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Danish Holding Companies(Taxwatch (Tax news in english)) 

Denmark is a unique place for establishing a tax effective holding structure.

This statement is based on the following facts:

• In most cases, Danish taxation will not be applied to inbound dividends and withholding tax will not be charged on outbound dividends and interest payments. Furthermore, Danish corporation tax will not normally be charged on capital gains on shares.

• Setting up, operating and winding up Danish holding structures are quick, easy and inexpensive.    

Tax-exempt shares
The following shares owned by a Danish company are tax-exempt with regard to dividends received as well as to capital gains (and losses):

• Subsidiary shares, i.e. shares in other companies in which the shareholding company owns at least 10 % of the capital.

• Group company shares, i.e. shares in other group companies connected to the shareholding company through a common - Danish or foreign - parent company directly or indirectly holding a controlling interest in both companies.

Cross border payments
Inbound capital gains
The tax exemption on capital gains on shares, cf. above, applies to shares in Danish subsidiaries/group companies as well as to shares in foreign subsidiaries/group companies.

Inbound dividends
Inbound dividends received from a foreign subsidiary may be received tax-exempt in Denmark by a Danish parent company, provided the shares in the subsidiary qualify as being tax-exempt, cf. above, and if at least one of the following three conditions are met:

1. 1. The foreign subsidiary is resident in another EU country or a country with which Denmark has signed a tax treaty, OR

2. 2. The foreign subsidiary is included in an international joint taxation group in Denmark, OR

3. 3. The Danish parent company holds - directly or indirectly - a controlling interest in the foreign subsidiary.

Thus, for practical purposes, dividends received from foreign subsidiaries and group
companies will only be taxable in Denmark in case they are received from non-controlling shares in subsidiaries in tax havens.

Outbound dividends
Outbound dividends may be paid, without withholding of tax, from a Danish holding
company to a foreign parent company in another EU country or in a tax treaty country,
provided the shares in the Danish company qualify as tax-exempt, cf. above.

Interest payments
A 25 % withholding tax applies to all intra-group interest payments from a Danish company to a controlling foreign company. However, this withholding tax will for practical purposes apply only if the interest payments are made to a group company situated in a tax haven as the withholding tax will not apply in the following situations:  

1. 1. If taxation must be reduced or waived according to a tax treaty. This will be the case for almost all the Danish tax treaties.
2. 2. If the taxation must be waived according to the EU interest/royalty directive. This will cover payments to companies in all other EU countries.
3. 3. If the creditor company is controlled by a company situated in a double tax treaty country and if this company is covered by the CFC legislation of that country.

Capital gains on shares
Capital gains on sharesCapital gains on shares realized by a Danish company by sale or liquidation will be taxexempt if the shares qualify as tax-exempt, cf. above.

Capital gains on shares in Danish companies realized by a non-resident shareholder by sale or liquidation are in most cases not subject to any Danish taxation. However, if a non-resident shareholder is a parent company situated in a tax haven, liquidation revenue distributed from the liquidated company and the sales price for shares sold back to the issuing company is regarded as a dividend payment, in which case a 28 % withholding tax is levied.

International joint taxation
It is possible to enter into voluntary international joint taxation with foreign subsidiaries.
This will allow foreign subsidiaries’ tax losses to be set off against the taxable income of
the Danish joint taxation group.

Other costs
Denmark does not levy any capital duty, neither in connection with the establishment of a holding company or in connection with a subsequent capital increase. Furthermore, Denmark does not levy any transfer duty or registration fees on the transfer of shares.

A Danish holding company can be set up either by establishment of a new Danish company or by acquisition of a “ready-made” shelf company. The legal and administrative costs will in either case be quite modest.

Questions regarding the above can be addressed to Hans-Henrik Nilausen at hhn@bdo.dk