Setting up a holding company in Denmark

A holding company is categorized as a limited liability entity that mainly holds shares in other businesses, which are known as operating companies. Its main function is managing its ownership interests in these companies, and it usually does not register for VAT. The classification of a holding company remains unchanged regardless of the number of shares it holds in other firms. Nevertheless, tax rules can differ significantly depending on the percentage of shares owned.

This type of business entity is a popular choice among entrepreneurs because it offers favorable tax rates and grants decision-making power over companies that are wholly or partially owned. In Europe, Denmark is regarded as an attractive jurisdiction for holding companies due to its overall tax regulations, a wide range of double tax treaties, and the simplicity of the company formation process.

A standard company in Denmark that holds shares in another company (subsidiary), whether domestically or internationally, is classified as a holding company. This organizational structure allows for beneficial tax advantages and provides decision-making authority over the subsidiary's activities. In Denmark, holding companies may be established as either an ApS or an A/S, but forming one as a sole proprietorship is not permitted.

The classification of a company as a holding company is determined by its activities rather than its title. The nature of these activities can influence its accounting responsibilities. Nevertheless, all companies in Denmark are required to prepare annual financial statements in compliance with either Danish GAAP or International Financial Reporting Standards.

Establishing a holding company in Denmark

In Denmark, a business that focuses exclusively on holding shares in other companies or intellectual property, without engaging in manufacturing or service provision, is classified as a holding company. This structure means that the holding company is not required to complete further post-registration steps, such as applying for special permits and licenses that are often needed in specific industries.

Establishing a company in Denmark is a straightforward endeavor. Investors interested in creating a holding company, whether as a private limited liability company or a partnership, must adhere to the incorporation regulations relevant to their chosen business type. The primary steps for forming a private limited liability company (ApS) in Denmark are as follows:

• Select a company name: The business name must be unique, and prior verification is recommended.
• Draft company documents: The Articles of Association and the Memorandum need to be prepared.
• Register the business: All companies must register with the Danish Business Register, and the registration process is generally quick.
• Maintain 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 additional registrations: Once the business is formally registered, it must also register with the Danish tax and social security authorities.

In Denmark, holding companies can be established as either an "Anpartselskab" (private limited company – ApS) or an "Aktieselskab" (public company – A/S). Besides these options, investors also have the possibility of forming holding companies through shelf companies. An entity that has completed all registration requirements and is ready for purchase by investors seeking to avoid the waiting time for establishing a new company in Denmark is known as a shelf company.

Danish holding companies must meet several common requirements, including the following:

1. Directors: There must be a minimum number of directors, with more stringent rules for public companies.
2. Minimum share capital: Investors need to comply with the minimum share capital requirements, which are lower for private companies compared to public ones.
3. Shareholders: It is essential to adhere to the regulations regarding shareholders and to maintain a proper shareholder register.
4. Bearer shares: Only public companies have the authority to issue bearer shares, while private companies are prohibited from doing so.
5. Audit: According to legal requirements, a company’s financial accounts must be audited, and all relevant documents must be appropriately stored and filed.

In situations where multiple companies engage in joint taxation, the holding company shares liability with the operating companies involved. This responsibility is also extended to other operating companies that are jointly taxed with the holding company, highlighting the need for awareness of this risk. If a company is entirely owned by the holding company, the liability can be fully shared; otherwise, it is shared partially based on the ownership percentage.

A minimum share capital is necessary for setting up these types of businesses: 20,000 DKK for a private limited company and 500,000 DKK for a public limited company.

Advantages of a Danish holding company

Opening a holding company in Denmark offers several advantages for investors:

• No restrictions on business activities: The holding company can engage in various business activities without limitations concerning the foreign companies in which it holds shares.
• Low minimum share capital: The required minimum share capital is quite low, making it accessible for investors.
• Full foreign ownership: Foreign nationals can have complete ownership of a Danish holding company.
• Tax treaty network: Denmark's extensive tax treaties provide specific benefits, as outlined by our specialists in company formation.
• Rapid registration: A holding company can be established in just one business day.
• Advance tax rulings: These rulings can be obtained to clarify existing tax policies and arrangements.
• English proficiency: A majority of Danish citizens have a good command of the English language.
• Regulatory compliance: It’s essential to adhere to the regulatory framework for holding companies in Denmark, which includes many regulations applicable to other business types.
• Taxation principles: The company is not subject to taxes when shares are issued, share capital is increased, or shares are transferred.
• Single shareholder/director: Only one shareholder is required, who may also act as the sole director.
• Regulatory principles: Holding companies must follow a disclosure policy, including audit obligations.
• No specific accounting system required: The Danish government does not require a specific accounting system to be implemented.
• Shelf company option: Investors have the option to establish a holding company by purchasing a pre-registered shelf company in Denmark.

