Holding company in Denmark
A holding company is a limited liability company that primarily owns shares in other companies, referred to as operating companies. In Denmark, a holding company can be structured as either an ApS or an A/S, but it cannot be a sole proprietorship. Typically, a holding company is not registered for VAT and its primary activity is managing its ownership stakes in other companies. The number of shares a holding company owns in other companies does not affect its classification as a holding company. However, tax regulations will vary considerably based on the percentage of shares owned.
A Danish holding company is a standard company that holds shares in another company (subsidiary), whether in Denmark or abroad. This organizational structure provides the company with favorable tax benefits and decision-making authority in the subsidiary’s activities.
A company is regarded as a holding company based on its activities, not its name. The scope of these activities can affect its accounting obligations. Regardless, all companies in Denmark must prepare annual financial statements in accordance with either Danish GAAP or International Financial Reporting Standards.
Many entrepreneurs opt for this type of business entity because it provides advantageous tax rates and decision-making authority over wholly or partially owned companies. Denmark is considered a favorable jurisdiction for holding companies in Europe due to its general tax regulations, numerous double tax treaties, and the ease of company formation.
How to settle a holding company in Denmark?
Holding companies in Denmark can be structured as either an „Anpartselskab” (private limited company – ApS) or an „Aktieselskab” (public company – A/S). Establishing these types of businesses requires a minimum share capital: 40,000 DKK for a private limited company and 500,000 DKK for a public limited company.
In addition to the mentioned options, holding companies in Denmark can also be formed from shelf companies. A shelf company is one that has already met all registration requirements and can be purchased by investors who want to avoid the waiting time associated with registering a new company in Denmark.
A holding company is a Danish-registered business that does not engage in manufacturing or providing services but focuses solely on holding shares in other companies or intellectual property. As a result, the holding company does not need to complete additional post-registration steps, such as applying for special permits and licenses required for certain industries.
When two or more companies engage in joint taxation, the holding company shares some of the liability with the operating companies. This liability is also shared among other operating companies that are jointly taxed with the holding company. Therefore, operating companies need to be aware of this risk. The liability can be fully shared if a company is 100% owned by the holding company, or partially shared based on the percentage of ownership.
Common requirements for Danish holding companies are:
- Minimum share capital: Investors must adhere to the minimum share capital requirements based on the chosen type of company, which is lower for a private company.
- Bearer shares: Only public companies can issue bearer shares; private companies cannot.
- Shareholders: The requirements for company shareholders and maintaining a shareholder register must be observed.
- Directors: The company must have a minimum number of directors, with stricter rules applicable to public companies.
- Audit: A company’s accounts must be audited as required by law, and the documents must be stored and filed accordingly.
Incorporating a company in Denmark is a straightforward process. Investors looking to establish a holding company, whether as a private limited liability company or a partnership, will adhere to the incorporation rules for their chosen business type. The primary steps for forming a private limited liability company in Denmark are as follows:
- Choose the company name: The business name must be unique, and a prior verification can be conducted.
- Prepare the company documents: The Articles of Association and the Memorandum need to be drafted.
- Register the business: All companies must be registered with the Danish Business Register; the actual registration process is quick.
- Maintain the minimum capital: A private limited company (ApS) requires a minimum share capital of 50,000 DKK, which must be deposited into a corporate bank account.
- Complete other registrations: Once the business is formally registered, it must also be registered with the Danish tax and social security authorities.
Income and fiscal year in Danish holding company
The first source of income is from dividends received from the operating companies. The second source is profits from selling shares in other companies. Typically, the only expenses are accounting and banking fees. However, there can also be losses if shares decrease in value or if shares are sold at a loss.
How are dividends distributed to the shareholder?
Dividends are distributed to the shareholder during the annual general meeting or an extraordinary general meeting.
Can the fiscal year in a holding company be different than in the operating company?
Generally, all companies must use the same fiscal year. If the companies are jointly taxed, they are required to have the same tax year. Typically, the operating company will need to adjust its fiscal year to align with the holding company’s fiscal year.
Taxes in Danish holding company
In Denmark, limited liability companies generally pay 22% in corporate income tax. However, profits from selling shares in other companies are typically tax-exempt. When a company owns less than 10% of another company, these shares are referred to as portfolio shares. Special tax rules apply to portfolio shares in privately held companies: generally, 70% of dividends are taxed, while profits from selling the shares remain tax-free.
In addition to the double tax treaties signed by Denmark and the EU Parent-Subsidiary Directive, which provide significant reductions or even exemptions from withholding tax on dividends, interest, and royalties, Denmark has also signed tax information exchange agreements. These agreements allow foreign tax authorities access to financial information about companies. These measures aim to prevent tax fraud.
