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Denmark: Domestic Corporate Taxation

Capital Gains Tax on the Sale of Shares

Recently, capital gains tax in Denmark has ranged from 39%-59%, but is usually imposed at a rate of around 25%. However by way of exception capital gains taxes are not levied on any profits realized by a Danish holding company on the sale of its shares in a foreign subsidiary provided the following criteria are satisfied:

  • Not a Controlled Foreign Corporation: The foreign subsidiary must not be a "CFC". At the time of writing, 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).
  • 10% Shareholding: 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.

Prior to Janaury 1, 2010, the shares sold must have been held for at least 3 years to qualify for favorable capital gains tax treatment.

 

 

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