TAXATION
The Danish Tax system
Denmark has a favourable tax regime due to a corporate tax rate of 34%,an extensive network of tax treaties, advanced depreciation rules and a favourable tax regime for expatriates.
Compared to most European nations, Denmark offers a number of important tax advantages, but first of all it is worth taking note of the fact that the Danish tax legislation is to be regarded as a straightforward system. This means that the tax rules are as they are described in the laws, which makes the regulation simple and firm, and not regulated through individual agreements/deals. In addition to the corporate income taxrate of 34%, companies in Denmark benefit from favourable rules on depreciation:
- Immaterial assets such as software patents, licences, copyrights etc. may be depreciated over a period of time equal to the duration of the rights.
- Know-how and patent rights can be depreciated immediately.
- Machinery and equipment can be depreciated on an accrual basis by 30% per annum.
- Property, machinery and ships may under certain conditions be advance depreciated, i.e. depreciated before the actual delivery. The maximum advance depreciation rate is 30%.
Denmark does not generally impose limitations on the maximum debt which companies may carry for tax purposes. In addition, companies are not subject to duty on their initial capital or on subsequent capital increases. Thus, Danish companies enjoy great flexibility in selecting a capital structure.
As a special benefit to Danish companies that set up subsidiaries abroad, an international joint taxation can be applied.
This means that losses in the subsidiaries can be offset against income in the parent company or in other group companies.
Moreover, because Denmark generally allows full tax relief for interest on loans used to acquire or establish foreign subsidiaries, substantial tax savings can be obtained, when expanding into other European markets through a Danish holding company.
|
1997 |
Corporate tax rate |
Tax-exempt dividends |
Tax-exempt sale of shares |
Offset of losses against profits |
Capital duty |
Interests relief on loans to buy foreign shares |
|
Belgium |
40% |
Yes |
Yes |
No |
0.5% |
Yes |
|
Germany |
45-55% |
Yes |
Yes |
Domestic |
Nil |
Yes/No |
|
Denmark |
34% |
Yes |
Yes |
Cross-border |
Nil |
Yes |
|
Netherlands |
35% |
Yes |
Yes |
Domestic |
1.0% |
No |
|
Sweden |
28% |
Yes |
No |
Domestic |
Nil |
Yes |
|
UK |
31% |
Yes |
No |
Domestic |
Nil |
Yes |
Another advantage of a Danish holding company is that dividends received from domestic and foreign subsidiaries in which the Danish company holds more than 25% shareholding are exempt from Danish taxation. Likewise, capital gains arising from the sale of domestic and foreign shareholdings held for three years or more are also exempt from taxation in Denmark.
It is important to note that EU investors are not subject to withholding tax on dividends received from a Danish company, provided that the foreign parent company holds more than 25%. Whereas non-EU investors benefit from low withholding tax rates on dividends in accordance with Denmark’s wide network of favourable double taxation treaties.
[Back to top]
Taxation of foreign expatriates
Foreign expatriates - management and researchers - on temporary assignment to Denmark may under certain conditions benefit form the 25% tax regime which means that compensation in cash and benefits in kind are taxed by a flat rate of only 25%.The 25% tax rule applies for three years, but it is possible to extend the period of stay in Denmark by four years at normal Danish income taxation.
[Back to top]
© 1996 by Invest in Denmark