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Country - Denmark
Corporate Vehicles
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A. DIRECT INVESTMENT
Foreign companies and individuals who have not been resident in Denmark for more than five years cannot normally acquire land in Denmark without authorisation from the Ministry of Justice. However, special rules apply to companies registered in the EU/EEA or individuals who are citizens of an EU or EEA member state. Individuals with EU/EEA citizenship are entitled to acquire land in Denmark without authorisation from the Ministry of Justice if the property is to serve as their permanent residence. The same applies to companies with registered addresses in the EU/EEA if the acquisition of the land is necessary for the conduct of their business.
Minimum capital
Not applicable.
Set-up costs
Not applicable.
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
Not applicable.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in Denmark
Income tax
Foreign companies may be subject to a limited tax liability, either through having a branch office or by having a permanent establishment in Denmark, or through withholding taxes on certain types of income from Danish sources (for example, payments originating from real estate).
Depreciation
Property is depreciated on an individual basis. The depreciations are calculated at between 0% and 4% of the original purchase price.
Important exceptions are office buildings, residential property and the value of land.
There are, however, a number of opportunities for depreciation on machinery, equipment, fixtures and fittings.
Property value tax paid on residential property (Ejendomsværdiskat)
Property value tax is 1% on that part of the property value below DKK 3,040,000 and 3% on any greater value. Property value tax is therefore progressive.
Building tax on commercial buildings (dækningsafgift)
Local authorities are entitled to levy a tax on the value of commercial buildings. This may not exceed 1% of the building value, defined as the difference between the total official property value and the land value.
Land property tax
Tax is payable on all land based on its tax assessed value. The land tax payable to the municipality varies between 1.6% and 3.4% of the official land value.
Taxation of distribution of current income to investors
Income from real estate is subject to limited tax liability. For foreign companies the tax is 25% of net income.
Taxation of capital gains
Capital gains and losses realised on the sale of real estate are as a general rule included in the taxable corporate income.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
Two types of corporate vehicle are available for real estate investment in Denmark. The two types of limited liability company are the aktieselskab ("A/S") and the anpartsselskab ("ApS").
Minimum capital
DKK 125,000 for an ApS and DKK 500,000 for an A/S.
Set-up costs
Approximately DKK 15,000.
Time required to become operative
The formation of an ApS or an A/S takes one to two days.
Costs per annum for corporate and accounting compliance
Approximately DKK 20,000. However, costs depend on the size of company, its turnover, the number of employees, etc.
Corporate governance
Corporate governance in Denmark is determined by legislation, by self-regulation and by tradition. Applicable legislation includes the Danish Private Companies Act, which regulates the ApS (Anpartsselskabsloven), the Danish Public Companies Act (Aktieselskabsloven), which regulates the A/S and some aspects of the ApS, and the Annual Accounts Act (Årsregnskabsloven).
In addition to these, there are various self-regulating frameworks, such as the new Code of Corporate Governance. Unwritten rules governing attitudes and traditions in Danish business have also evolved.
The Danish system is based on a strict division of power and responsibilities between the shareholders (exercised at the general meeting), the board of directors, the managers and the auditors. The ApS may choose between having a board of directors, managers or both (but, in any case, the board of directors or managers may consist of only one person). The A/S should have at least three board members and at least one manager. Unless otherwise stated in the articles of association, the managers represent the company and sign on its behalf in relation to the day-to-day administration and management of the company's affairs. Major decisions must be made by the board of directors or by the shareholders at general meetings.
Regulatory control
Both an A/S and an ApS must be registered with the Danish Commerce and Companies Agency. The liability of both corporate vehicles is limited to the value of subscribed shares.
An A/S has a mandatory two-tier management system, consisting of a board of directors comprising a minimum of three people, and at least one managing director.
An ApS has an optional one or two tier system, with either a board of directors or a managing director, or both.
There are no requirements as to the residency of directors and managers.
Taxation of current income in Denmark
Income tax
Corporation tax is payable at 25% of net income.
Depreciation
Depreciation is carried out at the level of the Danish corporation.
Depreciation for tax purposes is allowed up to a maximum of 5% of the acquisition cost of the real estate. In certain extraordinary situations, accelerated depreciation may be permitted depending on the building's expected lifespan. Depreciation is permitted on buildings used for business or production only if the buildings are not used solely for: office accommodation; business in the financial sector; logistics; residential purposes (apart from a few exceptions); and hospitals or medical clinics. Land cannot be depreciated.
There are, however, a number of opportunities for depreciation on machinery, equipment, fixtures and fittings.
