Denmark is considered resident in Denmark for tax purposes, if it has its effective management in Denmark. Effective management is determined on the basis of the place of the day-to-day business decision making.

Generally, a company resident in Denmark is no longer subject to corporate tax on its worldwide income and gains.

Furthermore, due to Danish anti-avoidance tax rules, a Danish incorporated group company may be re-classified as a permanent establishment of a foreign company (limited tax liability) if considered a transparent entity under foreign tax rules.

Limited tax liability
Foreign companies can be subject to limited tax liability either through a branch or a permanent establishment or through withholding taxes on certain types of Danish source income.

Due to anti-avoidance tax rules, a permanent establishment of a foreign group company may be re-classified as a permanent establishment of another foreign group company, if the foreign group company is considered a transparent entity under foreign tax rules.

Permanent establishment
Non-resident companies conducting business in Denmark through a permanent establishment (e.g. a branch) are subject to tax on all income attributable to or received from the establishment.

In addition, non-resident companies are subject to tax on income from real property in Denmark.

Non-resident companies are obliged to file a tax return to declare such income.

Danish income subject to withholding tax
Certain types of payments to non-residents are subject to Danish withholding tax, which may be reduced according to a double taxation treaty/an EU Directive.

Dividends
Corporation tax

Dividends received on shares in subsidiaries and group shares are not subject to corporation tax where:

a) The company owns at least 10% of nominal share capital in the subsidiary; and

b) The company is Danish or resident in an EC/EEC member state where the EU Parent-Subsidiary directive applies or in a state with which a double tax treaty has been entered; or

c) Where the company group is subject to Danish group taxation.

Withholding tax
Dividends paid from Danish companies to a non-resident company can be distributed without withholding tax provided that:

a) the foreign company qualifies as a company under Danish rules and

b) the foreign company directly owns at least 10% or more of the Danish company and

c) the distribution of dividend to the foreign company is protected by either the EU Parent–Subsidiary Directive or by one of Denmark’s double taxation treaties.

or if

a) the foreign company qualifies as a company under Danish rules and

b) the foreign company has decisive influence directly or indirectly (e.g. more than 50% of the votes) in the Danish company and

c) the foreign company is resident in an EU/EEA member state and

d) the distribution would be protected either under the EU Directive or the relevant taxation treaty had there been a direct ownership of at least 10%.

The 28% rate (2010/11) is reduced under the domestic tax rules if the foreign company holds less than 10% of the Danish company and the tax authorities in the state of the foreign company exchange information with the Danish tax authorities under the relevant taxation treaty or according to an administrative tax assistance agreement.

The exemptions require that the Danish company can certify that the foreign company meets the conditions prior to the payment of the dividend.

If the above requirements are not satisfied, the Danish company must withhold tax on the dividend at a rate of 28% (2010/11) (subject to treaty relief). The foreign company can subsequently reclaim the withholding tax from the Danish tax authorities.

Royalties
According to Danish tax law withholding tax must be paid on all royalties for the use – or the right to use – patents, trademarks, designs or models, plans, secret formulas or processes, or information concerning industrial, commercial or scientific processes. Payments for the purchase of underlying intangible assets are generally not subject to withholding tax. However, payments for access to know-how may be deemed subject to withholding tax.

The withholding tax rate is 25% (2010/11) subject to treaty relief.

Royalty payments to a receiving associated company in another EU member state are exempt from Danish withholding tax if the requirements under the EU Interest-Royalty Directive are met.

Royalty payments for the use of any copyright to literary or artistic work are not subject to Danish withholding tax.

Interest
Generally, Denmark does not levy withholding tax on interest payments to non-residents.

Interest payments from a controlled Danish company (more than 50% of share or votes) made to non-resident companies are subject to Danish withholding tax at a rate of 25% (2010/11).

However, Danish withholding tax does not apply to interest payments on controlled debt to a foreign company protected by either a double taxation treaty or the EU Interest-Royalty Directive and further exemptions with respect hereto are available.

Tax losses
Tax losses incurred in 2002 and later may be carried forward indefinitely. Carry-back of tax losses is not possible.

Certain restrictions exist on the sale of a company with tax losses. The restrictions generally intend to prevent interest income and other passive financial income to be offset by tax losses carried forward if the company has activities at the time of the change of ownership.

The restrictions apply if, at the end of the financial year, more than 50% of the share capital or more than 50% of the votes are owned by shareholders different from the shareholders at the beginning of the previous financial year, in which the tax loss incurred. The restrictions also apply, if the company does not have any financial risks in respect of commercial activities at the time of the change of ownership. The rules do not prevent a tax loss company from changing its activities or type of business.

Special rules apply for group companies (25% holding of shares). A subsidiary’s tax loss carry-forward may be restricted if a change of ownership takes place in the parent company.

These rules also apply to transparent group companies as mentioned under “Company residence and territoriality”.

The restrictions do not apply to listed companies.

In certain cases a tax loss carry-forward may also be restricted or forfeited in connection with a capital reconstruction.

