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Fall 18 INTERNATIONAL LAWYERS NETWORK

DAHL FIRM ESTABLISHING A ENTITY IN DENMARK

ILN [ESTABLISHING A BUSINESS ENTITY IN DENMARK] 2

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.

Neither the International Lawyers Network or its employees, nor any of the contributing law firms or their partners or employees accepts any liability for anything contained in this guide or to any reader who relies on its content. Before concrete actions or decisions are taken, the reader should seek specific legal advice. The contributing member firms of the International Lawyers Network can advise in relation to questions regarding this guide in their respective jurisdictions and look forward to assisting. Please do not, however, share any confidential information with a member firm without first contacting that firm.

This guide describes the law in force in the requisite jurisdictions at the dates of preparation. This may be some time ago and the reader should bear in mind that statutes, regulations and rules are subject to change. No duty to update information is assumed by the ILN, its member firms, or the authors of this guide.

The information in this guide may be considered legal advertising.

Each contributing law firm is the owner of the copyright in its contribution. All rights reserved.

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ESTABLISHING A BUSINESS ENTITY IN DENMARK

DKK. The Entrepreneurship is “Establishing a Business Entity in mainly relevant for Danish start-up business Denmark” with limited access to financial capital. The Ms. Siw Ryan limited are the most common Assistant Attorney DAHL Law Firm – Denmark entities for foreign investors.

1.2 Sole trader

1. TYPES OF BUSINESS ENTITIES A sole trader (Enkelmandsvirksomhed) can only be owned by one physical person. The There are several forms of business entities in entity is suitable for smaller business. The Denmark and there are a wide range of person who owns the entity is personally possibilities for establishing a business entity in liable for the business, which implies that the Denmark. The most suitable entity depends on person is liable for all debts and obligations of a variety of factors, such as the nature of the the business. The person who owns the entity business, the expected activity level, the extent has full control over all business decisions. of liability, and matters. The following will There are no capital requirements for review different possibilities of establishing establishing an entity as a sole trader and business entities in Denmark. there are only a few legal requirements. 1.1 Limited Companies 1.3 Limited companies are characterised by the Partnerships can be organised as limited shareholders liability, which is limited to the liability for participants and with unlimited capital invested in the company. The liability for the participants. Partnerships shareholders will not be liable for the require more than one participant. The obligations of the . The structure is more flexible than limited shares in the companies. The different partnerships are ( – A/S) may be offered to the taxationally transparent. public. It is only the Public Limited Company which can be listed on a regular or alternative The (Interessentskab – I/S) is a market. The Public Limited Company is also partnership of a minimum of two participants. the most regulated entity in Denmark. The The persons’ who owns the partnership are nominal in the Public Limited personally liable for the business, which Company must be at least 400,000 DKK and means the persons are solely liable for all the nominal share capital in the Private debts and obligations of the business. There Limited Company ( - ApS) must are no capital or other requirements for the be at least 50,000 DKK. The Private Limited establishment of the partnership besides the Company is quite similar to the Public Limited partners having an agreement. Company, but it is less regulated, and the The ( – company cannot be listed on a regular or K/S) requires two types of participants, the alternative market. Entrepreneurship “Komplementar,” who is the participant who Companies are also limited companies. The is personally liable for the debts and share capital in an Entrepreneurship obligations of the partnership and the Company must be between 1 DKK and 49,999

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“Kommanditist,” who is the participant(s) It is also possible to establish other entities in who has and is only liable for Denmark besides the above-mentioned such the contributed share capital. There are no as Societies (A.m.b.A), European capital requirements for the establishment of Company Societas Europea (SCE-selskaber), the Limited Partnership. European Cooperative Society (SE-selskaber) The Partnership Limited by Shares and Commerical Foundations (Partnerselskab – P/S) requires two (Erhvervsdrivende fonde) ect. which will not participants, the “Komplementar,” who is the be elaborated on or covered any further. participant who is personally liable for the 2 STEPS AND TIMING TO ESTABLISH debts and obligations of the partnership. The 2.1 Limited Company (A/S, ApS, IVS) Komplementar will often be a limited company, which makes the liability illusory. Limited Companies are commonly used The “Kommanditistaktionær” are business entities in Denmark. The entities are participant(s) who are organised as governed by the Danish Company Act which. shareholders in a Public Limited Company among other things. regulates the (A/S). The Partnership Limited by Shares is requirements for the establishment of the governed by the Danish Company Act and the companies. regulations which apply to the Public Limited The founders of a limited company must Company also apply to the Partnership initially sign a memorandum of association Limited by Shares. The nominal share capital and . There is no in the Partnership Limited by Shares must be requirement for notarial certificates. The at least 400,000 DKK. documents must be submitted to the Danish 1.4 Branch office Business Authorities with the request for registration of the company, within two It is possible to establish a branch, to carry weeks after the formation of the company. out a foreign entity’s business in Denmark. The formation of a limited company will be Companies which can operate through a effective from the day of signing the branch in Denmark must be foreign a) public memorandum of association and the articles limited companies, b) limited partnership of association, or from any later date companies, c) private limited companies or d) specified in the memorandum of association. companies with a similar corporate form based in a EU/EEA country or a country that The share capital can be paid with cash, has an international agreement with Denmark. assets or both. The limited company cannot The branch must be managed by a branch be registered if the shareholders have not manager, who has the power to bind the paid at least 25% of the share capital (not less branch, by his/her signature. The foreign than 50,000 DKK) if the contribution is cash. entity is liable for the obligations of the This possibility is therefore mostly relevant Danish branch office. The branch offices must for the Public Limited Company. The be registered with the Danish Business possibility of not paying the whole share Authorities. The Danish Business Authorities capital implies some restrictions. There must require certain information about the foreign be evidence that the share capital has been entity. It can take up to weeks to establish a paid before the time of the registration. branch in Denmark. The entity “Branch offices” will not be covered or elaborated any further.

