INTRODUCTION
I. GENERAL INFORMATION ABOUT DENMARK
1. Geography
2. Population
3. Language
4. Currency
II. RELATIONS BETWEEN TURKEY AND DENMARK
III. ESTABLISHMENT OF A BUSINESS IN DENMARK
1. Limited liability companies
2. Establishment procedures
2.1 Establishment procedures of a limited liability company
2.2 Establishment procedures of a branch of a foreign company
IV. TAXATION IN DENMARK
1. Corporate taxation
1.1 Tax liability for different corporate forms
2. Private taxation
2.1 Direct tax
2.1.1 State tax
2.1.2 Municipal tax
2.1.3 Labour market contribution
2.1.4 Church tax
2.1.5 Property value tax
2.1.6 Property tax
2.2 Indirect taxes
2.2.1 Value added tax (VAT)
2.2.2 Green taxes
2.2.3 Excise duties
2.2.4 Customs
INTRODUCTION
Denmark is among the world?s best locations for doing business. This statement is built on the fact that The World Bank ranked Denmark as the easiest place in Europe to do business. And the World Economic Forum ranked Denmark in the top ten of the most competitive economies in the world.
The aim of this article is to introduce Denmark as respectable opportunity for the location of your business. Denmark joined NATO in 1949 and has been a member of the European Union since 1973 and has held The Presidency of the Council of the EU seven times, latest in the first half year of 2012.
İn additions to this will the article also examine the relations between Denmark and Turkey.
Furthermore provide an analyse of the legal environment of Denmark in order to assist both foreign investors and local businesses in understanding the major aspects of doing business in Denmark.
I. GENERAL INFORMATION ABOUT DENMARK
1. Geography
Denmark is located in Northern Europe and represents Scandinavia together with Sweden and Norway. The area of Denmark varies because of sea, but it is set to be approximately 43,094 square kilometres and consists of the peninsula Jutland and 443 named islands, where the two largest are Zealand and Funen. The largest cities with more then 100.000 inhabitants are the capital Copenhagen on Zealand (1,2 million), Århus and Ålborg in Jutland plus Odense on Funen.
2. Population
The estimated population of Denmark in 2012 is 5,543,453 million.
3. Language
The official language of Denmark is Danish. The volatility of the dialect across the country is not remarkable. Most Danes speak and understand English.
4. Currency
The national currency is Kroner, abbreviated as (DKK) and has been the official currency of Denmark, Greenland and the Faroe Islands since 1875. One krone is subdivided into 100 øre (cents). Both the ISO code "DKK" and currency sign "kr." are commonly used.
The Euro has not been introduced in Denmark yet, since it was rejected by a referendum in 2000. Though the Danish krone is pegged closely to the euro by ERM II, the EU's exchange rate mechanism. At the moment are there no plans about introducing the Euro in Denmark, based on the circumstance of a falling support from the population and the escalating European sovereign debt crisis.
II. RELATIONS BETWEEN TURKEY AND DENMARK
The relations between Turkey and Denmark are at a good level. The cooperation between the two countries have gradually developed during the years in every field, both internationally and bilateral. Due to an active foreign policy Denmark attaches importance to Turkey?s views on regional and international issues and supports Turkey?s EU membership process. At the moment there are living 65.000 Turkish citizens in Denmark, which is an important component in the bilateral cooperation. Turkey also supported the election of the former Danish primary minister (Anders Fogh Rasmussen) as Secretary General of NATO.
Because of the increased cooperation between the countries has there been created a conducive environment to improve economic and commercial relations. The bilateral trade volume has also made significant progress in recent years. In 2010 rose the bilateral trade volume between Denmark and Turkey to 1.445 billion USD. (Exports: 766 million USD, Imports: 679 million USD). In March 2012 had the export from Denmark to Turkey increased with 28 per cent compared to the same period last year.
One of the elements that have a significant importance in Turkey?s exports to Denmark is ?ready-to-wear? items. Being one of the most important suppliers in the textile and ready-to-wear sectors on the Danish market, the Turkish textile sector in recent years has directed its attention to Denmark also as a part of a brand marketing strategy.