CFC taxation (taxation of Controlled Financial Companies)
A company is subject to CFC taxation on profits from Danish or foreign subsidiaries in the following situation:

a) The company is a direct or indirect shareholder in – and has controlling influence (directly or indirectly based on votes, shareholder agreement etc.) in – the foreign or Danish company, and

b) the business of the foreign or Danish company is considered financial (more than 50% of total taxable income consists of taxable financial income), and

c) the financial assets of the company exceed 10% of the total assets of the company.

The consequence of CFC taxation is that the controlling company is liable to tax on its (average) direct or indirect pro rata share of the total income of the Danish or foreign company, irrespective of the rules in a double taxation treaty, if any.

The rule also applies to foreign permanent establishments of a Danish company, where Denmark has the right to tax the income of the permanent establishment under a double taxation treaty.

Filing a tax return
Corporate tax returns must be filed annually, and no later than 6 months after the end of the financial year. The final tax assessment is normally issued at the end of October or beginning of November.

Payment and collection
Corporate tax is paid on account in two equal instalments, which are due on March 20 and November 20 of each financial year.

The tax paid on account is collected automatically and calculated on the basis of 50% of the average corporate tax paid during the last three years.

Special rules apply for companies which did not pay, or were not subject to, corporate tax in the previous three years.

Companies may voluntarily pay additional tax on account. Such payments must be made no later than March 20 and November 20 of the financial year.

Tax audits
Tax audits of companies are not performed on a regular basis. However, the tax authorities perform tax audits on a number of companies and branches every year.

Further, target areas for the purpose of tax audits are published annually.

Penalties
A penalty is payable for the late filing of a tax return. Interest of 0.6% per month on overdue corporate tax is charged on the outstanding balance.

Such interest charges and fines are not deductible for tax purposes.

Statute of limitations
For tax adjustments the limitation period is set to three years and four months. However, in relation to transfer pricing adjustments, the limitation period is extended to five years. This is also the case with respect to certain tax exempt reorganisations

TAXATION OF INDIVIDUALS

Territoriality and residence
Danish tax legislation distinguishes between full tax liability for resident individuals and limited tax liability for non-resident individuals. Citizenship does not affect tax liability.

Residents are taxable on their worldwide income and capital gains. Furthermore, residents are subject to certain exceptions liable to pay tax on gifts received.

Wealth is not taxed in Denmark.

Non-residents are taxed only on income and capital gains deriving from sources in Denmark.

Expatriates on high salaries
Special taxation rules were first introduced in 1992 in order to attract highly paid key employees and researchers recruited abroad. The justification for the special tax treatment was that highly skilled temporary workers were unlikely to purchase property in Denmark and thereby unable to benefit from e.g. the Danish tax rules allowing deduction of mortgage interest payments. Over the years these rules have been changed both in order to close loop holes but also to avoid the scenario of highly paid tax payers leaving the country to avoid hefty backdated taxation where they decide to remain in Denmark.

A recent change of the rules was rushed through Parliament in December 2010 taking effect from 1 January 2011.

New rules
Since 1 January 2011 the above rules have been abolished and replaced with a flat rate of 26% tax for a period of five years.

Taxpayers whose special tax arrangement was due to expire on 31 December 2010 are not affected by the new rules.

The new rules apply to taxpayers who have not been subject to full or limited tax liability in Denmark for ten years prior to the employment and to taxpayers would otherwise have continued to benefit from the special arrangement after 31 December 2010.

The later tax payers will automatically transfer to the new 26% rate as of 1 January 2011 and also gain an additional two years on this rate.

A transition period applies to tax payers on the 25% rate as of 1 January 2011. These tax payers will have the option to remain on the 25% rate for a period of up to 36 months following which entitlement to capped rate taxation will expire.

The rules relating to re-calculation of the tax should the tax payers who chose to remain in Denmark following the expiry of the capped rate period have also been abolished with effect from 1 January 2011. As a result, only tax payers who are still subject to the rules as of 1 January 2011 will benefit from this change. Taxation under the capped rules are subject to the following conditions being met:

• The employees’ full tax liability concurs with the start of the employment.
• The employee must not have been subject to full or limited tax liability in Denmark for ten (previously three) years prior to the employment.
• The employee must not within five years prior to the commencement of the employment have been directly or indirectly involved in the management or control of the capital of the business of the employer.
• The employee must not within three years prior to and one year after becoming liable to tax in Denmark have been employed by the research institution, business, Danish or foreign group company or business with whom the employment relationship is entered into.
• The monthly pay for highly skilled employees in 2011 must be at least DKK69,390 inclusive of labour market contributions (in 2010 this amount was minimum DKK63,800 prior to deduction of labour market contributions).

In order to limit exposure to tax liability professional advice should always be sought in this matter.

General rules for taxation of individuals
Personal allowances
A deduction from income tax is granted as a personal allowance to each individual. The allowance amounts to DKK 42,900 (2010/11), and it is adjusted annually on the basis of indexation.