To further prevent tax fraud, Denmark adheres to the Controlled Foreign Corporation (CFC) regime. Under this regime, all subsidiary incomes are incorporated into the Danish parent company’s income, provided the parent company holds over 50% of the voting rights in the subsidiary, and more than 10% of the subsidiary’s assets, with 50% of the taxable income consisting of financial income.
Below are some of the key taxes for Danish companies and provisions that affect the treatment of holding companies:
- The standard corporate tax rate in Denmark is 22%, and resident companies are taxed on their worldwide income. However, holding companies can effectively be exempt from this tax since they do not derive income from Denmark.
- The general withholding tax on dividends is 27%, but it is reduced to 22% for companies because 5% can be reclaimed.
- Additionally, the dividend withholding tax rate is 15% when the recipient company holds less than 10% of the company paying the dividends, provided that the tax authorities in the recipient company’s country have a tax exchange agreement with Denmark.
How much tax is paid on dividends received from operating companies?
- Ownership: 10% or more in a privately held company – Tax: 0%
- Ownership: Less than 10% in a privately held company (portfolio shares) – Tax: 15.4% (only 70% of the dividend is taxed at 22%)
- Ownership: 10% or more in a public company – Tax: 22%
- Ownership: Less than 10% in a public company (public portfolio shares) – Tax: 22%
How much tax is paid by the holding company when selling shares at a profit?
- Ownership: 10% or more in a privately held company – Tax: 0%
- Ownership: Less than 10% in a privately held company (portfolio shares) – Tax: 0%
- Ownership: 10% or more in a public company – Tax: 22%
- Ownership: Less than 10% in a public company (public portfolio shares) – Tax: 22%
Can losses be deducted when selling shares?
- Ownership: 10% or more in a privately held company – Answer: No
- Ownership: Less than 10% in a privately held company (portfolio shares) – Answer: No
- Ownership: 10% or more in a public company – Answer: Yes
- Ownership: Less than 10% in a public company (public portfolio shares) – Answer: Yes
You have the option to present the value of non-publicly traded shares as either the actual purchase price or their intrinsic value in the annual report. If you use the intrinsic value method, the share value is adjusted annually in the report to match the value stated in the operating company’s annual report. If the shares have appreciated, the income will be reflected in the annual report even if the shares have not been sold. Alternatively, if you present the value at the purchase price, the profit will only be reported when the shares are sold or when a dividend is received.
If your company owns more than 50% of another company in Denmark, it will become the administrator of a joint taxation scheme between the holding company and the subsidiary. This scheme is mandatory for companies located in Denmark and must be registered with SKAT Erhverv within one month of the start of joint taxation. You may also choose to use the joint taxation scheme if the companies are in different countries, although this will naturally complicate matters.
Benefits of a holding company in Denmark
The primary advantage of a holding structure lies in the reduced taxation of dividends and profits from selling shares. Additionally, it allows the transfer of a deficit from one company to another with a profit under a joint taxation scheme, thereby reducing overall taxation. Moreover, it facilitates the transfer of profits as dividends, which is beneficial for protecting profits from potential lawsuits or other claims.
Investors who choose to open a holding company in Denmark can benefit from several features:
- Advance tax rulings: These are available to clarify existing tax arrangements and policies.
- Taxation principles: The company is not taxed on the issuance of shares, when increasing share capital, or when shares are transferred.
- Tax treaty network: Denmark’s tax treaties provide certain advantages, as detailed by our company formation specialists in Denmark.
- Shelf company: Investors can opt to establish a holding company by purchasing a shelf company in Denmark.
- Regulatory principles: Holding companies must adhere to a disclosure policy, which includes audit requirements.
- The regulatory regime for holding companies in Denmark must be observed, and many of these regulations also apply to other types of businesses.
- 100% Foreign Ownership: Foreigners can fully own a Danish Holding Company.
- No Restrictive Business Activities: There are no restrictions on the types of business activities conducted by the foreign companies in which the holding company owns shares.
- Fast Formation: A holding company can be registered within one business day.
- Low Minimum Share Capital: The required minimum share capital is very low.
- One Shareholder/Director: Only one shareholder is needed, who can also serve as the sole director.
- No Required Accounting System: The Danish government does not mandate a specific accounting system.
- English Proficiency: Most Danish citizens speak English well.
Holding companies offer numerous benefits, with the most significant being the ability to retain the liquidity of your business. By transferring profits from your operating company to your holding company, you can make tax-free savings. This method safeguards the profits against any bankruptcies, lawsuits, and claims that might occur in the operating company, without incurring taxes when the money is transferred to the holding company. This way, your capital is secured, allowing you to manage it as you see fit. However, taxes must be paid when you withdraw money from the holding company for personal use.
It is advisable to establish your holding and operating companies at the same time. You can use the same share capital for both companies, as the holding company can use the deposited funds to establish the operating company.