Company formation in brief
In accordance with the Danish law, a foreign investor is allowed to organize a business there in various organizational and legal forms, of which the most popular are:
• Aktieselskab (A/S) - open joint stock company;
• Anpartsselskab (ApS) is a private limited liability company;
• Iværksætterselskab (IVS) - a private limited liability company for startups;
• Kommanditselskab (K/S) - limited liability partnership;
An open joint stock company) is established by at least three natural or legal persons - residents or non-residents of Denmark. At least 25% of the minimum capital is paid up in cash or other assets within 12 months from the date of registration of the company.
The company is managed by a Board of Directors (minimum 3 members) headed by the Managing Director (CEO). If the managing director is not a resident of the European Union, then the majority of the members of the Board of Directors are required to have EU resident status. Shareholders are entitled to be directors of A/S.
A private limited company can be incorporated by one physical or legal person - resident or non-resident of Denmark. The minimum paid-up capital of the company is DKK 50,000 (at least 25% of the minimum capital is paid up in cash or other assets within 12 months from the date of registration of the company), and the maximum amount of the authorized capital is not limited.
To manage the company, one director is enough (a legal entity is not entitled to be a director of ApS) - a resident or non-resident of Denmark. A shareholder of a company has the right to be a director and vice versa.
This specific form of a private limited company for startup has all the features of an ApS, but can be incorporated with a share capital of DKK 1.
IVS is entitled to have one shareholder (physical or legal person) and one director (natural person) of any residency.
IVS is not entitled to pay dividends to its shareholders. If shareholders decide to receive dividends, they must first show free capital of at least DKK 50,000 and re-register IVS to ApS.
IVS reporting formats are similar in all respects to ApS.
A limited partnership is organized by at least one general partner with unlimited liability and one or more partners with limited liability.
The document - an analogue of the certificate of registration of the Danish partnership is the so-called "transcript", which, in addition to the permitted types of activities and the state registration number, includes other information, for example, the address of the company, the names of the general partner, director and auditor, etc. Limited partner names are not reflected in this document.
The Articles (agreement) of the partnership is subject to new approval by the Registrar of Companies of Denmark in case of any change in the management structure, change in the size and structure of the authorized capital, as well as in case of a change in the general partner of the K/S. The "transcript" is issued on the basis of the approved articles of association.
The general partner of K/S has the right to be both natural and legal person, resident or non-resident of Denmark. However, if the general partner is an individual, then such a partnership is subject to registration only with the Danish tax authorities. As a consequence, such a partnership cannot receive a certificate of registration and a copy of its articles of association, officially certified in the Danish Registrar of Companies . In order for K/S to have all the external attributes of an ordinary legal entity, the general partner must be a limited liability person.
A change in the structure of limited partners is not subject to official registration in Denmark and is only a subject of internal partnership records. Also, there is no need to obtain a new Articles and "transcript" when changing limited partners.
The general partner is responsible for the debts and obligations of the enterprise. Limited partners are liable for K / S debts up to the share they subscribed to in the enterprise.
The partnership is managed by a managing director, who can be a general partner or a person (physical or legal) appointed by the general partner.
It should be borne in mind that the types of economic activities reflected in the statutory documents must be specified for each enterprise established in Denmark. The words "trade", "investment", "management", etc. should be tied to the specifics of the actual business activities.
Public and private companies (A/S and ApS) are subject to tax in Denmark on worldwide income.
Dividends are subject to withhold tax.
In Denmark, there is a concept of a small business, for which a simplified form of annual financial statements is provided.
A company is considered small if, over the next two years, it meets at least two of the following three conditions:
• Income - not more than DKK 8,000,000;
• Balance - no more than DKK 4,000,000;
• The average number of full-time employees is 12 or less during a fiscal year.
If a Danish company (regardless of its organizational and legal form) does not pass the above test, then such a company will need to pass an audit in Denmark.
In general, three main scenarios can be distinguished:
If the owners of more than 50% of the capital or more than 50% of the votes in the Danish partnership are residents of countries that:
• consider a limited liability partnership as an independent subject of taxation;
• do not have double taxation treaties with Denmark (these include almost all classic offshore jurisdictions),
then the Danish partnership will be treated as a separate subject of taxation in Denmark, and the net profit of the partnership will be subject to taxation in Denmark. In this scenario, dividends paid by the partnership to its owners would in turn also be taxed in Denmark.
If the owners of more than 50% of the capital or more than 50% of the votes in the Danish partnership are residents of the EU countries who:
• do not consider the Danish partnership as an independent subject of taxation;
• have agreements on the avoidance of double taxation with Denmark, according to which the tax on dividends is either absent or should be reduced,
then the Danish partnership will not be considered as an independent subject of taxation in Denmark under the condition that the Danish tax authorities will be able to obtain confirmation from the tax authorities of the respective countries before a final decision is made as to whether the partnership is exempt from taxation in Denmark or not.
If the owners of more than 50% of the capital or more than 50% of the votes in a Danish partnership are residents of Denmark, then the Danish partnership will not be considered as an independent subject of taxation in Denmark and is exempt from taxation in Denmark, as it was before. At the same time, if a Danish limited liability company (ApS) becomes the general partner, then being a resident of Denmark by definition, ApS will be taxed in Denmark on its share of the profits in the partnership.
We strongly recommend to obtain an opinion from a tax consultant in Denmark before setting up a business there.
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