Denmark makes it easy and stress-free for foreign investors to star their own company in the country. For private investors who want to spread their wings and grow in a fully-developed economy. The Danish government has succeeded in streamlining the start-up process. There are only a few simple steps to follow to set-up a new business in Denmark that involves a minimal cost. 

Adding to the simplicity of the business set-up process, Denmark also has a few government-backed initiatives and courses, allowing private investors and corporate entities to incorporate without hassle. 

Starting your Business in Denmark

Once you have settled on your business plan, whether it’s building a holding company or a commercial business, you have to determine what legal form you should take. The type of business will dictate the tax regime to follow, as well as include the tax benefits that your company will enjoy in the long run. Additionally, the type of business will guide you through the registration process and whether you will require a CVR number or not.

The CVR number refers to a business number that uniquely identifies your company, in the same way that a CVR number is unique to a Danish resident. 

Depending on the type of company you decide to build in Denmark, you may need to pay a fee for successful registration. You can change to another business legal form in the future. 

Setting Up a Company in Denmark

When setting up a Denmark company, here are a few things to consider:

Business Factors

• Denmark does not impose specific requirements on foreigners looking to establish their presence in the country. 
• There are no specific residency requirements for management, including members of the Executive Board, Board of Directors, and the Supervisory Board. Consider these factors during the process of setting up a Danish business:

1. Industry and type of business to be conducted in Denmark. 

2. Nationality of the investor/s. 

3. Presence of existing double tax treaties and agreements with related country. 

Location 

• Location is yet another integral factor when setting up a business in Denmark. 
• Separate cities and regions in Denmark set different rules, costs, and availability in setting up a company.

Denmark Business Legal Structures

There are four different types of companies that you can set up in Denmark. Each of these business entities have their own sets of advantages and disadvantages, as well as scope of business activities, registration requirements, and minimum share capital requirements.

In most cases, the set-up process will dictate the degree of commitment a company has to Denmark and its planned business activity.

When incorporating a company in Denmark, foreign investors have the following options:

• Corporation (A/S and APS)
• Branch Office
• Representative Office
• Sole Proprietorship

This guide will provide you with general guidelines for foreign entities upon entering the Danish business landscape. 

Limited Liability Company 

There are two types of corporations in Denmark 

• Public Limited Liability Company – Aktieselskab (A/S)
• Private Limited Liability Company – Anpartsselskab (ApS) 

The most popular company structure is the Private Limited Liability Company (ApS). 

• Incorporation of companies can be done online and can be completed in a few hours. 
• There are no residency requirements in the management of a foreign-owned company in Denmark, including those of the Executive Board, Board of Directors, and the Supervisory Board. 
• Shareholders and board meetings can be hosted online. 
• No notarial deeds required. 
• Flexible language requirements, registration of corporate documents for both Private and Public Limited Liability companies can be drafted in English, Swedish, Norweigan, or Danish. 
• Dividends can be distributed on an interim basis. 
• Existing Danish company laws conform with prevailing EU legislation. 
• With one of the most attractive tax regimes in the European Union, Denmark offers superior tax efficiency, thus more companies are being headquartered in Denmark as opposed to other Nordic or Scandinavian countries. 

Public Limited Liability Company (A/S)

• A private limited liability company is available for medium- and large-scale businesses. 
• They can be listed in Copenhagen’s Stock Exchange. 
• Minimum investment capital of DKK 500,000. 
• It is optional for investors to fully or partially pay the registered share capital.
• By rule, minimal share capital must be at least 25% of the registered share capital. 
• Shareholder liability will be limited to the value of the shares they subscribed. 

Management 

• Must have two-tier supervisory system, including a Board of Directors with a minimum of three persons and an Executive Board with a minimum of one individual- the CEO. 
• The Board of Directors can be substituted with a Supervisory Board. 
• No residency requirements are imposed on its directors. 

Private Limited Liability Company (ApS)

• Typically used for small and middle-sized businesses. 
• Used for subsidiaries of multinational companies due to its lower compliance requirements. 
• Minimum share capital requirement of DKK 500,000. 
• It is optional for investors to fully or partially pay the registered share capital.
• By rule, minimal share capital must be at least 25% of the registered share capital. 
• Shareholder liability will be limited to the value of the shares they subscribed. 
• At least one shareholders is required and non restrictions imposed on the nationality of the shareholder. 