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The company will hereafter be registered by deductions shall be registered by the owner the Danish Business Authorities and the in its income tax return. company receives the The Limited Partnership (Kommanditselskab – Number (CVR-nr.) often within one weekday K/S) is established by a Limited Partnership from uploading the request. It is possible to Agreement. The capital contribution from the buy an “of the shelf” company, which is Kommanditist can be cash or assets. It is not a already registered, but taking the quick online requirement that the company capital has registration into consideration, this possibility been contributed before the formation of the is very rarely used. 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 Danish Business Authority, the sole trader will not have any legal effect. The partnership will receive its registration number (CVR-nr.). The receive its registration number (CVR-nr.) 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 establishing a business between must contribute at least 400,000 to the share the partners. There are no formal regulations capital in cash or assets. It is possible if the concerning the agreement. The partnership is contribution is cash to only contribute with not regulated by the Danish Company Act, 25% of the share capital, just as with Limited which means it is highly recommended to Companies. The Komplementar does not have have a partnership agreement which to contribute with cash or assets. The regulates the terms of the partnership. The founders of the Partnership Limited by Shares Danish Business Authority must be notified of must sign a memorandum of association that the partnership, but the notification itself informs who the Komplementar is and articles does not have any legal effect. If the of association. The Komplementar must also Partnership is owned by two legal entities, have some administrative powers which the partnership will be registered in the could be appointing a member of the board business register with legal effect. The and economic rights such as receiving Partnership will receive its registration payment or dividend due to the liability. The number (CVR-nr.) hereafter. The owners of documents must be submitted to the Danish the partnership are the tax subjects of the Business Authorities with the application for partnership and the income and the registration of the company within two weeks after the formation of the company. The

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formation of the Partnership Limited by members, and the chairman must not be Shares will be effective from the day of the executive manager and the executive signing or from any later date specified in the managers may not constitute the majority memorandum of association. The Partnership of the board or Limited by Shares will hereafter be registered b) one or more executive manager(s) who by the Danish Business Authorities and are responsible for the , the receives the Company Register Number (CVR- management is appointed by a supervisory nr.) often within one weekday from uploading committee who supervises the the application. management. A member of the supervisory 3 GOVERNANCE, REGULATION AND ONGOING committee cannot be a member of the MAINTENANCE management. The companies and partnerships are obligated The and the to inform the Danish Business Authorities of the Entrepreneur Company can choose between legal and beneficial owner of the company or the “two-tier system” and a “one-tier system.” partnership if the legal owner owns more than The one-tier system consists of one or more 5% of the shares or voting rights and the executive manager(s). beneficial owner that holds more than 25% of The Danish Company Act contains several the indirect shares, voting rights or has other minority rights. The most common will be decisive influence over the entity. There are no reviewed as follows. The minority of at least specific restrictions concerning local 33 1⁄ % of the share capital or of the voting shareholders or directors in the companies and 3 partnerships in Denmark. rights can oppose changes in the articles of association, share capital increase, reduction 3.1 Limited Companies (A/S, ApS and IVS) of share capital, liquidation of the company, Limited companies are governed by the merger and fission ect. The minority that is at Danish Company Act. Limited companies are least 10% of the representatives at the obligated to report changes decided at general meeting, can abstain from losing general meetings, such as changes in: “inalienable rights”. A minority of at least 5% management, name, accountant, nominal can require notice of an extraordinary general capital, entity address, new articles of meeting. There are also individual rights such association etc. to the Danish Business as having a question debated, to talk or to put Authorities. forward questions to the management at the general meeting. The Danish Company Act requires a “Two-tier system” for the Public Limited Company, 3.2 Partnerships (I/S, K/S, P/S) which means the shareholders can choose The Partnership Limited by Shares is between: regulated by the Danish Company Act and the a) a which has the same regulations as the Public Limited responsibility for superior management, Company apply. and the board must appoint one or more There are no company legislations regulating executive manager(s), who are responsible the Partnership and the Limited Partnership for daily management. The board of besides minor articles in the Danish Act on directors must consist of at least three Commercial Undertakings concerning the

