Setting up in Denmark(Taxwatch (Tax news in english))
12-01-2010 13:30
Af
Hans-Henrik Nilausen
Foreign enterprises must as a starting point only perform business activities in Denmark through a registered branch office.
However, according to practice, the following kinds of activities will not constitute business activities in the conception of the Corporation Act and consequently they may be performed without registering a branch.
- Purchase of Danish products through a resident intermediary.
- Purely administrative work including marketing.
- Picking up orders provided that invoicing etc. does not take place in Denmark
If the Danish activities are limited to the above mentioned, the foreign enterprise will not have a permanent establishment in Denmark for tax purposes and will therefore not become limited tax liable in Denmark.
Other business activities may be carried out in Denmark through a Danish branch office or a subsidiary.
Subsidiary
A subsidiary can be established either as a new company or by acquiring a shelf company.
Normally setting up a new company/acquisition of a shelf company can take place from day to day. It is inexpensive to establish a Danish subsidiary and it is also inexpensive to wind up a Danish company.
A private limited company (ApS) must have a share capital of at least DKK 125.000 and a public limited company (A/S) must have a share capital of at least DKK 500.000.
A Danish subsidiary of a foreign parent company is fully tax liable to Denmark and must pay corporate income tax of its profits with 25 %.
The taxable income is computed according to Danish tax rules including Danish transfer pricing regulations.
Profits after Danish corporation tax may be transferred to the foreign parent company as dividends without Danish withholding tax, if the parent company is situated in another EC country or in a tax treaty country.
Branch office
A branch office creates a permanent establishment for Danish tax purposes.
The branch office is not a separate legal entity as is the case for a subsidiary. The taxable person is the foreign entity.
The Danish tax liability of a branch office is limited to its Danish source income and income after corporation tax of 25 % may freely be transferred to the foreign company.
Obligations for a Danish branch office/subsidiary
Danish branch offices/subsidiaries must:
- Register with the Danish Companies Register
- Keep accounting records that can form basis for the VAT reporting and tax accounting.
- Perform payroll administration for Danish employees and make monthly withholding from wages and pay the withheld taxes and social security contributions to the Danish tax authorities.
- Annually prepare accounts in accordance with Danish regulations.
- Annually prepare tax returns.
- Annually submit statutory financial statement to the Danish Companies Register.
Danish branch offices and Danish subsidiaries are subject to Danish transfer pricing rules involving that all transactions between the branch office/subsidiary and foreign affiliated parties must take place on market terms.
Branch office versus subsidiary
There are both pro’s and con’s for a branch office over a subsidiary. One of the con’s normally mentioned against a branch office is the fact that the foreign company is fully liable for all the obligations of the branch office.
Another important con against a branch office is the obligation to submit the accounts of the foreign company to the Danish Companies Register, which makes the accounts available to the public.
According to our experience this obligation involves that a number of foreign businesses prefer a subsidiary to a branch office even though it is often more inexpensive to run a branch than a subsidiary.
Questions can be directed to Hans-Henrik Nilausen on phone 3915 5320 and email
hhn@bdo.dk
Til nyhedslisten