Holding company located in Denmark

A Danish holding company, or holdingselskab, is a unique legal entity primarily focused on owning shares in other businesses, known as "operating companies" or "subsidiaries." These shares can also be in foreign subsidiaries.

A holding company can be formed as either a private limited company (Anpartsselskab - ApS) or a public limited company (Aktieselskab - A/S). A sole proprietorship does not meet the criteria to be considered a holding company.

It's important to note that a Danish holding company could be held responsible for the financial obligations of its operating company. In Denmark, there are no specific limitations on the activities of subsidiaries, meaning the holding company can have an investment portfolio that spans multiple industries.

What distinguishes a holding company from other types of companies in Denmark?

A holding company is mainly a limited liability entity that owns shares in other businesses, known as operating companies. In Denmark, this structure can be established as an ApS (private limited company) or an A/S (public limited company), but it cannot be set up as a sole proprietorship.

The main focus of a holding company is managing its owned businesses. Regardless of how many shares it holds in other companies, it is considered a holding company. The number of shares primarily impacts the tax rates, which are especially low for dividends and share sales. Additionally, a holding company can take advantage of a tax system that allows it to transfer losses between companies and report profits as dividends, offering protection for profits against claims or legal actions.

The Procedure for Setting Up a Holding Company in Denmark

Registering a Danish holding company usually takes around six days and is done through the Danish Business Authority. The process includes the following steps:

• Obtaining an electronic signature (NemID or MitID),
• Opening a bank account,
• Submitting the company registration to the Danish Business Authority (DBA),
• Registering employees for workers' insurance.

To set up a holdingselskab, a minimum share capital of 125 000 DKK is needed for a private limited company (ApS) or 500 000 DKK for a public limited company (A/S). The company only requires one shareholder and at least one director. There is no obligation to include the word "holding" in the company name or to register it as a VAT taxpayer.

While a holding company is usually set up before establishing operating companies, the reverse process is also feasible, though it requires more complex legal procedures. Additionally, a holding company can be registered using the same initial capital that was used for the operating company, creating "working capital" for both entities. Before transferring personal shares from the operating company to the holding company, it is crucial to assess the potential tax consequences.

Alternatively, a holding company can be obtained by buying an already established company that complies with all legal requirements, which helps bypass the waiting period for registration in Denmark.

Revenue and Costs of a Holding Company in Denmark

Setting up a holding company in Denmark, whether as an Anpartsselskab (ApS) or Aktieselskab (A/S), requires a registration fee of 670 DKK. Additional costs may occur if legal or accounting services are needed.

The company’s income primarily comes from two sources:

• Dividends received from operating companies
• Profits from the sale of shares in other businesses.

Business expenses consist of charges for accounting and banking services, though losses can occur if the value of shares declines. From a tax standpoint, Danish laws impose a 22% corporate income tax, which is the same rate applied to other limited liability companies. However, income generated from selling shares in other companies is tax-exempt.

Shares representing less than 10% of a company are classified as portfolio shares. Specific tax rules apply when holding these shares in private companies. Typically, 70% of dividends are subject to tax, while income from the sale of shares is tax-exempt. Dividends are distributed to shareholders at the annual or extraordinary general meeting.

Taxation of a Holding Company in Denmark

The level of tax levied on a holding company in Denmark depends on the type of income it generates:

• Profits from the sale of shares in operating companies
• Dividends received from the operating company.

Furthermore, the legal structure of the operating companies is significant, as they can be either private or public.

A Danish holding company that owns only foreign shares is exempt from paying corporate income tax (CIT).

Although there are no specific accounting procedures outlined for holding companies, they must undergo an annual audit of their financial records, conducted by licensed Danish accountants.

Dividend Tax Rates on Dividends Received from Operating Companies:

• Ownership of 10% or more of shares in a private company - 0%
• Ownership of less than 10% of shares in a private company (portfolio shares) - 15.4% (70% of the dividend is taxed at a 22% rate)
• Ownership of 10% or more of shares in a public company - 22%
• Ownership of less than 10% of shares in a public company (public portfolio shares) - 2%

Income from Shares is Also Taxed:

• Ownership of 10% or more of shares in a private company - 0%
• Ownership of less than 10% of shares in a private company (portfolio shares) - 0%
• Ownership of 10% or more of shares in a public company - 22%
• Ownership of less than 10% of shares in a public company (public portfolio shares) - 22%

Joint Taxation

When a company owns 50% of the shares in another Danish company, Danish regulations designate it as the administrator of a joint taxation system between the holding company and the operating company. If both companies are registered in Denmark, they must register with SKAT Erhverv within one month of initiating joint taxation.

Joint taxation can also apply when the companies are based in different countries, leading to a division of responsibility between the holding company and the operating companies. The responsibility is fully assumed when the operating company is entirely owned by the holding company, and partially when it is only partially owned. Both companies must share the same fiscal year. As the holding company takes precedence over the operating company, any change in the fiscal year also affects the subsidiary.

What are the benefits and drawbacks of a Danish holding company?

Benefits of a Danish Holding Company (Holdingselskab):

• Simple and fast registration process.
• No requirement to register for VAT.
• No minimum shareholding in other companies needed to qualify as a holding company.
• Ability to transfer dividend profits between companies to safeguard capital.
• Favorable tax rates on profits from sales and dividends.
• Potential for tax reductions by shifting deficits from one operating company to another within the joint taxation system.
• No specific accounting requirements other than the annual audit.

Disadvantages of a Danish Holding Company (Holdingselskab):

• Challenges in registering a Danish holding company when operating companies are set up first.
• Complexity in the legal relationships between the holding company and its subsidiaries, which may necessitate expert advice.
• Generally, no operational activity apart from managing shares in operating companies.
• Possible liability for the debts of operating companies.
• Fluctuations in tax regulations based on the number of shares held and the legal structure of the subsidiaries.