Other items of Turkish exports to Denmark include automotive and spare parts industry, electrical devices and organic agricultural products. Denmark?s export to Turkey on the other hand, includes machinery, electrical devices, pharmaceuticals, medical equipment, and iron and steel products.
Denmark?s total amount of direct investments in Turkey reached 256 million USD by the end of 2010. According to 2010 figures, there are around 500 Danish firms in Turkey, active in the fields of construction, manufacturing, health, trade, tourism (hotels-pensions) and food. On the other hand, there are very few Turkish firms in Denmark, mostly small sized, active in the tourism, food and textile sectors.
Tourism relations have gained momentum in the recent years due to the diversity of air transportation facilities. The number of Danish people visiting and/or buying property in Turkey is increasing every year. In 2010 did 314.446 Danish tourists visit Turkey.
III. ESTABLISHMENT OF A BUSINESS IN DENMARK
All established companies in Denmark must be registered at the Danish Commerce and Companies Agency no later than eight days before the company goes into business. Like all companies is obligated to have a CVR (CBR number), or Central Business Number. Whether or not the company is required to have a VAT number depends on its annual turnover and industry. The following forms of companies can be established in Denmark:
Sole trader (Enkeltmandsvirksomhed)
General partnership (Interessentselskab, I/S)
Private limited company (Anpartsselskab, ApS)
Limited company (Aktieselskab, A/S)
Private limited company (Andelsselskab med begrænset ansvar, A.m.b.A)
Limited liability cooperative (Selskab med begrænset ansvar, A.m.b.A)
Limited partnership (Kommanditselskab, K/S)
1. Limited liability companies
The two most common corporate forms for limited liability companies in Denmark are limited company (A/S) and private limited company (ApS). Their similarities and differences are shown in the table below.
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Features
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Type of business entities
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Type of entity
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Limited company (A/S)
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Private limited company (ApS)
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Incorporate and registration
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Must be registered at the Danish Commerce and Companies Agency.
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Min. authorized (share) capital
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Min. DKK 500.000 or EUR 67.000.
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The minimum required capital is DKK 125.000 or EUR 17.000.
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Max. Number of shareholders
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Unlimited
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Min. number of shareholders
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One
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Liability of shareholders
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Limited to the value if shares subscribed.
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Management
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Mandatory two-tier system. A Board of Directors of min. 3 persons, and an Executıve Board of at least 1 member (CEO). (A Supervisory Board may substitute the Board of Dırectors).
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Optional one- or two-tier system. Min. one member of the Executıve Board of Dırectors or a Supervisory Board may be appointed.
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Place of management
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No requırements apply as to the residency of the members of the Executive Board, the Board of Directors and the Supervisory Board.
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Accountıng
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Annual fınancial statements audited by an accountant. (Audit may be optional).
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Tax
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Corporate income tax rate of 25%.
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2. Establishment procedures
In Denmark are there three different ways to establish a limited company or private limited company:
· Online registration: A new company can be incorporated and ready to operate within a few hours by using the online electronic registration system provided by the Danish Commerce and Companies Agency.
· Paper registration: A traditional paper registration of the company can also still be done, but the registration will take up to two or three weeks.
· Acquiring a shelf company: An ?off the shelf? company is an already founded and registered company without any previous operations or activities, and can be acquired from day to day.
2.1 Establishment procedures of a limited liability company
In accordions with starting a new company are there certain steps, which is indispensible. This list only mentioned the most necessary steps. You have to be aware of that not all steps are free of charge.
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Necessary steps
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General
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Formalities
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Business idea
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You have to examine whether there is a need for your product/service.
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Choose a name for your business
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You have to make sure the name not is in conflict with others intellectual property. It is a good idea from the start to buy a domain name for your company's future website.
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It is The Commerce and Companies Agency that registers business names and names of limited companies in Denmark. You can register your business name as a trademark if you want an extra protection of it.
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Determine and register your company form
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Decide which company form suits best with you, your product and economy. This choice will affect e.g. the tax requirements for financial and economic risks. You receive the tax ID after the registration.
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All types of businesses, including sole proprietorships have to be registered at The Danish Commerce and Companies Agency.
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VAT registration or not
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If you convert more than DKK 50,000 in a year, you have to be VAT registered. Note however, that certain industries are exempt from VAT.
