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Taxation in Denmark

Taxation in Denmark is generally based on direct taxation of companies and individuals, where companies pay a flat tax rate and individuals pay a progressive tax rate. Additionally, a number of indirect taxes exist, such as a general 25% VAT and specific other indirect taxes on various goods. Certain goods and services are entirely exempt of VAT. Costs for social security etc. are usually covered by the state on the basis of the taxes paid.

How are companies taxed?

Danish companies pay a 25% corporate income tax. This percentage generally applies to all income. Subsidiaries, branches, and the like, registered or incorporated in Denmark, are generally also liable for such taxation, although this may vary depending on the activities and the set-up of the entity in question.

How are individuals taxed?

Individuals residing in Denmark are subject to a progressive income tax on all income earned in Denmark and abroad. Special tax rates apply to capital income and income from shares.

A more favourable tax scheme exists for foreign employees, who are either highly specialised or earn a certain minimum salary. However, such employees may only take advantage of this scheme for a limited period of time.

 
How are dividends taxed?

As a general principle, dividends are subject to taxation. However, a Danish company may generally receive tax free dividends, regardless of the length of ownership of the dividend paying shares, provided that the company (i) owns at least 10% of the shares of the dividend paying company, or (ii) the company controls more than 50% of the voting rights in said company, or (iii) in any other way exercises control of said company in accordance with the Danish provisions of joint taxation.

How are proceeds on the sale of shares taxed?

Capital gains on shares in Danish companies are generally subject to taxation. However, there are a number of exceptions to this general rule. First, foreign companies are generally not liable for Danish taxes on such capital gains. Second, Danish companies may sell their shares in another company without the proceeds being subject to taxation, provided that (i) the company owns at least 10% of the share capital in the other company, or (ii) the company controls more than 50% of the voting rights in said company, or (iii) in any other way exercises control of said company in accordance with the Danish provisions of joint taxation.

Do thin capitalisation rules exist in Denmark?

The deductibility of interest payments is subject to the following limitations:

• A 4:1 debt/equity ratio
• Only financing expenses equal to 6.5% or less of the assets of the group are deductible (the percentage to be adjusted annually)
• Financing expenses exceeding 80% of the EBIT are not deductible that year

Do transfer pricing rules exist in Denmark?

In accordance with relevant EU and OECD guidelines, transfer pricing rules apply. Consequently, transactions must be carried out on an arm’s length basis.

The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions of considerations.