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General introduction to Denmark and the business environment

Doing business in Denmark

Denmark is a small country in the northern part of Europe with approximately 5.5 million inhabitants. Denmark is one of the Scandinavian countries that also include Sweden and Norway.

Copenhagen is the capital of Denmark and the big-gest city by far. Other big cities are Aarhus, Aalborg, Odense, Esbjerg and Kolding.

Denmark is a member of the EU and has been that since the beginning of the 1970s.

The currency in Denmark is Danish kroner (DKK) and Denmark does not take part in the monetary union within EU.

One characteristic feature of Denmark is the welfare system, which endeavours to ensure access to public services for all people. Many regard the Danes as informal when dealing with people – also in a busi-ness context.

Danish business life has a significant global posi-tion in relation to certain products and industries and Denmark has a well-reputed research and de-velopment environment. In particular with respect to the environment, friendly solutions and “green” products Denmark can be considered a first mover.

Generally, Denmark is seen as a very easy place to do business and only few formalities must be observed when establishing a business platform. E.g. legal entities can be established on a day-to-day basis.

The legal systemFrom a general perspective the Danish legal system is based on a civil law system that is relatively similar to the legal systems in other European coun-tries.

The Danish court system is composed of three levels: city courts, the High Courts (eastern and

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western divisions) and the Supreme Court in Co-penhagen.

As a general rule the city courts will be the courts of first instance in civil matters.

Danish courts do not apply a strict interpretation of the letter of the law, but are inclined to look at the purpose of the statute.

This approach of interpretation is to a large extent applied to commercial contract law where the courts will try to establish the parties’ common intention rather than simply applying the strict wording of the agreement. Thus agreements and other documents are often drawn up in reliance on statute as well as general contractual principles.

A large part of the Danish legislation is based on EU legislation. In many legal areas, foreign busi-ness partners who are familiar with EU legislation in that area will find Danish legislation relatively similar. Industrial standards and a large part of corporate and commercial regulation correspond to those found elsewhere in Europe.

Compared to other European jurisdictions the costs related to dispute resolution in Denmark are at the lower end of the scale and in most cases a final ruling is given within 12 months.

The parties to a dispute may agree on alternative dispute resolution in the form of arbitration. The Danish Institute of Arbitration (Copenhagen Arbi-tration) is a well-established permanent institute in relation to both national and international ar-bitration and it has its own set of procedural rules, which are comparable to for instance those of ICC Arbitration.

TaxTaxation in Denmark is generally based on a direct taxation of companies and individuals. Companies pay a flat tax rate 22 per cent as of 1 January 2016, (lowering from 24½ per cent in 2014, 23½ per cent in 2015) and individuals pay a progressive tax rate. The Danish VAT rate is 25 per cent.

Danish tax law does not include a general anti-avoidance provision, but the courts tend to apply a substance-over-form principle.

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However, certain re-characterization rules exist, such as a rule that re-characterizes debt as equity if the debt is treated as an equity instrument according to the tax rules in the country of the creditor.

Corporate taxCorporations resident in Denmark are liable to pay corporate tax on their world-wide income. Howe-ver, income from permanent establishments and real property located abroad is not taxable income. A resident company is a company incorporated in Denmark. In addition, a company incorporated in a foreign country is considered a resident of Den-mark if it is managed and controlled in Denmark. Although a Danish company or taxable legal entity may change its domicile to another country, this would normally be considered liquidation with the same tax effect as a taxable sale. The company can transfer its activities abroad, but, to prevent tax avoidance, such a transfer is considered a disposal.

Taxable income is based on profits reported in the annual accounts, which are prepared in accordance with generally accepted accounting principles. For tax purposes, several adjustments are made, primarily concerning depreciation and write-offs

of inventory.

Expenses incurred to acquire, ensure and maintain income are deductible on an accrual basis.

The Danish transfer pricing legislation is based on the general principle of arm’s length transactions. Therefore all transactions between related parties must be concluded on general market terms.

According to the Danish joint taxation regime, all Danish group companies and all permanent estab-lishments and real properties in Denmark owned by foreign group companies are subject to manda-tory joint taxation.

