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Denmark: Domestic Corporate Taxation

Corporate Tax On Dividend Income Received

The Danish corporate income tax rate is 25%. However incoming dividends received by a Danish holding company from its foreign subsidiary are exempt from corporate income tax in Denmark provided the holding company satisfies the following criteria (NB: Bill L99 passed in 2001 introduced changes to the legislation which are incorporated below and had effect from 2002):

  • 10% Shareholding: The Danish holding company must hold a minimum of 10% of the shares in the foreign subsidiary. The required minimum was reduced from 25% to 20% in 2001, from 20% to 15% in January 2007, and from 15% to 10% in January 2009.
  • Not a Controlled Foreign Corporation: The foreign subsidiary must not be a "CFC". A company is a CFC if it meets the following 2 criteria:
    • Financial Assets or Income:10% or more its assets are "financial assets" or if it earns at least 50% of its income from "financial activities", including net bank interest (it was gross interest until 2001), dividends, royalties, lease premiums and any profits on the sale of financial assets being assets which give rise to these sorts of income. As from 2002 income from real estate is no longer included in the definition of financial income. An insurance company or a bank will almost always be a financial company, although CFC waivers can often be obtained for banking and insurance subsidiaries of Danish companies. And:
    • Lower Level of Taxation: The foreign company's income has been subject to tax at less than 75% of the rate of tax as calculated under Danish law (this was administrative practice until 2001 but is now statutory).

For holding companies qualifying under the above rules, at the time of writing Denmark is alone among European countries in not taxing dividends received from offshore jurisdictions. Qualifying dividends received by a Danish holding company from an offshore subsidiary are not subject to corporate income tax irrespective of whether or not tax has been paid in the offshore location on the profits out of which the dividends have been paid.

Prior to 1999 the level of tax paid in the subsidiary jurisdiction was a relevant factor in determining whether Danish corporate income tax was to be levied on the dividends received by a Danish holding company from a foreign subsidiary.

 

 

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