Denmark Tax & Business Guide - Deloitte

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Basic facts
Population 5.4m Inflation 1.8% (2005)
Main languages Danish, Faroese, Greenlandic GDP per head US$47,107*
Currency Danish krone (DKK) GDP growth 3.4% (2005)*
Economic communities European Economic Area, EU, OECD, WTO
GDP sources 2.1% agriculture, 24.1% industry, 73.8% services
*Economist Intelligence Unit.
Political environment

Denmark is a parliamentary democracy. Its right-of-centre coalition government, consisting of the Liberal Party (V) and the Conservative PeopleÌs Party (KF), lacks a majority in parliament and depends on the right-wing Danish PeopleÌs Party (DF) to legislate.

The Liberal leader, Anders Fogh Rasmussen, is the prime minister, and was re-elected for a second term of office in February 2005. Next elections are due in 2009.
Foreign trade and investment
Exports US$88.8bn (2005)* Imports US$79.1bn (2005)*
*Economist Intelligence Unit.

Leading export markets: Germany, Sweden and the UK.

Major exports: Manufactured goods, agricultural products and fuels.

As more foreign firms establish a local presence, the government has worked to improve the investment climate. EU rules prohibit discrimination against investors from other member states, and Denmark extends the same treatment to investors from outside the EU. Incentives include lower personal tax rates for qualified expatriates, increased financial incentives for greenfield projects and expanded venture-capital schemes.
Business and financing
Business forms Local joint stock company, limited liability company

Most foreign firms use the local joint stock company form (Aktieselskab, A/S) or the private limited liability Anpartselskab (ApS).

The financial sector has experienced considerable growth in recent years, with mergers and acquisitions driving concentration and efficiency among credit institutions.
Labour environment
Unemployment rate 5.7% (2005)* Minimum wage None
*Economist Intelligence Unit.

Denmark does not set statutory minimum wages, but it has binding sectoral collective agreements that cover a high proportion of the working population.

About 80% of the workforce is unionised, and more than 90% is covered by collective agreements.

Free movement of workers entering Denmark applies to all EU and European Economic Area (EEA) nationals. All others require residence and work permits from the chief of police in the district in which they intend to reside.

The welfare model provides universal benefits to all individuals. The financial burden imposed by this model is borne by the state and financed from general taxation.
Taxation
Corporate tax
Standard rate 28%

Resident companies are taxed on worldwide income, with foreign branches and foreign real estate of Danish companies exempted; non-resident companies are taxed only on Danish-source income. A corporate entity is resident if it is registered in Denmark or if its place of management is in Denmark. The 28% tax rate applies to all forms of company and branches. Dividends received from a Danish or foreign company are tax-exempt where a company has owned 20% of the share capital for one year. The threshold for the eligible holding is due to drop to 15% as of January 2007, and to 10% as of January 2009.
Individual tax
Progressive rates rising to 59%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on Danish-source income. An individual who has an abode in Denmark or who stays in Denmark for six months is considered resident. Individuals are subject to the state income tax, charged at progressive rates of up to 26.5%, and to county, municipal and church taxes. County and municipal taxes range from 29% to 35%, and church tax ranges from 0.4% to 1.5%. A ceiling applies so that taxes imposed cannot exceed 59% of marginal income. Dividends are taxed at 28% up to the amount of the personal allowance and 43% thereafter. Individuals must also generally pay a Danish social security contribution at a rate of 8% of the gross income plus a fixed monthly contribution of DKK 81.30 (2006).
Capital gains
Company gains generally taxed as income

Capital gains are normally included in taxable income of companies. Long-term gains on shares are tax-free. Capital gains of individuals are taxed at 28% and 43%.
Indirect tax
Standard rate 25%

Value-added tax (VAT) applies to most transactions. A zero rate applies to newspapers, the sale and leasing of certain aircraft and ships, and exports. Exempt supplies include certain financial services, insurance, education, medical supplies, and the sale and leasing of immovable property.

Registration is compulsory for foreign firms and Danish companies with annual turnover above DKK 50,000.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

All new companies and companies with taxable income above DKK 10m pay advance tax in two equal instalments in March and November. The prepayments are calculated on the basis of 50% of the average corporate tax due in the last three years. Companies with a lower turnover may elect for the prepayment scheme. If they make the election, tax is payable by November 20th following the tax year and is subject to a 5.7% surcharge (income year 2004). Employment income of individuals is taxed by withholding.
Additional tax information
Withholding taxes Dividends 28%, Interest 30%, Royalties 30%. These rates may be reduced under an applicable tax treaty or an EU directive.
Tax treaties Denmark has concluded more than 80 tax treaties.
Dividends Dividends are taxable, with a participation exemption.
Revenue protection There is transfer-pricing, thin-capitalisation and offshore subsidiary (CFC) legislation.
Groups There is compulsory group consolidation for domestic groups, and an election may be made to consolidate non-resident companies.
Incentives Research and development; venture capital.
Other taxes Energy and environmental taxes, Import duties, Luxury and excise taxes, Stamp duties, National and municipal real estate taxes.