Foreign businessmen may open subsidiaries in Denmark, characterized by the fact that the foreign shareholders have the majority of the voting shares.
The main advantage of establishing a subsidiary in Denmark is that the foreign company is not liable for its actions and doesn’t need to submit its own financial statements at the Danish authorities.
Both the branch and the subsidiary are both business forms that may be used to expand to the Danish market in 2022. however, as revealed in this article by our team specialize in company registration in Denmark, the two have very different characteristics and while the branch may be preferred by banks and financial institutions, the subsidiary offers important advantages in terms of reduced liability for the foreign company.
|Applicable legislation (home country/foreign country)|| |
|Best Used For|| Expanding the company's activities in Denmark |
Setting up the company's Nordic counterpart
Minimum share capital (YES/NO)
Yes, DKK 40,000 for the private limited company (ApS)
|Time frame for the incorporation (approx.)|| |
|Legal representative required (YES/NO)|| |
|Local bank account (YES/NO)|| |
|Independence from the parent company||Yes|
|Liability of the parent company||N/A|
|Corporate tax rate|| Dividend distribution is subject to the EU Parent-Subsidiary |
Directive or another Double Taxation Agreement
|Possibility of hiring local staff (YES/NO)||Yes|
The subsidiary is a company that is controlled by another legal entity, in this case, the parent company abroad. while both the subsidiary and the branch are owned by the foreign company, there are significant differences, as highlighted below.
• Legal entity: the subsidiary is a legal entity, completely separate from the foreign company.
• Liability: the parent company abroad is not liable for the subsidiary’s debts and obligations in Denmark.
• Activities: the subsidiary is not limited to perform the same business activities as a foreign company.
• Accounting: the maintenance of the accounts for the subsidiary is performed separately from the foreign company’s.
• Investment percentage: the foreign company’s ownership in the subsidiary is above 50% but it is not 100% like in the case of the branch.
Having understood that the subsidiary is a separate business form, it is worth mentioning that it is incorporated as per the corporate laws in Denmark and it is treated just like any other locally registered company.
The two forms of business that the subsidiary may take are the public limited liability companies or the private limited liability companies.
A private limited liability company opened in Denmark (ApS) is based on a share capital of at least 40,000 DKK, it offers limited liability to the founders and needs to be registered with the Business Authority. All members can be foreign individuals, there are no requirements for those on the Board of Directors to have a certain nationality or residency and neither for the members of the Executive Board.
A public limited liability company registered in Denmark is based on a share capital of at least 400,000 DKK. The management of such a company is assured by a board of managers formed by at least 3 members, one of them being the general manager. This company is subject to more complex requirements, for example, a mandatory two-tier management system and it can be listed on the stock exchange.
Both the public and private companies are good alternatives for foreign investors looking to set up a subsidiary in 2022. Both can engage in all types of business activities, however, a limited number of such activities can only be performed by the public LLC, for example, banking activities in some cases. The private limited company is subject to fewer regulations than the public one, this is why most investors will choose to incorporate the Aps. If the business evolves in such a manner that an expansion will be required, the private LLC can be easily transformed into a public LLC provided that the capital requirements are met..
The registration of the subsidiary in the Danish Commercial and Companies Agency is mandatory just like for any other legal entity. The necessary documents are the decision of opening a subsidiary, the articles of association, details regarding the subscribed capital and the contribution of each shareholder.
Following registration in the Commercial Registry, the investors must submit an application for registering the workers for the employment’s insurance.
Below, we list the steps needed to open a company in Denmark:
• Choose the business form: the private or the public limited liability company, the business form that fits the goals of the foreign company establishing its presence in the country.
• Choose a company name: for the subsidiary, the name does not need to be the same as that of the parent company; it does need to be a unique one.
• Register the business: any company is registered with the Danish Business Authority and it receives a central company register number or CVR.
• Register for tax: companies need to comply with the requirements for VAT registration in Denmark when they sell goods and services above a certain annual revenue.
• Hire employees: a subsidiary can hire Danish employees or transfer existing employees to Denmark easily.
When opening a subsidiary, the founders will also need to open a bank account in Denmark and set up payroll. The business account can be opened with any Danish bank, however, certain information about the foreign company may be required, especially in those cases in which the foreign legal entity holds more than 25% of the shares in the Danish subsidiary.
The subsidiary is also required to have an office in a Danish city and for this purpose, investors can purchase or rent a property or choose to work via a virtual office.
The whole process of registration of a Danish subsidiary takes about 4 working days if all the documents are correctly deposited.
Denmark is often seen as an attractive business destination not only because of the tax policy, for example, there is no withholding tax on the subsidiaries’ shares where the shareholding company keeps at least 10% of the capital, but also because of the ease of doing business. Investors who open a company in Denmark are faced with a simple and straightforward process.
The usual corporate income tax rate in Denmark is 22% and subsidiaries are taxed on their worldwide income because they are treated the same way as any other resident company. As far as the accounting requirements are concerned, the subsidiary must prepare annual financial statements and it will be required to present an audit report only if it surpasses certain annual thresholds. In general, it is advisable to seek specialized aid when preparing the financial statements and the corporate tax return.
Also double tax treaties with more than 90 countries were signed by Denmark. These treaties grant the absence or low withholding taxes on capital gains or on dividends, interests or royalties paid to the foreign country. In general, the dividend payments made to a parent company are not subject to withholding taxes. One of our agents who specialize in company incorporation in Denmark can give you specific details on the tax treatment of these legal entities according to the parent company’s country of residence.
Foreign companies will find that Denmark presents a number of attractive characteristics for doing business. The suitable business form is chosen based on the type of business that will be undertaken as well as the projected level of activity in Denmark. The actual registration phase can be performed quickly, with another number of weeks required for obtaining residence and work permits, when required for company employees.
Opening a subsidiary in 2022 in Denmark is not a complicated process, however, foreign entrepreneurs will need to check that they can travel to the country. If this is not possible or if it is delayed, our team can handle part of the procedures on your behalf. Through a power of attorney, we can help represent our client in front of the Danish authorities and for the purpose of submitting all or part of the documents required for incorporation.
Denmark can successfully be used to establish the Nordic headquarters of a company, either in the form of a subsidiary or a branch. For more information regarding the characteristics of Danish subsidiaries or personalized consultancy for your business, our company formation specialists are here to advise. Please feel free to contact us. Furtheremore if you need legal asistance here, our Danish lawyers will be happy to help.