Under the transparency rule (Danish anti-check-the box rule) if a Danish company is considered to be transparent under foreign tax rules, in prin-ciple, the company is also considered to be trans-parent under Danish tax rules. The rule may imply that a Danish company owned by a U.S. parent company that has “checked the box” on the Danish company cannot deduct interest expenses, royalty expenses or other internal expenses paid to the U.S. parent company. Certain exceptions exist, and case-by-case evaluation is recommended.

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DividendsDividends are generally subject to corporate in-come tax, however dividends received by a Danish parent company from Danish or foreign subsi-diaries are generally tax-exempt. However, this tax exemption only covers dividends from shares where (i) the corporate shareholder owns at least 10 per cent of the shares in another company, and the company is a Danish company subject to corpo-rate tax, or foreign company where the taxation of any dividends it pays out must be waived or redu-ced according to Directive 90/435/EEC or tax treaty between Denmark and the jurisdiction where the foreign company is a tax resident, or corporate tax, or subsidiary shares or group shares, or (ii) the cor-porate shareholder and the company are subject to Danish national joint taxation or could elect to be subject to Danish International joint taxation.

Capital gainCapital gains on shares held by a Danish company are generally exempt from taxation.

Capital gains and bonds, debentures and financial contracts etc.Corporations are subject to tax on all capital gains and losses on bonds, debentures and similar financial instruments, and debts irrespective of the currency and the interest rate. Capital gains on futures, options and other financial instruments are also subject to tax.

Limited tax liability and withholding taxesForeign companies that are not subject to full tax liability in Denmark may be subject to limited tax liability with respect to income and gains deriving form certain sources in Denmark.

As a general rule, dividends distributed from a Da-nish company to a foreign shareholder are subject to 27 per cent withholding tax.

The withholding tax does not include dividends received by participants in parent companies according to Directive 90/435/EEC or dividend distributed to a parent company in a country with which Denmark has entered into a tax treaty according to which Denmark must grant relief of reduction from withholding tax.

Withholding tax also applies to royalties and under certain situations interest payments made between controlled companies.

Danish tax law is a quite complicated area, which undergoes frequent changes and amendments by Parliament. The extensive and detailed legislation (supplemented by derivative legislation, guidance notes, etc.) is supplemented by extensive case law and administrative practice. Any transaction will therefore have to be structured carefully in order to benefit from the most favorable tax treatment.

Corporate lawIn Denmark, the two most commonly used company types are public limitied companies (“Aktieselskab” abbreviated A/S) and private limited companies (“Anpartsselskab” abbreviated ApS). Other types of companies could be limited partnerships, limited partnership companies, part-nerships or the European Company (SE).

Public and private limited companies are regu-lated by the Danish Company Act.

The procedure of the Danish Business Authority for formation of a new company can take anything from a couple of days up to eight weeks or more. It is, however, possible to incorporate companies online. This means that companies can be incorpo-rated very quickly.

Every company must have articles of association that meet the requirements of the Danish Compa-nies Act.

Public limited companies must have a minimum share capital of DKK 500,000 (or the equivalent amount in Euro) and private limited companies must have a minimum share capital of DKK 50,000 (or the equivalent amount in Euro).

In limited companies all shares shall carry equal rights; however, the articles of association of a company may provide that the company have dif-ferent share classes. Shares may be issued with a nominal value or as non-par value shares or any combination of such shares.

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Public limited companies may either be managed by a board of directors along with an executive board, or by a supervisory board along with an executive board. Private limited companies must have an executive board and may in addition choose to have a board of directors or a supervi-sory board.

The general meeting may decide to distribute ordi-nary or extra ordinary dividends.

In general, there are no requirements regarding the nationality of the board members, nor do they have to reside in Denmark.

Mergers & acquisitionsMergers and acquisitions can be structured in dif-ferent ways, e.g. by way of a purchase of shares, an acquisition of assets combined with the assump-tion of liabilities, or by a merger. Also the spin-off of an internal division into separate corporate vehicles or a demerger is often seen as part of an acquisition.