Management 

• A private limited liability company can choose a one-tier or two-tier supervisory system. 
• Executive board of at least one person, the CEO. A Board of Directors or Supervisory Board may also be appointed. 
• No residency requirements are imposed on its directors. 

Accounting Requirements for both Private and Public Limited Liability Companies

• Both Private Limited Liability Company and Private Limited Liability Company are deemed to submit annual financial statements to concerned authorities. 

Step-by-Step Company Incorporation Process

Preliminary Procedure

• Register unique business name before the Danish Registrar. At least three unique names must be submitted. 
• Provide Articles of Association that contains company name, location of registered office, company objectives, share capital, and names and addresses of managing members. 
• All documents for incorporation must be notarized before submission. 

1. Obtain NemID signature

• Each business must obtain a digital signature, also known as NemID.
• NemID signature allows employees to register online. 
• Company can request up to 3 NemID signatures for free. 
• Additional NemID signatures will be charged of DKK 79 per additional employee. 

Requirements include: 

• Shareholders and directors passports
• Utility bills to prove address
• Bank reference letter

Concerned Office

• Danish Agency for Digitization (National IT and Telecom Agency) 
• Less than one day registration 
• Cost- none
• Concerned agency- Danish Business Authority 
• Registration can be accomplished in three ways:

• Online registration through the Danish Business Authority’s Web Reg System. 
• Paper registration.

Shelf company acquisition

• Registration may be completed within a day. 
• Paper registration of a Denmark company takes two to three weeks.
• Total cost of registration -DKK 670 for online registration and 2,150 for paper registration. 

3. Deposit Start-Up Capital Deposited in a Bank 

• After successful deposit of minimum share capital, the bank will issue a certificate of deposit. 

4. Additional Registrations

• Workmen’s insurance with a private insurance company. 
• Takes one day to complete.
• No additional charge for registration. 

In case the a company chooses to be the Nordic headquarters and opens branches in other Nordic juridictions, double taxation may be prevented as Danish law exempts income from foreign branches from being taxed in Denmark. 

Branch Office

• Foreign companies in Denmark can do business as a branch office without being deemed to incorporate. 
• It is advisable to incorporate a branch office than set up a branch office, given the many drawbacks associated with launching a branch office. 
• Branch offices are not considered separate entities, rather is part of the parent company. 
• All parent company documents must be translated accordingly and registered with the Danish Business Authority. 
• No minimum capital requirements, 
• Parent company is liable for the liabilities of its branch office in Denmark. 

Management

• One branch manager must be appointed. 

Accounting Requirements

• A copy of the parent company’s financial statements must be submitted and filed annual withe the Danish Companies Registry.

Pointers to Remember During Branch Office Incorporation 

• Proof of the existence of the parent company 
• Certified copies of articles of association, name of directors, share capital, registered office, and names of representatives who will act on your behalf.
• Documents to be translated and submitted, including the parent company’s registration certificate, articles of association, and names of the company’s directors and secretary. 
• All documents must be submitted to the Danish Business Authority. 
• It will take several weeks to incorporate a branch office.

Representative Office

• Easiest and least costly foreign investment structure. 
• No registered capital requirements. 
• It is not allowed to engage in profit-seeking activities. 
• Can engage in preparatory activities, including market research. 
• No management requirements. 
• It is not required to prepare annual financial reports. 
• No assessed with tax. 

Individual Enterprise or Sole Proprietorship

• One-man business
• Danish law will consider sole trader and company a single entity; hence owner will be liable for any debts and obligations the business may incur. 
• Also called as unlimited liability company. 
• No share capital requirement. 
• Necessary capital or cash must be present at all times to run the business smoothly and pay off all debts. 
• Registration of a sole proprietorship does not require a fee. 

Denmark Taxation Regime 

• Non-tax resident business entities are subject to limited tax liability in Denmark in relation to income derived from specific sources, including permanent establishment, immovable property, royalties, interest on controlled debt, and dividends.
• Tax resident companies are subject to corporate tax at 24.5% on worldwide income. 
• Danish companies are not taxed on income and gains deriving from permanent establishments and not real property situated outside of Denmark in the following conditions:

– Origin country has not, in a double tax treaty or other international agreement, 

  waived the right to tax the income and gains derived from a branch or real 

  property in Denmark.

– Permanent establishment not subject to Danish Controlled Foreign Corporation 

  taxation. 

