Establishing a Business in Denmark

• Danish Administration
  
• Business Entities
  1. A Limited Company (Subsidiary)
  2. A Branch Office
  3. Representative Office


• Subsidiary or Branch?


• Valuable contacts

Mr. Niels Jespersen, Executive Vice President
Int. Marketing & Distribution Management
Harman International

A foreign investor may conduct business in Denmark through a limited liability company (a subsidiary) formed either as a public limited company (A/S) or aprivate limited company (ApS), a registered branch office or a representative office.

The joint venture is also a well-known structure used for close collaboration among foreign and/or Danish business entities. A joint venture may be established as a partnership. A partnership is not defined by law and is only regulated by the agreement set up between the parties. A joint venture may also be structures as a joint shareholding in a Danish subsidiary corporation.

In the following, you will find information on the four most common types of foreign business presence in Denmark.

The Danish legislation provides for two types of companies. A company may be established either as an Aktieselskab (A/S - equivalent to a public limited company) or as an Anpartsselskab (ApS - equivalent to a private limited liability company). The Danish Companies Act and the Private Companies Act contain all major regulations with respect to formation of an A/S or and ApS.

There are only minor differences between the two types of companies.Also, the tax status of an ApS and an A/S is the same, which makes it easy to change an ApS into and A/S and vice versa.

Share Capital

The minimum share capital of an A/S is DKK 500,000. The minimum sharecapital or half the share capital, if it exceeds DKK 500,000, must be paid no later than 6months after signing of the formation agreement. The remaining share capital must be paid no later than 12 months after the formation date.

If an A/S is formed, at least three share certificates must be issued and an A/S can hold up to 10% of its own shares.

Founders

Establishment of an A/S requires at least one founder. If more than one founder, at least one must be a Danish resident or an EU national. The Ministry of Business and Industry can, however, make an exemption from this rule. The founders are not required to subscribe to the share capital.

Formation Procedures

The formation agreement, which is signed by the founders, must contain the articles in draft, the subscription price for share issuing, name and location of the company, the Board of Directors etc.

In the first general meeting the formation of the company is formally decided by the founders, and then the Board of Directors can register the company. The registration with the Danish Commerce and Companies Agency (see below) must take place within a period of six months. The Agency may take up to six months to register the company.

The assistance of a Danish lawyer will amount to approx. DKK 20,000company for the services connected with establishing an A/S.

While a company is not yet registered, the founders are personally liable for the activities of the company. When registered the company will, however, takeover the responsibility for the company's activities carried out from the date of foundation to the date of registration.

Management

An A/S must have a Board of Directors and the number of board members must be at least three. The Board must appoint at least one manager. The manager can be member of the Board but is not allowed to be the chairman.

Board members and managers must be registered with the Danish Commerce and Companies Agency, along with their signing powers as prescribed in the articles of the company.

The Board of Directors and the manager will be jointly responsible for the company's administration.

Annual Accounts

A business entity is required by Danish law to maintain appropriate bookkeeping for recording of financial transactions in connection with a company's business.

Companies incorporated as an A/S or an ApS must prepare annual financial statements, annual reports, profit and loss statements etc. The format and standard principles for the financial statement are given by law. A Registered Accountant or a State Authorized Public Accountant must audit the financial statements.

After approval of the financial statement by the shareholders' generalmeeting it must be submitted to the Danish Commerce and Companies Agency. Upon afterfiling, the financial statement will be publicly available.

1.2) Anpartsselskab (ApS)

Share Capital

An ApS must have a share capital of at least DKK 125,000. After two months from the date of foundation, 50 % of the capital or at least DKK 125,000 must be paid in. The possible remaining capital must be paid in no later than 12 months after formation of the company.

An ApS will not issue shares for its members, which is the major difference between an ApS and an A/S.

Founders

Foundation of an ApS requires only one founder. At least one must be a Danish resident or an EU national if more than one founder. The Ministry of Business and Industry can grant exemption from this rule.

The founders are required to subscribe to the entire share capital,although it is sufficient that only one founder subscribes.

The Private Companies Act contains a general clause to the effect that an ApS has the same legal status in all Danish legislation as an A/S.

Formation Procedures

The formation agreement, which is signed by the founders, must contain the articles in draft, the subscription price for share issuing, name and location of the company, the Board of Directors etc.

In the first general meeting the formation of the company is formally decided by the founders, and then the Board of Directors can register the company. The registration with the Danish Commerce and Companies Agency (see below) must take place within a period of two months. The Agency may take up to six months to register the company.

The assistance of a Danish lawyer will amount to approx. DKK 20,000company for the services connected with establishing an A/S.

While a company is not yet registered, the founders are personally liable for the activities of the company. When registered the company will, however, takeover the responsibility for the company's activities carried out from the date of foundation to the date of registration.