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name of the partnership and powers of pay Danish VAT and the company must procuration. There are some facultative declare VAT for each VAT period. provisions set out by case law and principles 4.1.2 Tax of general company law regulating the Partnership and the Limited Partnership. The Danish company must, in some cases, Concerning the Partnership, the executive pay tax in Denmark for profit generated by power is partly at a) the Partnership meeting the company. The company tax rate in and b) partly by the owners. All questions at Denmark is 22%. The taxation of the the partnership meeting must be agreed company depends on potential double upon in solidarity since the owners have the taxation agreements. right of veto. The minority protection is If the foreign entity has employees, the extensive due to the unlimited liability. The company must, as the employer, withhold management in the Limited Partnership is Danish Tax and labour market contribution mostly the Komplementar due to the from the salary that the company pays from unlimited liability. Decisions which do not the services carried out in Denmark. comprise the Limited Partnership Agreement or the purpose of the Limited Partnership 4.2 Special business or investment visa must also be accepted by the Kommanditister. 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 months and employment is not permitted . during the stay. For residence or work stays which are longer than three months, a 4 FOREIGN INVESTMENT, RESIDENCY AND residence or work permit is required. Special MATERIAL VISA RESTRICTIONS rules apply to citizens from Nordic Countries, 4.1 Significant barriers to entry for an EU member States, Switzerland and offshore party Liechtenstein. It is advised to seek specific guidance concerning visa, residence or work There are no specific restrictions or barriers permit issues. concerning foreign investors establishing Danish entities, which do not apply to Danish 4.3 Restrictions on remitting funds out of the investors. Some restrictions will apply to jurisdictions permits, licenses and authorisations for some Danish entities distributing dividends must businesses. report information about the recipients of 4.1.1 VAT dividends to the Danish Tax Authorities. There are no specific restrictions on remitting funds A foreign entity established in Denmark out of Denmark, but the funds may be must pay VAT to the Danish Tax Authorities applicable to taxation. The taxation of the when selling goods and services after the distributed funds depends on whether same regulations as other Danish Denmark has entered an agreement with the companies. The company must register to foreign country concerning the avoidance of

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[ESTABLISHING A BUSINESS ENTITY IN DENMARK] 8 double taxation. Section 4.3 concerns the which will be taxed with 22%, if the company situations where Denmark has the right to tax is not professionally investing in shares. the distributed funds. For shareholders that are limited companies The entities are obligated to withhold the tax (in accordance with Danish law) and own of the distributed dividends to individual more than 10% of the shares in the company persons and to companies. distributing shares, the company can to some 4.3.1 Partnerships distributing funds extent receive the dividends without the dividends being taxed. There are the In partnerships, the profits and losses are following requirements: a) the foreign distributed equally between the partners. The company owns more than 10% of the share different partnerships are taxationally capital of the Danish company or more than transparent and the individuals will be 50% of the voting rights, b) the company subjected to paying tax if receiving funds receiving the dividend is the beneficial owner, from the partnership. Denmark has the right c) the company is Danish or the company is of taxation if the activity is qualified as a foreign, and the EU Parent- permanent establishment in Denmark. If the Directive applies, or the subsidiary is resident activity is not qualified as a permanent in a country which has entered a double establishment, the taxation depends on the taxation agreement with Denmark. regulation in the country the participant is domiciled in. The limited companies that do not fulfill the above-mentioned conditions must withhold 4.3.2 Limited Companies distributing 22% for the Danish Tax Authorities when dividend distributing dividends, unless Denmark has The taxation of the distributed dividend entered a double taxation agreement where depends on a variety of factors and to some it is stated that the taxation of dividends extent, it depends of the percentage of should be 15% or a percentage less than 22%. ownership in the company distributing the The company receiving the dividends may, in divided. that situation, apply for a refund of the overpaid tax from the Danish Tax Authorities. If the shareholder is an individual person, the person will be subjected to paying tax on the *** distributed dividend. The taxation rate is 27% This guide is provided for informal purposes and must not be for the first 52,900 DKK (2018) and 42% for perceived as legal advice. the dividend which exceeds 52,900 DKK. If you have any questions concerning the Establishment of a Business Entity in Denmark please do not hesitate to contact Limited companies: Entrepreneurship our office. Companies cannot distribute dividends before *** the share capital in the company is equal to DAHL Law Firm is one of Denmark’s largest law firms with more 50,000 DKK. than 200 employees. We provide first class legal advice to Shareholders that are limited companies and clients of all sizes nationwide, ranging from small businesses to large and government agencies. This is delivered own less than 10% of the shares in the with the unique combination of professional breadth and great company distributing shares will always be expertise, which is one of the features of DAHL Law Firm. subjected to taxation of the distributed Many of our specialists are among Denmark’s leading experts in shares. It is only 70% of the distributed shares their respective fields. When dealing with large and complex problems, they cooperate across, and contribute their own,

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[ESTABLISHING A BUSINESS ENTITY IN DENMARK] 9 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