– Company opted out of Danish international joint taxation. 

The following companies are jointly taxed in Denmark on their Denmark source of income:

• Group related companies that are tax residents in Denmark. 
• Permanent establishments in Denmark of group related companies that are no tax residents in Denmark.
• Real estate based in Denmark and owned such companies. 

Joint taxation may be extended to include all group-related non-resident entities under its wings. 

• Income derived from all groups related foreign entities will be assessed with corporate tax.
  

On Dividends Paid to Foreign Corporate Shareholders

• Taxed at a flat rate of 27%, unless tax exemption or relief is approved under the Danish holding regime or any applicable tax treaty. 
• Dividend will be assessed in the form of final withholding tax. 
• Reduction of tax rates under tax tried will not be applied at source, 
• Taxpayer may apply for a refund. 
• No withholding tax is assessed on dividends paid to a foreign shareholder that holds group or subsidiary shares, based on the Council Directive 90/435/EEC on taxation of parent companies and subsidiaries (Parent-Subsidiary Directive) or based on related double tax treaties. 

On Dividends Received from Foreign Companies

• Tax exempt for subsidiary shares or group shares.

On Interest Paid to Foreign Corporate Shareholders

• 25% withholding tax applicable to interest payments made between controlled companies. 
• Withholding tax only applies to interest payments to affiliated companies in low tax countries outside the EU and EEA. 
• Withholding tax can be waived and reduced under a tax treaty or under Directive 2003/49/EC on interest and royalty payments (Interest and Royalty Directive).

Intellectual Property Royalties Paid to Foreign Corporate Shareholders

• 25% tax withheld from royalty payments deriving from Denmark for intellectual properties, including patents, trademarks, technical know-how, and many more. 
• Withholding tax can be reduced under a tax treaty. 
• Withholding tax are non applicable if royalties are attributed to a receiver’s permanent Danish establishment, or the receiver is subject to the protection of the Interest and Royalty Directive. 

Thin Capitalization Rules

• Thin capitalization rules apply to Danish and foreign legal entities that control a Danish entity, being controlled by a Danish entity. or under joint control together with the Danish entity.
• Controlled debt includes third-party loans guaranteed by a controlling shareholder/s or affiliates. 
• If debt-equity ratio exceeds 4:1; interest on excess parts of controlled debt will not be deducted if the controlled debt exceeds DKK 10 million. 
• Limitation is only applicable to the portion of a debt that should be equity to avoid any limitation. 
• Interest can be deducted if a taxpayer can prove a similar loan that could be obtained from a third-party without any security from a controlling shareholder/s or affiliates.
  

Transfer Pricing Rules

• All transactions between connected parties must be finalized in market terms and in accordance to OECD guidelines. 
• Transfer pricing rules in Denmark is based on arm’s length transactions. 
• Connection exists between parties if a company or individual directly or indirectly more than 50% of the shares in a company or has more than 50% voting rights. 
• Danish company must prepare a written transfer pricing document. 
• Exemption can be applied to small and medium-sized companies, as well as controlled transactions that are deemed immaterial in relation to volume and frequency. 

Custom Duties

• Imports from outside EU are assessed with value added tax rate at 25%, which is payable by the importer. 
• Custom and excise duties are paid by the importer. 
• Exporting of goods outside the EU and to VAT-registered traders in other EU member countries are zero-rated. 

Denmark Double Tax Treaties

Denmark has concluded more than 70 tax treaties, all of which are based on the OECD Model Tax Convention on Income and on Capital. For instance, the Kingdom of Denmark has signed a convention between the Grand Duchy of Luxembourg, ranging from taxes on income and on capital imposed on behalf of both states.

Open a Bank Account in Denmark 

After company registration in Denmark, opening a business bank account is crucial in order to operate smoothly in the country. A corporate bank account in Denmark plays a critical role for your business, as it enables you to keep track of operational expenses, simplify tax reporting, and deposit payments under the name of your company. 

Setting up a company in Denmark requires extensive preparation, from drafting memorandum of association, articles of association, and registration of shareholders. Damalion will assist you in preparation of all the needed paperwork for a hassle-free and fast company formation process. Leveraging our extensive global service network, we will connect you to the most reputable service providers, including law firms and accounting firms, so your business can be up and running in no time. If you’re looking for more information about the Denmark company formation process, reach out to a Damalion expert today. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.