Mergers and acquisitions are usually preceded by a due diligence investigation, examining the target company and its assets in order to obtain comfort on the price and other material terms on which the buyer offers to acquire the shares or assets of the target company (e.g. purchase price adjust-ments, conditions precedent, representations and warranties). Danish antitrust rules will apply in conjunction with EU antitrust rules in connection with a market concentration such as a merger or a takeover.

The advantages of an acquisition of shares rather than assets and liabilities are primarily the rela-tive ease in defining the business being acquired, the absence of automatic termination rights of the contracting parties of the company, and tax.

There is no stamp duty payable on the transfer of shares in Denmark. Further, there is no legal requirement to have share transfers notarized.

The Danish rules on mergers conform to the Third Company Directive. A merger may be effected either by transferring the assets and liabilities

of one or more companies to another existing company or by transferring the assets and liabili-ties of one or more companies to a new company. The provisions include safeguards to protect each company’s creditors and minority shareholders. Companies may participate in cross-boarder mer-gers and divisions in which the other participating companies are also limited companies governed by the laws of EU or an EEA member state.

The main reason for structurering an acquisition as a merger is the principle of universal succession, allowing for the transfer of assets and liabilities from the discontinuing company to the continuing company without the consent of the contracting party, unless otherwise specifically agreed. The principle of universal succession also applies in connection with demergers.

Commercial and Contract lawAs a general rule under Danish law, the parties to a contract are entitled to freely agree the terms of their business relationship. However, especially with respect to sales etc. towards consumers, cer-tain restrictions apply with the object of protecting the consumer. Some of the most important legis-lation to this effect is the Danish Sale of Goods Act and the Danish Credit Agreements Act. The Danish Sale of Goods Act includes a number of manda-tory protections related to warranties etc. and the Danish Credit Agreements Act lists categories of detailed information to be provided to the consu-mer in the event of a credit sale.

Commercial contracts often contain limitations or even exclusions of liability. Such limitations or exclusion are as a general rule binding on the par-ties. However, in the event of a dispute, the courts may deem the limitations or exclusions void if the clause in question would lead to a grossly unfair situation, eg. if the liable party has acted with intent. Additionally, product liability for personal injury cannot be limited or excluded.

The Danish Act on Interest provides for a default interest rate in the event of late payment. The default interest rate is often derogated from in the contracts, and in such event the agreed rate applies.

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In consumer contracts, the default interest rate may, however, not the derogated form to the disad-vantage of the Consumer.

The Danish Sale of Goods Act is the general and overall applicable legislation on sales of goods under Danish law. The Sale of Goods Act contains a set of general rules, which may de derogated from by agreement between the parties. In ad-dition thereto the Danish Sale of Goods Act also contains a set of rules applicable to sales of goods to consumers as indicated above. These mandatory rules include warranty-like provisions and other rights with respect to defects, including minimum periods for which defects may be claimed by the consumers.

International sales meaning sales where either the seller or the buyer is a foreign company or person are governed by the UN Convention on Contracts for the International Sale of Goods (“CISG”) and not by the Danish Sale of Goods Act. However, international sales of goods between parties in Denmark, Finland, Norway and Sweden, respec-tively, are governed by the domestic sale of goods acts, and not the CISG.

The Danish Marketing Practices Act includes a number of specific provisions for the protection of consumers. In addition to the more specific prohi-

bitions in the Marketing Practices Act, it contains a general clause whereby measures, which are not in compliance with “good marketing practices”, are prohibited. The Act also contains protections for businesses by prohibiting unfair trading practices such as product imitations and unfair comparative marketing.

The EU Directive on Commercial Agents is in Da-nish law implemented by the Danish Act on Com-mercial Agents, which closely reflects the provisi-ons of the Directive. A large number of provision in the Act on Commercial Agents are mandatory and may therefore not be derogated from the agreement between the parties.

Distribution agreements are, however, not regu-lated by any specific legislation as such and the-refore subject to the general principle of freedom of contract. However, such agreements are to some extent regulated by the national and EU competi-tion rules, including group exemptions.