Management

A board of directors is optional unless the capital exceeds DKK 300,000or the number of employees exceeds 35. When this is the case, a Board of Directors of at least 3 members must be appointed. The rule is equivalent to the one pertaining to an A/S.

The Board of Directors and/or the manager registered with the Danish Commerce and Companies Agency will have a joint responsibility for the administration of the company.

Annual Accounts

Like an A/S, the ApS is covered by the legislation regarding appropriate bookkeeping, and is required to prepare annual financial statements. Financial statements issued by an ApS must also be audited by a Registered or a State Authorized Public Accountant.

After the general meeting's approval of the audited financial statements these must be submitted to The Danish Commerce and Companies Agency.

For an ApS with a capital below DKK 200,000 it will be obligatory to follow the tax payments on the basis of the accounting system.

Purchase of a ready-made company (A/S or ApS)

Due to the considerable time spent in connection with the incorporation of a new company, it is quite common to purchase the shares in a ready-made company. A ready-made company is a registered company, which has carried out no activities in its lifetime. With such a company business can start up almost immediately.

To change the articles, the name, and to elect a new board etc. an extraordinary shareholders' meeting must take place very soon after the acquisition of the shares in the shelf company. Subsequently these changes must be registered with the Danish Commerce and Companies Agency.

Within a week or two a lawyer or an accounting firm will be able to arrange that a ready-made A/S or ApS is operational. The costs will be approx. DKK 30,000if a lawyer's assistance is needed for the establishment procedures.

A foreign company may establish a branch in Denmark, provided that the foreign company is registered in its home country. Companies resident outside the EU are a must obtain permission from the Minister of Industry. Permission is normally granted if Danish companies can obtain permission to set up branches in the corresponding foreign country (reciprocity).

Formation Procedures

A branch office must be registered with the Danish Commerce and Companies Agency, and the operation of the branch can only start when the registration has been filed, provided that the branch manager accepts responsibility.

Upon registration with the Agency the branch office must submit the following documents:

• A copy of the articles of the head office

• The incorporation certificate of the head office

• A commitment in writing from the head office to abide Danish laws and rulings by Danish courts of law in all legal matters pertaining to the branch office

• A certified power of attorney to a branch manager with documentation that the branch manager meets the requirements as to residency and citizenship.

The documents must be prepared in Danish. However, the Danish Commerce and Companies Agency can grant exemption from this requirement.

Management

The head office must appoint one or more branch managers of age of whom at least one must be a Danish resident or a EU national with residence within the EU. An exemption from this rule can, however, be granted from the Ministry of Business &Industry.

Annual Accounts

The branch of a foreign company is not requested to prepare audited financial statements, but for tax and VAT purposes the branch will need to do some bookkeeping.

The branch manager must, however, submit a certified copy of the foreign corporation's audited financial statements to the Danish Commerce and Companies Agency. Also the financial statements of the foreign corporation will then be available to the public.

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In the initial stages of a foreign corporation's establishment of a more permanent business, a representative office is often used. Such an office provides the foreign company with a physical presence in the market place without the commitments and administrative requirements for a Danish company or branch.

The main objective for a representative office is to provide marketing and sales assistance to the products and/or services offered by the foreign corporation to its Danish customers.

Legally, a representative office is not defined or regulated. It is however, important to notice that the company is considered having a representative function only, meaning that no sale must be concluded by the office and there presentatives in Denmark.

A representative office in Denmark is defined in accordance with the OECD model tax treaty.

Generally, the advantages and disadvantages of each form of legalentity must be considered on a case-by-case basis. However, the choice of a subsidiary is often motivated by the limitation of the risk of the investment.

Branch

Payments by a Danish branch to its foreign head office for items such as royalties and interest are not deductible for tax purposes.

Profits of a branch may be remitted to the head office free of with holding tax. In principle, there are no restrictions on the remittance of the profits of a branch to its head office. Foreign investors will often have the possibility to setoff a loss in a Danish branch against taxable income in the home country.

A branch must file the audited annual accounts of its parent company instead of the branch accounts.

Subsidiary

Dividends remitted by a subsidiary to its foreign parent company are subject to a 25% withholding tax (or a reduced rate as is provided for in the tax treaty).

A Danish parent or holding company may apply for joint taxation with its wholly owned Danish and foreign subsidiaries. The joint taxation system makes it possible to set off tax losses in Danish and foreign subsidiaries against profits of the Danish parent company and/or profitable subsidiaries.

A subsidiary must file its own audited annual accounts with the Danish company's registry.

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The Danish Commerce and Companies Agency
Kampmannsgade 1
DK-1780 Copenhagen V

Ph. +45 33 30 77 00
Fax +4533 32 4480

Danish Immigration Service
Ryesgade 53
2100 Copenhagen Ø

Tel.: +45 3536 6600
Fax: +45 3536 1916

© 1996 by Invest in Denmark

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