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You can do this the same time as you are registering your business.
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Economy
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If you need to borrow money, make a business plan which you can present to the bank/investors.
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Business account
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As business owner you are obligated to have and "NemKonto" (account).
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The "NemKonto" has to be an account you already have and which you report as the company "NemKonto" by notifying your financial institution.
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Accounting
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You are responsible for your company's finances - even if you choose to use an accountant.
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Your accounting shall show all the economic activities your firm has had in the last year. The accounting must be do regularly and documented by vouchers. The Danish Ministry of Taxation has to be able to see from the financial statement how you have calculated the business profit.
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Check the regulations
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For some industries and products are there special legal requirements and statutory insurances.
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2.2 Establishment procedures of a branch of a foreign company.
Only business from countries where Danish businesses are allowed to open a branch is permitted to open a branch in Denmark. This includes all companies from a EU or EAA country, the USA and Australia. Businesses domiciled in all other countries must submit a reciprocity statement.
The branch manager must be entitled to legally be committed to the branch. The manager is also personally responsible for the statutory obligations that apply to the branch under Danish law, e.g. complying with the Danish Companies Act and the Private Limited Companies Act. The branch has to submit the foreign parent company's annual report, file tax returns, pay PAYE (Pay As You Earn) and comply with customs laws etc.
The branch and the branch manager are also subject to the rules of the Danish Company Accounts Act regarding deadlines and fees designed to regulate behaviour. And therefore the Branch is obligated to submit the parent company's annual report or exemption statement. Reporting any changes to circumstances previously notified, including changes to the statutes of the parent company. (The notification must include documentation as the original notification). The Danish Commerce and Companies Agency must be notified within 2 weeks if the foreign parent company becomes bankrupt or is placed under administration etc.
In contrast to the regulation of a Branch is the regulations of Representative Offices not very detailed. Which is demonstrated in the table below.
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Features
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Type of business entities
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Type of entity
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Branch
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Representative Office
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Incorporate and registration
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Must be registered at the Danish Commerce and Companies Agency.
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No requirement for corporate registration at the Danish Commerce and Companies Agency.
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Minimum authorized (share) capital
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No minimum capital requirements.
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No requirements.
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Liability
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The head office of the branch is fully liable.
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The foreign entity is fully liable.
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Management
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At least one branch manager must be registered.
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No requirements.
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Place of management
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No requirements apply as to the residency of the branch manager.
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Accountıng
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Not required to prepare financial statements for the branch. A copy of the financial statements of the head office must be filed.
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Tax
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Income from permanent establishment in Denmark is subject to a corporate tax rate of 25%.
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For tax purposes a representative office is not considered a permanent establishment, provided the business is generally of preparatory or auxiliary nature.
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IV. TAXATION IN DENMARK
In general the Danish system is characterized by a high income tax level and low social cost level for individuals and a medium income tax level and low social cost level for companies compared with European standards. However, notwithstanding these general considerations cross-border activities typically provides room for tax reductions, e.g. if expats are assigned to Denmark, if non-Danish individuals or companies invest in Denmark.
1. Corporate taxation
Corporate income less deductions and depreciation is subject to corporate tax. The Danish corporate tax rate is 25%. However, the effective rate is lower, as business expenses and depreciations are tax deductible. Further, the Danish taxation rules allow for unlimited loss carry forward.
Denmark levies no capital duty, share transfer duty, nor wealth taxes. Dividends may generally be received/distributed without tax. Also, Denmark is one of the countries in the world, which has entered into most tax treaties to avoid double taxation. Danish transfer pricing legislation is in accordance with OECD guidelines.
From an employer point of view, it is worth noting that Danish employers pay virtually no social security contributions as opposed to many other countries.
1.1 Tax liability for different corporate forms
All companies registered in Denmark, such as A/S (public limited liability company) and ApS (private limited liability company) are subjects to corporate taxation. As a rule of thumb foreign companies and the European companies (SE Company), having their effective management in Denmark or carrying on business activities through a permanent establishment in Denmark, are also subject to corporate tax in Denmark.
Partnerships are in most cases transparent for tax purposes, meaning that only the partners are subject to tax. Other specific entities, such as foundations may also be subject to tax in Denmark.
