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DAHL LAW FIRM ESTABLISHING A BUSINESS ENTITY IN DENMARK

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This guide offers an overview of legal aspects of establishing an entity and conducting business in the requisite jurisdictions. It is meant as an introduction to these market places and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney- client relationship, or its equivalent in the requisite jurisdiction.

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ESTABLISHING A BUSINESS ENTITY IN DENMARK

1 DKK and 39,999 DKK. The Entrepreneurship “Establishing a Business Entity in Company is mainly relevant for Danish start-up Denmark” business with limited access to financial capital. Ms. Siw Ryan It is not possible to establish an Assistant Attorney DAHL Law Firm – Denmark Entrepreneurship Company from July 2019 and the existing Entrepreneurship Companies

must be re-registered (to another type of 1. TYPES OF BUSINESS ENTITIES limited company) or liquidated by the 15th of April 2021. The limited companies are the There are several forms of business entities in most common entities for foreign investors. Denmark and there are a wide range of possibilities for establishing a business entity in 1.2 Sole trader Denmark. The most suitable entity depends on a A sole trader (Enkelmandsvirksomhed) can variety of factors, such as the nature of the only be owned by one physical person. The business, the expected activity level, the extent entity is suitable for smaller business. The of liability, and tax matters. The following will person who owns the entity is personally liable review different possibilities of establishing for the business, which implies that the person business entities in Denmark. is liable for all debts and obligations of the 1.1 Limited Companies business. The person who owns the entity has full control over all business decisions. There Limited companies are characterised by the are no capital requirements for establishing an shareholders liability, which is limited to the entity as a sole trader and there are only a few capital invested in the company. The legal requirements. shareholders are not liable for the obligations of the limited company. The shares in the 1.3 Partnerships Public Limited Company (Aktieselskab – A/S) Partnerships can be organised as limited may be offered to the public. It is only the liability for participants and with unlimited Public Limited Company which can be listed on liability for the participants. Partnerships a regular or alternative market. The Public require more than one participant. The Limited Company is also the most regulated structure is more flexible than limited entity in Denmark. The nominal share capital companies. The different partnerships are in the Public Limited Company must be at least taxationally transparent. 400,000 DKK and the nominal share capital in the Private Limited Company (Anpartsselskab The partnership (Interessentskab – I/S) is a - ApS) must be at least 40,000 DKK. The Private partnership of a minimum of two participants. Limited Company is quite similar to the Public The persons’ who owns the partnership are Limited Company, but it is less regulated, and personally liable for the business, which the company cannot be listed on a regular or means the persons are solely liable for all alternative market. Entrepreneurship debts and obligations of the business. There Companies (Iværksætterselskab - IVS) are also are no capital or other requirements for the limited companies. The share capital in an establishment of the partnership besides the Entrepreneurship Company must be between partners having an agreement.

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The Limited Partnership (Kommanditselskab – branch office. The branch offices must be K/S) requires two types of participants, the registered with the Danish Business “Komplementar,” who is the participant who Authorities. The Danish Business Authorities is personally liable for the debts and require certain information about the foreign obligations of the partnership and the entity. It can take up to weeks to establish a “Kommanditist,” who is the participant(s) who branch in Denmark. The entity “Branch offices” has limited liability and is only liable with the will not be covered or elaborated any further. contributed share capital. There are no capital It is also possible to establish other entities in requirements for the establishment of the Denmark besides the above-mentioned such Limited Partnership. as Cooperative Societies (A.m.b.A), European The Partnership Limited by Shares Company Societas Europea (SCE-selskaber), (Partnerselskab – P/S) requires two European Cooperative Society (SE-selskaber) participants, the “Komplementar,” who is the and Commerical Foundations participant who is personally liable for the (Erhvervsdrivende fonde) ect. which will not debts and obligations of the partnership. The be elaborated on or covered any further. Komplementar will often be a limited company, 2 STEPS AND TIMING TO ESTABLISH which makes the liability illusory. The “Kommanditistaktionær” are participant(s) 2.1 Limited Company (A/S, ApS, IVS) who are organised as shareholders in a Public Limited Companies are commonly used Limited Company (A/S). The Partnership business entities in Denmark. The entities are Limited by Shares is governed by the Danish governed by the Danish Company Act which Company Act and the regulations which apply among other things regulates the to the Public Limited Company also apply to requirements for the establishment of the the Partnership Limited by Shares. The companies. nominal share capital in the Partnership Limited by Shares must be at least 400,000 The founders of a limited company must DKK. initially sign a memorandum of association and articles of association. There is no 1.4 Branch office requirement for notarial certificates. The It is possible to establish a branch, to carry out documents must be submitted to the Danish a foreign entities business in Denmark. Business Authorities with the request for Companies which can operate through a registration of the company, within two weeks branch in Denmark must be foreign a) public after the formation of the company. The limited companies, b) limited partnership formation of a limited company will be companies, c) private limited companies or d) effective from the day of signing the companies with a similar corporate form memorandum of association and the articles based in an EU/EEA country or a country that of association, or from any later date specified has an international agreement with Denmark. in the memorandum of association. The branch must be managed by a branch The share capital can be paid with cash, assets manager, who has the power to bind the or both. The limited company cannot be branch, by his/her signature. The foreign registered if the shareholders have not paid at entity is liable for the obligations of the Danish least 25 % of the share capital (not less than