Married persons, subject to full tax liability, may elect to transfer an unused balance their spouse. Special rules apply to married individuals subject to limited tax liability only.

Danish tax computation
Taxable income is based on gross income less deductions. If the tax return covers less than a calendar year, the income is generally annualised in order to reflect the full effect of the graduated system of taxation. The income tax consists of a three-tier state income tax, and a flat rate local income tax.

State income tax
Income and allowances are divided into three categories:

1. Personal income – e.g. cash salary, director’s fee, free company car and free telephone – less pension contributions.
2. Capital income, e.g. net interest income and net capital gains.
3. Other allowances deductible from the total taxable income.

A state tax at the rate of 3.67% (2010) (and 3.64% 2011) is imposed on the total taxable income exceeding DKK 42,900.

Personal income in excess of DKK 389,900 (2010/11) plus positive net capital income in excess of DKK 40,000 (spouses DKK 80,000) is taxed at a rate of 15%.

Local income tax
Church and local taxes are levied at flat rates. The rates are determined each year by the local authorities and vary for the different municipalities. The tax is levied on taxable income exceeding DKK 42,900 (2010/11). The average municipal tax rate is 24.09% (2010) and 25% in 2011. The average church tax is 0.73% (2010/11).

In addition, a health care tax at a flat rate of 8% has replaced the former county tax. The tax is imposed on taxable income exceeding DKK 42,900 (2010/11).

The tax rates for non-residents subject to limited tax liability are identical to the state tax rates for resident individuals together with a fixed local tax rate whereby the tax burden is almost identical to the tax burden of residents.

Deductions
Contributions to Danish social security (labour market pension and labour market contribution) and to Danish pension schemes as well as certain business expenses are deductible from the personal income. However, deduction for payment to Danish pension schemes can only be made up to DKK 100,000 (2010/11), and the labour market pension contribution is temporarily suspended.

Interest costs are deductible from capital income (subject to limitation if relating to real estate).

Certain transport expenses and alimonies are deductible from the taxable income. An earned income relief for expenses for e.g. allowance for extra costs of living, subscriptions to professional associations and necessary business literature is allowed, subject to a deduction of an annual amount of DKK 5,500 (2010/11).

Furthermore, a deduction of a maximum of DKK 13,600 in 2010/11 in the taxable income is granted for employed persons.

Multimedia tax
With effect from 2010 a Multimedia tax of a fixed annual amount of DKK3,000 is added to the personal income per year for any employee who has benefits such as telephone, PC and/or internet access provided by the employer.

Tax credits
Individuals are entitled to claim tax credits and/or tax exemption in respect of income deriving from foreign sources.

If an individual, who is resident in Denmark, is assigned abroad for a period of at least six consecutive months, the salary earned abroad is wholly or partly exempt from Danish tax provided that certain conditions are met.

The tax exemption does not depend on the tax amount actually paid in the other state.

Inheritance tax
Inheritance from a deceased person, who was resident in Denmark at the time of his/her death, is subject to inheritance tax divided into 2 categories.

The estate tax is a flat rate of 15% of the value exceeding DKK 264,100 (2010/11) and is calculated on the basis of the total value of the estate.

An additional tax of 25% is levied on the amount received by recipients, who were not closely related to the deceased. Thus, the total effective tax rate is 36.25%.

Certain amounts are exempted from the tax duty, e.g. inheritance and insurance amounts accruing to the spouse of a deceased person.

Tax on gifts
Individuals, who are closely related to the donor, can receive gifts without tax, if the cumulative value of all donations for one calendar year does not exceed DKK 58,700 (2010/11).

A child’s or a stepchild’s spouse can receive gifts tax free, if the cumulative value of all donations for one year does not exceed DKK 20,500 (2010/11).

Gifts to spouses are tax-free.

The tax on gifts is a flat rate tax of 15%, and it is only imposed on the above persons, if the cumulative value of the gifts for one year exceeds the tax-free limits.

There is an additional tax on gifts to step-parents and grandparents, if the cumulative value of the gifts exceeds DKK 58,700 (2010/11) for one year. The additional tax is calculated at a flat rate of 25%, resulting in a total effective tax rate of 36.25%.

Gifts to other relatives or unrelated parties are treated as ordinary, personal income.

VALUE ADDED TAX
Denmark applies the system of value-added tax (VAT) established by the European Union.

Denmark imposes VAT on imports and taxable deliveries of goods and services – unless specially exempted – at a rate of 25%.

A number of business activities are exempted from VAT. The most important ones are: hospital, medical and dental care, insurance, banking, and certain financial activities as well as travel agency services.

Entrepreneurs supplying taxable goods or services (including branches or agencies of non-Danish companies) must register for VAT.

Refund of Danish VAT is available for foreign companies not registered for VAT in Denmark. A company which is established outside of the EU and carrying out business in Denmark may be required to register for Danish VAT purposes through a resident VAT agent.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© Miller Rosenfalck LLP, January 2011

Related guides: http://www.millerrosenfalck.com/international/desks/denmark/

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