Property value tax paid on residential property (Ejendoms-værdiskat)
This tax is calculated as a percentage of the tax value of the property. State property tax is 1% of the value of property valued at DKK 3,040,000 or less since 2002, and 3% of the value of property that exceeds DKK 3,040,000.
Building tax on commercial buildings (dækningsafgift)
Local authorities are entitled to levy a tax on the value of commercial buildings. This may not exceed 10% of the building value, defined as the difference between the total official property value and the land value.
Land property tax
Tax is payable on all land based on its tax assessed value. The level of the land property tax varies from one municipality to another, ranging from 0.6% to 2.4% of the land assessment.
Taxation of distribution of current income to investors
Individual shareholders
Income from shares is taxed at a rate of 28% of the first DKK 45,500 and 43% of any income exceeding that level.
Corporate shareholders
Taxation is at the rate of 28% if gains are derived from the sale of shares owned for less than three years. Losses on the sale of shares are generally deductible from gains made on other shares owned for less than three years.
If shares have been owned for more than three years, there is no taxation on capital gains made but losses are not deductible.
For a holding company that holds 20% or more of the share capital of a company, dividends are exempt from taxation in the following circumstances:
- where the parent company has held at least 15% of the shares in the subsidiary for a continuous period of one year or more, during which the dividends are paid (this holding requirement can be fulfilled subsequent to the dividend payment); and
- taxation of dividends is waived or reduced according to the provisions of directive 90/435/EEC, or according to the provisions of a double taxation treaty between Denmark and the state where the foreign parent company is resident.
Taxation of capital gains
Capital gains on the sale of real estate
Danish companies are subject to taxation on capital gains. For investment purposes, taxation depends on the ownership period. When the company is trading in property, capital gains are taxed as income at the rate of 28%.
Capital gains on the sale of shares
Capital gains on the sale of shares are not subject to limited tax liability in Denmark. Therefore, foreign shareholders are not taxed on the transfer of shares.
As a general rule Danish corporate shareholders are taxed at 28% if their shares have been owned for a period of less than three years. Moreover there is no tax payable on shares held for three years or more.
The share income of individual shareholders resident in Denmark is taxed at rates of between 28% and 43%.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
There are several different types of partnership in Denmark but the main types are limited partnerships (kommanditselskab) and limited partnership companies (kommandiaktieselskab/partnerselskab). A limited partnership offers the tax transparency of a partnership combined with the limited liability of a limited liability company. A limited partnership company is subject to the same statutory regulation as an A/S, with a minimum capital of DKK 500,000.
Minimum capital
Not applicable.
DKK 500,000 for a limited partnership company.
Set-up costs
Approximately DKK 15,000.
Time required to become operative
The formation of a partnership generally takes one to two days.
Costs per annum for corporate and accounting compliance
Approximately DKK 20,000. Costs depend on a number of factors.
Corporate governance
A partnership exists when two or more legal entities or individuals agree to conduct a commercial enterprise in the form of a partnership and the partnership is formally registered. All partners are jointly and severally liable for the partnership's obligations. There are no statutory provisions requiring formalities such as shareholders' meetings or a board of directors. Internal matters are all governed by the partnership agreement.
Regulatory control
A limited partnership company has a mandatory two-tier management system, consisting of a board of directors comprising a minimum of three people and at least one managing director.
The liability of the partners is joint and unlimited for all debts and obligations of the partnership.
In both limited partnerships and limited partnership companies, the liability is unlimited for general partners but for limited partners is limited to their contribution.
Taxation of current income in Denmark
Income tax
A partnership is transparent for income tax purposes. The basis for income tax is the same as for ordinary business income. The tax rate is 25% on net income (for corporate partners).
Taxation of distribution of current income to investors
The net income is subject to limited tax liability.
Taxation of capital gains
The partnership is transparent and the partners are subject to a limited tax liability on the sale of assets when the partnership is sold.
Corporate partners resident in Denmark are taxed at 25%. Individual partners resident in Denmark are normally taxed at up to 59%.
Capital gains from the sale of property by the partnership are taxed as ordinary business income if trading in real estate, or through capital gains tax.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
There are no special collective vehicles available for real estate investment in Denmark. Collective investment in real estate is normally carried out through a limited liability company or a limited partnership.
E. RULES ON LEVERAGE
1. Thin capitalisation rules
Thin capitalisation rules apply in Denmark where the debt to equity ratio is 4:1 or more. Where thin capitalisation provisions apply, part of the interest is not deductible against income taxed in Denmark.
2. Withholding tax on interest
There is no withholding tax. However, the net income is subject to limited tax liability which must be paid in Denmark. The authorities hold information on registered ownership and require an annual tax return.
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