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40,000 DKK) if the contribution is cash. This Company Act, which means it is highly possibility is therefore mostly relevant for the recommended to have a partnership Public Limited Company. The possibility of not agreement which regulates the terms of the paying the whole share capital implies some partnership. The Danish Business Authority restrictions. must be notified of the partnership, but the There must be evidence that the share capital notification itself does not have any legal has been paid before the time of the effect. If the Partnership is owned by two legal registration. entities, the partnership will be registered in the business register with legal effect. The The company will hereafter be registered by Partnership will receive its registration the Danish Business Authorities and the number (CVR-no.) hereafter. The owners of company receives the Company Register the partnership are the tax subjects of the Number (CVR-no.) often within one weekday partnership and the income and the from uploading the request, if the registration deductions shall be registered by the owner in is being handled manually by the Danish its income tax return. Business Register which occurs by random sampling, the CVR-no may take between one The Limited Partnership (Kommanditselskab – (1) to four (4) weeks to receive. It is possible to K/S) is established by a Limited Partnership buy an “of the shelf” company, which is Agreement. The capital contribution from the already registered, but taking the quick online Kommanditist can be cash or assets. It is not a registration into consideration, this possibility requirement that the company capital has is rarely used. been contributed before the formation of the Limited Partnership. The Komplementar must 2.2 Sole trader (Enkelmandsvirksomhed) have some administrative powers such as When establishing a sole trader there are no signing for the company, veto rights and formal requirements for establishment. The economic rights, such as receiving payment or Danish Business Authority must be notified of dividend due to the liability. The Danish the entity, but the notification itself does not Business Authority must be notified of the have any legal effect. After notifying the partnership, but the notification itself does not Danish Business Authority, the sole trader will have any legal effect. The partnership will receive its registration number (CVR-no.). The receive its registration number (CVR-no.) owner of the sole trader is the tax subject of hereafter. If the Partnership is owned by legal the entity and the income and the deductions entities the partnership will be registered in shall be registered in the owner’s income tax the business register with legal effect. return. The Sole trader must register for The Partnership Limited by Shares paying Danish VAT, if selling goods or services. (Partnerselskab – P/S) is established by 2.3 Partnerships (I/S, K/S, P/S) establishing a new or a converted existing Public Limited Company to a Partnership The partnership (I/S) is established by an Limited by Shares. The Kommanditistaktionær agreement which establish a business must contribute at least 400,000 DKK to the between the partners. There are no formal share capital in cash or assets. It is possible if regulations concerning the agreement. The the contribution is cash, to only contribute partnership is not regulated by the Danish with 25 % of the share capital, just as with

