Denmark: Types of Company
Comparison of Dutch and Danish Holding Company Regimes
Since Holland has traditionally cornered the market in international holding companies it is useful to compare the relative advantages and disadvantages of both jurisdictions in assessing the impact of the Danish holding company regime:
Capital Gains Tax: The Danish holding company is exempt from capital gains taxes on the sale of a shareholding in its subsidiary providing that it holds at least 10% of its shares. In Holland the participation exemption (at the time of writing) is 5% with no time limit.
Withholding Taxes on Outgoing Dividends: Dividends distributed by a Dutch holding company are subject to a standard dividend withholding tax rate of 15% unless the provisions of the EU Parent-Subsidiary Directive apply or unless the rate is reduced by way of a double taxation treaty. Under the current network of double taxation treaties this rate is reduced to 0 to 5% in the case of a few countries, 5 to 7.5% in the case of the Dutch Antilles, 10%-15% in the case of other treaty countries and 15% for non-treaty countries.
The current situation in Denmark is that there is exemption from withholding tax for outgoing dividends to countries which have double tax treaties with Denmark, subject to a minimum 10% participation level.
Withholding Taxes on Incoming Dividends: Holland has slightly more double taxation treaties than Denmark and so has slightly more leverage in reducing withholding taxes deducted on incoming dividends remitted to a holding company based in its jurisdiction. Denmark is nonetheless in the top 10 worldwide jurisdictions from the point of view of the number of double taxation treaties negotiated.
Corporate Income Tax on Dividend Income: Dividend income received by a Danish holding company is exempt from corporate income tax in Denmark provided it holds 10% of the subsidiary shares and the subsidiary is not a "Controlled Foreign Corporation". The threshold for the eligible holding was reduced from 15% as of January 2009. The 12-month holding requirement was eliminated from January 1, 2010.
In Denmark, if the subsidiary is a CFC then it must have paid tax at 75% of the Danish rate; in Holland an offshore subsidiary must have paid some tax in its own jurisdiction if the favorable holding company fiscal regime is to apply. Thus income received from subsidiaries located in the Middle East or offshore havens such as Gibraltar in which no tax or low tax is paid may not qualify for the special treatment available under the participation exemption rules.
Capital Taxes: Denmark has no taxes on the issue or transfer of shares. In Holland the participation exemption (at the time of writing) is 5% with no time limit.
Minimum Participation: In Denmark the preferential fiscal treatment given out to Danish Holding companies only applies if the holding company holds at least 10%. In Holland by contrast the favorable fiscal regime applies if the Dutch holding company holds at least 5% of the foreign subsidiary shares with no time limit applied. (N.B. under the EU Parent-Subsidiary Directive dividends paid to subsidiaries in another EU member state are exempt from withholding tax if the parent holds at least 10% of the subsidiary for a minimum period of 12 months.
Advance Rulings: Advance rulings in Holland are considerably more effective than those available in Denmark.
Withholding Taxes on Royalty Payments: In Denmark 25% (reduced from 30% as of April 1, 2008) withholding taxes are deducted from royalties relating to patents, trademarks or information concerning industrial commercial or scientific expertise whereas royalties relating to copyright, literary, artistic or scientific work are exempt from withholding taxes. In the case of Holland no withholding taxes are deducted for royalty payments made by a Dutch company irrespective of their nature.
Withholding taxes on Interest Payments: The Netherlands imposes no withholding taxes on loan interest payments. In Denmark, interest paid to non-residents is subject to a 25% withholding tax (reduced from 30% as of April 1, 2008).
Regulatory Environment: Disclosure is comprehensive in Denmark and audits are required for all companies. In Holland by contrast audits are only required for large companies and reporting requirements are much less detailed.
Infrastructure: Holland has a well developed infrastructure for the provision of fiscal and related holding company services whereas Denmark is a relative newcomer in this field.
Shelf Companies: Shelf companies are available in Denmark but not in Holland. The Danish authorities allow for the online registration of shelf companies, meaning they can be registered swiftly. Accordingly shelf companies are much sought after.