Holding company in Denmark

A holding company in Denmark (holdingselskab) is a unique legal entity primarily designed to hold shares in other businesses, known as "operating companies" or "subsidiaries." These shares may also be invested in foreign subsidiary companies.

A holding company can be structured as:

A limited liability company (Anpartsselskab, ApS),
A joint-stock company (Aktieselskab, A/S).

A sole proprietorship cannot operate as a holding company.

It is crucial to understand that a Danish holding company could be responsible for the financial liabilities of its operating company. In Denmark, there are no specific limitations on the activities of subsidiary companies, enabling the investment portfolio to encompass businesses across different industries.

What distinguishes a holding company from other types of companies?

A holding company is primarily a limited liability entity designed to own shares in other businesses, known as operating companies. In Denmark, this structure can be established as an ApS or A/S, but it cannot be a sole proprietorship. Holding companies are typically not registered for VAT. Their main role is to oversee and manage the businesses they control.

Regardless of how many shares are held in other businesses, this entity is considered a holding company. The number of shares impacts the tax liabilities, with particularly favorable treatment for dividends and share sales. Additionally, a holding company can take advantage of a tax system that permits transferring losses between companies and treating profits as dividends, offering protection for earnings from legal actions or claims.

Advantages of owning a holding company in Denmark

A fast and straightforward registration process.
No obligation to follow specific accounting procedures, except for the annual audit of financial records.
No requirement to register as a VAT payer.
No minimum shareholding in other companies needed for recognition as a holding company.
Tax advantages concerning dividends and profits from the sale of shares.
The ability to transfer losses between operating companies under joint taxation, which can lower taxes.
The ability to move dividend profits between companies to safeguard capital.

Disadvantages of owning a holding company in Denmark

A holding company generally does not participate in operational activities, instead concentrating solely on managing shares in operating companies.
Tax regulations vary depending on the number of shares owned and the legal structure of subsidiary companies.
The process of registering a holding company is more complex if operating companies are established first.
The legal relationships between the holding company and its subsidiaries can be complicated, requiring expert assistance.
There is a risk of being held liable for the debts of the operating company.

Establishing a Holding Company in Denmark

The process of registering a Danish holding company usually takes about six days and is handled by the Danish Business Authority. To complete the registration, you must:

Acquire an electronic signature (NemID or MitID),
Open a bank account,
Register the company with the Danish Business Registration Authority (DBA),
Enroll employees in workers' insurance.

To set up a holding company in Denmark, a minimum share capital of 125,000 DKK (for a limited liability company) or 500,000 DKK (for a joint-stock company) is required. The company must have at least one shareholder and one director. There is no requirement to include the word "holding" in the company name or to register the company as a VAT payer.

The registration of a holding company usually takes place before the establishment of operating companies. However, the reverse is also possible, though it involves more complex legal requirements. A holding company can be formed using the same initial capital designated for the operating company by merging both companies under "working capital." Before transferring personal shares from the operating company to the holding company, it is important to carefully assess the potential tax consequences.

A holding company can also be obtained by buying an existing company that fulfills all legal requirements, which can reduce the registration time in Denmark.

Revenue and costs in 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 apply if legal or accounting services are utilized. The company's name does not need to contain the word "holding" to be classified as a holding company-the important factor is the nature of its activities.

The company's revenue primarily comes from two sources: dividends received from the operating companies and profits from selling shares in other businesses. Operational expenses include fees for accounting and banking services, while losses may arise from a decrease in share value. From a tax standpoint, Denmark's law imposes a 22% corporate income tax rate, which also applies to other limited liability companies. However, income generated from selling shares in other companies is tax-exempt.

Shares that represent less than 10% of a company are referred to as portfolio shares. Specific tax rules apply when these shares are held in private companies. Typically, 70% of dividends are taxable, while profits from the sale of shares are tax-exempt. Additionally, it is important to note that a Danish holding company is not subject to corporate income tax (CIT) if it only holds shares in foreign companies. Shareholders receive dividend payments at the annual or extraordinary general meeting.

Taxation in a holding company structure

The tax rate for a holding company in Denmark varies based on the type of income generated:

Profits from the sale of shares (ownership interests in operating companies),
Dividends received from operating companies.

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

While regulations do not mandate specific accounting procedures for Danish holding companies, they are required to have their financial records audited annually by certified auditors in Denmark.

The tax rates on dividends received from operating companies are as follows:

0% if you own 10% or more of the shares in a private company,
15.4% if you own less than 10% of shares in a private company (portfolio shares) (70% of the dividend is taxed at a 22% rate),
22% if you own 10% or more of shares in a public company,
2% if you own less than 10% of shares in a public company (public portfolio shares).

Income from shares is also taxable as follows:

0% if you own 10% or more of the shares in a private company,
0% if you own less than 10% of shares in a private company (portfolio shares),
22% if you own 10% or more of shares in a public company,
22% if you own less than 10% of shares in a public company (public portfolio shares).

Combined taxation

Under Danish regulations, a company becomes responsible for managing a joint taxation system between the holding company and the operating company if it owns 50% of the shares in another Danish company. If both companies are registered in Denmark, they must be reported to 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 operating and holding companies. Full responsibility exists when the holding company owns the operating company entirely, while partial responsibility applies if the holding company owns only a portion. Both companies must share the same financial year. As the holding company holds a dominant position over the operating company, any change in the fiscal year for the holding company also affects the subsidiary.