2. Private taxation
The tax system consisted of ?direct? and ?indirect? taxes. Though it is important to remember all citizens with an income also have a number of tax allowances and deductions. These allowances and deductions determine the amount of tax that you have to pay.
The most common taxes for a private person in Denmark are the below mentioned:
· State tax
· Labour market contribution
· Church tax
· Municipal tax (local administration)
· Property value tax
· Property tax
· Value tax
· Green taxes
· Excise duties
· Customs
2.1 Direct tax
Taxes deducted directly from the income are called direct taxes. Below you will find a brief description of the various direct taxes.
2.1.1 State tax
Part of the tax, which is paid from the income, goes to the state. The state tax rates are the same irrespective of where you live in Denmark, and they depend on your income. The state tax is divided into three categories:
· Bottom-bracket tax
· Middle-bracket tax
· Top-bracket tax
If the annual income is lower than a certain amount the citizen only have to pay bottom-bracket tax, but if the citizen makes more than this amount, he will have to pay middle-bracket tax in addition to bottom bracket tax. And of course if the citizen makes even more, he has to pay top-bracket tax in addition to the bottom-bracket and middle-bracket tax. The principle behind this division is that those who make the most also must proportionately pay the largest amount in taxes to the state. This is called a ?progressive? tax system and is the supporting structure behind the Danish Welfare system.
2.1.2 Municipal tax
All citizens must also pay tax to the municipality that they live in. The tax is calculated as a percentage of the their income. Each municipality determines the tax percentage that its citizens must pay.
2.1.3 Labour market contribution
All working citizens must pay a labour market contribution (LM contribution). Though citizens do not have to pay LM contribution out of any cash benefit, state educational grant or the like. The LM contribution is 8 per cent of the income. The employer will deduct this contribution from the monthly pay. The LM contribution can be compared to the social security contributions known in other countries. Labour market contributions are used for the Government's labour market expenses, for example to cover cash benefits, further training and leave of absence.
2.1.4 Church tax
Approx. 83 per cent of the Danish population is member of the Danish National Evangelical Lutheran Church and the members are obligated to pay church tax. This tax covers the maintenance of the churches in the municipality. The size of the church tax varies from municipality to municipality, and it is collected together with the other direct taxes.
2.1.5 Property value tax
Real estate owners are forced to pay property value tax. The tax is 1 per cent of the property value. Public authorities determine the value of the property every year. People living in Denmark must also pay property value tax on any foreign property that they own, and persons living abroad must pay property value tax on any property that they own in Denmark. The property value tax is included in the total tax paid over the year.
2.1.6 Property tax
If you own a house, a flat or a plot you must also pay a so-called ?property tax? to the municipality based on the actual property value. The property tax is assessed and is collected directly by each municipality and will differ from municipality to municipality.
2.2 Indirect taxes
Indirect taxes are taxes and duties that are paid via the goods and services, which are bought. The indirect taxes are included in the price that is paid for the goods/services. It is the seller, who is responsible for paying, for example, VAT, customs and excise duties to the state.
2.2.1 Value added tax (VAT)
In Denmark, VAT is included in the price of nearly all purchasable goods. The VAT is 20 per cent of the price that a customer pays for an article. VAT is also levied on services.
2.2.2 Green taxes
Green taxes are taxes that are paid for spending society?s resources. The more resources the citizen spends, the more he has to pay in green taxes. The idea behind this is to make citizens try to limit their consumption and thus conserve the natural resources. For example, green taxes are levied on petrol, oil, electricity, water and waste.
2.2.3 Excise duties
Excise duties are levied on the import, manufacture and sale of certain goods such as wine and beer, batteries, chocolate, sweets and soft drinks.
2.2.4 Customs
Customs is a duty, which is paid to the state. If a citizen travels to a non-EU country and purchased goods that are brought back to Denmark, the citizen may have to pay customs. This depends on the goods that are purchased and the volume of goods purchased. If a citizen brings in goods from a non-EU country worth more than DKK 1.150, he will have to pay customs. A special set of rules applies to spirits and tobacco for which there must be paid customs for a certain volume.
Maria-Christina Frances Binau-Hansen
Legal Counsel at Özgün Law