Numerous benefits come with holding companies, with one of the most significant being the ability to retain your business's liquidity. By transferring profits from your operating company to your holding company, you can achieve tax-free savings. This strategy protects profits from potential bankruptcies, lawsuits, and claims that might occur in the operating company, allowing the transfer of funds to the holding company without incurring taxes. As a result, your capital is safeguarded, giving you the flexibility to manage it as you see fit. However, it is essential to remember that taxes must be paid when withdrawing money from the holding company for personal use.

The main benefit of a holding structure is the lower taxation on dividends and profits generated from selling shares. This structure also enables the transfer of losses from one company to another within a joint taxation framework, effectively lowering the overall tax burden. Furthermore, it allows for the distribution of profits as dividends, which helps safeguard profits from potential lawsuits or other claims.

Establishing your holding and operating companies simultaneously is recommended. You can utilize the same share capital for both entities, as the holding company can use the funds deposited to set up the operating company.

Revenue and financial year in a holding company

Typically, all companies are required to operate under the same fiscal year. When companies are jointly taxed, they must also share the same tax year. Usually, the operating company will need to modify its fiscal year to match that of the holding company.

Dividends received from operating companies represent the primary source of income. The second source comes from profits generated by selling shares in other companies. Generally, the only expenses incurred are related to accounting and banking fees. However, potential losses may arise if the value of shares declines or if shares are sold at a loss.

Shareholders receive dividends during the annual general meeting or an extraordinary general meeting.

Tax obligations of a holding company in Denmark

The general withholding tax on dividends stands at 27%, but this rate is lowered to 22% for companies since 5% can be reclaimed. Furthermore, when the recipient company holds less than 10% of the company distributing the dividends, the dividend withholding tax rate drops to 15%, provided there is a tax exchange agreement between Denmark and the recipient company's country.

In Denmark, the standard corporate tax rate is 22%, and resident companies are taxed on their global income. However, holding companies can be effectively exempt from this tax, as they do not generate income from within Denmark.

Limited liability companies in Denmark generally face a corporate income tax rate of 22%. However, profits earned from selling shares in other companies are typically tax-exempt. Shares that a company owns, representing less than 10% of another company, are categorized as portfolio shares.

Portfolio shares in privately held companies are subject to specific tax regulations: typically, 70% of dividends received are taxed, while profits from the sale of these shares remain exempt from taxation.

When a holding company sells shares at a profit, the tax implications vary based on the ownership percentage:

• For ownership of less than 10% in a public company (public portfolio shares), the tax rate is 22%.
• If ownership is 10% or more in a public company, the tax rate remains at 22%.
• In the case of owning less than 10% in a privately held company (portfolio shares), no tax is paid (0%).
• For ownership of 10% or more in a privately held company, the tax rate is also 0%.

Losses can be deducted when selling shares, depending on the ownership percentage:

• For ownership of less than 10% in a public company (public portfolio shares), the answer is Yes.
• If ownership is 10% or more in a public company, the answer is still Yes.
• In the case of owning less than 10% in a privately held company (portfolio shares), the answer is No.
• For ownership of 10% or more in a privately held company, the answer is also No.

In the annual report, you can choose to present the value of non-publicly traded shares either as the actual purchase price or at their intrinsic value. When using the intrinsic value method, the share value is adjusted each year to align with the valuation indicated in the operating company’s annual report. If the shares have increased in value, this appreciation will be reflected in the annual report, even if the shares have not been sold. On the other hand, if you opt to present the value at the purchase price, any profit will only be recognized upon the sale of the shares or when a dividend is received.

In an effort to combat tax fraud, Denmark implements the Controlled Foreign Corporation (CFC) regime. This framework stipulates that all subsidiary income is included in the income of the Danish parent company if the parent holds more than 50% of the voting rights in the subsidiary and owns over 10% of its assets. Additionally, for this inclusion to apply, at least 50% of the subsidiary's taxable income must be classified as financial income.

When a company holds over 50% ownership of another company in Denmark, it assumes the role of the administrator for a joint taxation scheme between the holding company and the subsidiary. This scheme is obligatory for companies based in Denmark and must be registered with SKAT Erhverv within one month of initiating joint taxation. While it is possible to utilize the joint taxation scheme for companies in different countries, doing so may introduce additional complexities.