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Limited Companies. The Komplementar does obligated to report changes decided at general not have to contribute with cash or assets. The meetings, such as changes in: management, founders of the Partnership Limited by Shares name, accountant, nominal capital, entity must sign a memorandum of association that address, new articles of association etc. to the informs who the Komplementar is and articles Danish Business Authorities. of association. The Komplementar must also The Danish Company Act requires a “Two-tier have some administrative powers which could system” for the Public Limited Company, be appointing a member of the board and which means the shareholders can choose economic rights such as receiving payment or between: dividend due to the liability. The documents must be submitted to the Danish Business a) a board of directors which has the Authorities with the application for responsibility for superior management, and registration of the company within two weeks the board must appoint one or more after the formation of the company. The executive manager(s), who are responsible formation of the Partnership Limited by Shares for daily management. The board of will be effective from the day of signing or directors must consist of at least three from any later date specified in the members, and the chairman must not be the memorandum of association. The Partnership executive manager and the executive Limited by Shares will hereafter be registered managers may not constitute the majority of by the Danish Business Authorities and the board or receives the Company Register Number (CVR- b) one or more executive manager(s) who no.) often within one weekday from uploading are responsible for the management, the the application. If the registration is being management is appointed by a supervisory manually handled it may take between one (1) committee who supervises the management. to four (4) weeks. A member of the supervisory committee 3 GOVERNANCE, REGULATION AND ONGOING cannot be a member of the management. MAINTENANCE The Private Limited Company and the The companies and partnerships are obligated Entrepreneur Company can choose between to inform the Danish Business Authorities of the the “two-tier system” and a “one-tier system.” legal and beneficial owner of the company or The one-tier system consists of one or more partnership if the legal owner owns more than executive manager(s). 5 % of the shares or voting rights and the The Danish Company Act contains several beneficial owner that holds more than 25 % of minority rights. The most common will be the indirect shares, voting rights or has other reviewed as follows. The minority of at least decisive influence over the entity. There are no 33,33 % of the share capital or of the voting specific restrictions concerning local rights can oppose changes in the articles of shareholders or directors in the companies and association, share capital increase, reduction partnerships in Denmark. of share capital, liquidation of the company, 3.1 Limited Companies (A/S, ApS and IVS) merger and fission ect. The minority that is at least 10% of the representatives at the general Limited companies are governed by the Danish meeting, can abstain from losing “inalienable Company Act. Limited companies are rights”. A minority of at least 5 % can require

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[ESTABLISHING A BUSINESS ENTITY IN DENMARK] 7 notice of an extraordinary general meeting. 4 FOREIGN INVESTMENT, RESIDENCY AND There are also individual rights such as having MATERIAL VISA RESTRICTIONS a question debated, to talk or to put forward 4.1 Significant barriers to entry for an questions to the management at the general offshore party meeting. There are no specific restrictions or barriers 3.2 Partnerships (I/S, K/S, P/S) concerning foreign investors establishing The Partnership Limited by Shares is regulated Danish entities, which do not apply to Danish by the Danish Company Act and the same investors. Some restrictions will apply to regulations as the Public Limited Company permits, licenses and authorisations’ for some apply. businesses. There are no company legislations regulating 4.1.1 VAT the Partnership and the Limited Partnership A foreign entity established in Denmark besides minor articles in the Danish Act on must pay VAT to the Danish Tax Authorities Commercial Undertakings (in Danish lov om when selling goods and services after the vise erhvervsdrivende virksomheder) same regulations as other Danish companies. concerning the name of the partnership and The company must register to pay Danish powers of procuration. There are some VAT and the company must declare VAT for facultative provisions set out by case law and each VAT period. principles of general company law regulating the Partnership and the Limited Partnership. 4.1.2 Tax Concerning the Partnership, the executive The Danish company must, in some cases, power is partly at a) the Partnership meeting pay tax in Denmark for profit generated by and b) partly by the owners. All questions at the company. The company tax rate in the partnership meeting must be agreed upon Denmark is 22 %. The taxation of the in solidarity since the owners have the right of company depends on potential double veto. The minority protection is extensive due taxation agreements. to the unlimited liability. The management in the Limited Partnership is mostly the If the foreign entity has employees, the Komplementar due to the unlimited liability. company must as the employer, withhold Decisions which do not comprise the Limited Danish Tax and labour market contribution Partnership Agreement or the purpose of the from the salary that the company pays from Limited Partnership must also be accepted by the services carried out in Denmark. the Kommanditister. 4.2 Special business or investment visa issues It is recommended to have a comprehensive It is not necessary for investors to have a visa partnership agreement due to the absent to invest in Denmark. If the owner would like legislation concerning the Partnership and the to work or live in Denmark, a residence or Limited Partnership. On the other hand, the work permit might be necessary. Visas are great freedom of the structure and regulation issued for the purpose of stays less than three of the entities can be an advantage for some (3) months and employment is not permitted businesses. during the stay. For residence or work stays which are longer than three (3) months, a

