What is a holding company

WHY IS IT WORTH TO OWN A HOLDING COMPANY IN DENMARK?

In definition, a holding company is a limited liability company that holds shares in various other companies. Companies which a holding company owns are referred to as operating companies. The structure of a holding company appears as, for example, A/S or ApS. A sole proprietorship is not allowed to be a part of a holding company. Often the company didn’t register for VAT, and in fact its activities are limited to managing the property of different companies. It doesn't matter what number of shares a company has in different companies for it to be taken as a holding company, but the tax rules will be very different depending on the number of shares it owns. The benefits of a holding structure are mainly related to lower taxation on dividends, and also profits from the sale of shares, and the ability to distribute the deficit between the companies at a profit under a common tax regime. In addition, it allows profits to be carried forward as dividends, and that is beneficial in terms of protection of the profits from the possibility of getting a lawsuit or other claims.

IS IT NECESSARY TO INCLUDE PHASE "HOLDING" IN THE NAME OF THE COMPANY?

No, it’s not necessary. Regardless of the name, the company is still considered a holding company. Only the scope of activities matters.

WHAT INCOME WILL THE HOLDING COMPANY HAVE?

The first income is one coming from dividends that are received from operating companies. The second type of income is income from profits from the sale of shares in different companies.

WHAT COSTS WILL THE HOLDING COMPANY INCUR?

Usually the costs are just accounting or banking fees, but it also might be losses on shares that lose value or losses from the sale of shares.

WHAT IS THE AMOUNT OF TAX PAID FROM PROFITS?

In Denmark, a holding company pays 22% corporate income tax just like other limited liability companies. Profits from the sale of shares in different companies will usually be exempt from tax.

WHAT PORTFOLIO SHARES EXACTLY ARE?

When less than 10% of another company is owned by a holding company, the owned shares are called portfolio shares. For this type of shares, there are special tax rules associated with private companies. Generally, 70% of dividends are taxed, but gains from the sale of shares are free from the tax.

WHAT AMOUNT OF TAX HAS TO BE PAID ON DIVIDENDS RECEIVED FROM OPERATING COMPANIES?

0% - When you own 10% or more shares in a private company  

15.4%  - When you own less than 10% of a private company (portfolio shares)(only 70% of dividends are taxed at 22%)

22% - In the case of owning 10% or more shares of a public company

2% - When you own less than 10% of the shares of a public company (public portfolio shares)

WHAT AMOUNT OF TAX DO YOU PAY WHEN SELLING SHARES AT A PROFIT?

0% - In the case of owning 10% or more shares in a private company

0% - Holding less than 10% of shares in a private company (portfolio shares)

22% - In the case of owning 10% or more shares of a public company 

22% - Holding less than 10% of shares in a public company (public portfolio shares) 

IS DEDUCTION OF LOSSES POSSIBLE ON THE SALE OF SHARES?

No - When you own 10% or more shares in a private company 

No - When you own less than 10% of the shares of a private company (portfolio shares) 

Yes - In case of owning 10% or more shares of a public company 

Yes - Holding less than 10% of shares in a public company (public portfolio shares)

PURCHASE PRICE OR INTRINSIC VALUE

In your annual report, you can decide to reveal the value of the non-public shares that the holding company buys as real purchase price or as the intrinsic value. While using the intrinsic value method, every year the share’s value adjusts in the annual report to match the value that shows in the operating company's annual report. Once the shares have appreciated in value, then the income should be shown in the annual report, even if the shares have not yet been sold. If you choose to reveal the value at the purchase price, the profit will be displayed after the shares have been sold or after dividends have been received.

JOINT TAXATION

When in Denmark, a company owns over 50% of the other company, it becomes the administrator of the joint taxation system between both companies. A joint taxation system is mandatory when both companies are located in Denmark and are registered with SKAT Erhverv within one month of the start of joint taxation. Often you can choose to use a joint tax system especially when the location of companies is in different countries.

LIABILITY UNDER JOINT TAXATION

Once two/more than two companies have joint taxation, they share a part of the liability with the holding company in the operating companies. Liability is also shared with different operating companies, which are also taxed jointly with the holding company. Liability is possible to be fully shared once the company is 100% owned by the holding company, or partially shared once the company is owned partially by the holding company.

IS IT POSSIBLE TO REGISTER MY HOLDING COMPANY WITH THE SAME 20,000 DKK THAT WAS USED TO START MY OPERATING COMPANY?

Yes, you can register both companies at the same time. This is called "working capital".

IS IT POSSIBLE TO FORM A HOLDING COMPANY AFTER THE ESTABLISHMENT OF MY OPERATING COMPANY?

Yes, you are allowed to form a holding company after the establishment of the operating company however, it is quite complicated. You should consider the tax consequences if you plan on transferring your own shares in the operating company to the holding company.

HOW TO PAY A SHAREHOLDER A DIVIDEND?

The payment of dividends to the shareholder is made at the meetings - annual general meeting or extraordinary general meeting.

CAN A HOLDING COMPANY HAVE A DIFFERENT TAX YEAR THAN AN OPERATING COMPANY?

If companies are jointly taxed, they must always use the same tax year. Generally, it is the operating company that will have to align its tax year with that of the holding company.