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[ESTABLISHING A BUSINESS ENTITY IN DENMARK] 8 residence or work permit is required. Special extent, it depends of the percentage of rules apply to citizens from Nordic Countries, ownership in the company distributing the EU member States, Switzerland and divided. Liechtenstein. It is advised to seek specific If the shareholder is an individual person, the guidance concerning visa, residence or work person will be subjected to paying tax on the permit issues. distributed dividend. The taxation rate is 27% 4.3 Restrictions on remitting funds out of the for the first 54,000 DKK (2019) and 42% for the jurisdictions dividend which exceeds 54,000 DKK. Danish entities distributing dividends must Limited companies: Entrepreneurship report information about the recipients of Companies cannot distribute dividends before dividends to the Danish Tax Authorities. There the share capital in the company is equal to are no specific restrictions on remitting funds 40,000 DKK. out of Denmark, but the funds may be Shareholders that are limited companies and applicable to taxation. The taxation of the own less than 10 % of the shares in the distributed funds depends on whether company distributing dividend will always be Denmark has entered an agreement with the subjected to taxation of the distributed foreign country concerning the avoidance of dividend. It is only 70 % of the distributed double taxation. This section concerns the dividend which will be taxed with 22 %, if the situations where Denmark has the right to tax company is not professionally investing in the distributed funds. shares. The entities are obligated to withhold the tax For shareholders that are limited companies of the distributed dividends to individual (in accordance with Danish law) and own more persons and to companies. than 10 % of the shares in the company 4.3.1 Partnerships distributing funds distributing shares, the company can to some In partnerships, the profits and losses are extent receive the dividends without the distributed equally between the partners. The dividends being taxed. There are the following different partnerships are taxationally requirements: a) the foreign company owns transparent and the individuals will be more than 10 % of the share capital of the subjected to paying tax if receiving funds from Danish company or more than 50 % of the the partnership. Denmark has the right of voting rights, b) the company receiving the taxation if the activity is qualified as a dividend is the beneficial owner, c) the permanent establishment in Denmark. If the company is Danish or the company is foreign, activity is not qualified as a permanent and the EU Parent-Subsidiary Directive applies, establishment, the taxation depends on the or the subsidiary is resident in a country which has entered a double taxation agreement with regulation in the country the participant is domiciled in. Denmark. 4.3.2 Limited Companies distributing The limited companies that do not fulfil the dividend above-mentioned conditions must withhold 22 % for the Danish Tax Authorities when The taxation of the distributed dividend distributing dividends, unless Denmark has depends on a variety of factors and to some entered a double taxation agreement where it

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is stated that the taxation of dividends should be 15 % or another percentage less than 22 %. The company receiving the dividends may, in that situation, apply for a refund of the overpaid tax from the Danish Tax Authorities. *** This guide is provided for informal purposes and must not be perceived as legal advice. If you have any questions concerning the Establishment of a Business Entity in Denmark please do not hesitate to contact our office. *** DAHL Law Firm is one of Denmark’s largest law firms with more than 200 employees. We provide first class legal advice to clients of all sizes nationwide, ranging from small businesses to large corporations and government agencies. This is delivered with the unique combination of professional breadth and great expertise, which is one of the features of DAHL Law Firm.

Many of our specialists are among Denmark’s leading experts in their respective fields. When dealing with large and complex problems, they cooperate across, and contribute their own, specialist expertise. DAHL Law Firm is therefore a strong legal partner, also in the very largest commercial cases. For further information please visit our webpage www.dahllaw.dk.

ILN Corporate Group – Establishing a Business Entity Series