Employment lawThe rules applicable to employment may be divi-ded into three categories: (i) rules applicable to all types of employees, (ii) rules applicable to certain categories of employees, and (iii) rules applicable to employees governed by collective bargaining agreements.

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The first group governing all employees include rules on holiday entitlement, parent and mater-nity leave.

The second group governing certain categories of employees include rules on notice periods, certain types of compensation and competition clauses. The Danish Salaried Employees Act is the most important of these types of legislation.

Manual workers are typically covered by collective bargaining agreements which have been negoti-ated with the relevant trade unions. Also salaried employees are often subject to collective bargai-ning agreements in addition to the rules of the Danish Salaried Employees Act.

Collective bargaining agreements typically cover number of working hours, wages (or minimum wa-ges) as well as other issues. Collective bargaining agreements typically last for two to four years.

The Danish Act on Statements of Employment Par-ticulars provides for a minimum set of subjects to be explicitly stated in an employment letter or ag-reement. Any non-fulfilment of the requirements may lead to a right for the relevant employee(s) to receive a compensation.

The Salaried Employees Act sets out a number of rules, which cannot be derogated from to the disadvantage of the salaries employee(s). The theo-retical starting point is that there is a free right

to dismiss employees when observing the notice periods included in the Danish Salaries Employees Act. The notice period applicable to dismissal of a salaries employee depends on the employment of the employee in question and is maximised at 6 months. The notice period applicable to the salaries employee’s own termination of the emplo-yment is one month. If the dismissal of a salaries employee is deemed not to be fairly reasoned, the employee will be entitled to receive a compensa-tion.

The notice period for other employees than sala-ried employees depend on the relevant collective bargaining agreement. If such employees are not governed by collective bargaining agreements, no specific requirements apply with respect to the length of the notice, however such notice period must be “appropriate”.

According to applicable EU-law, the working hours per week calculated during a period of 4 months cannot exceed 48 hours. The Danish Act on Holiday Entitlements provide for a mandatory right to five weeks’ holiday each year (excluding public holidays). Salaried emplo-yees as well as other employees paid by the month are entitled to receive their regular salary during holidays. Employees paid by the hour do not recei-ve their regular salary during their holiday. Such employee receive a a holiday allowance of 12,5 % of the salary, including all benefits, earned in the year before the year in which the holiday is taken.

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Accounting regulations and provisions on anti-money launderingThe Danish Financial Statements Act (“Årsregn-skabsloven”) regulates all business enterprises except financial businesses. The Financial State-ments Act requires most companies, i.e. public limited companies, private limited companies, limited partnerships, commercial foundations, SCE companies, cooperatives, other companies with limited liability and partnerships and limited partnerships in which all partners or general part-ners are public limited companies, private limited companies or limited partnerships, to prepare an annual report, giving a true and fair view of the company’s (or the group’s) assets and liabilities, financial position, and profit or loss.

Except for certain small business enterprises and certain small limited companies, the annual report must be audited by an external and independent chartered auditor.

The Financial Statements Act is based on a value-oriented accounting concept, which implies that generally accounting shall be based on the present market value of assets and liabilities as opposed to historic cost. Furthermore, the principles ap-plied from one year to the next must be consistent. Danish legislation and accounting standards are constantly approximating IAS and IFRS and are in general very close to these standards.

Persons and businesses comprised by the Danish Money Laundering Act, as for example lawyers, are obliged to report to the Money Laundering Se-cretariat in the Office of the Public Prosecutor for Serious Economic Crime if they have a suspicion of money laundering or financing of terrorism and this suspicion cannot be disproved.

Furthermore, as a measure to prevent money laundering and financing of terrorist activities, the Danish Customs Act provides that anyone ente-ring or leaving the Danish customs area carrying money etc. exceeding EUR 10,000 in value must report, on their own initiative, for a customs check and declare all money etc. to the customs and tax authorities.

Real PropertyDenmark has certain rules regarding foreigners buying real estate in Denmark.

It is only possible for non-Danish citizens (as well as companies and associations) to purchase real property in Denmark, who have not previously been domiciled in Denmark for an aggregate period of at least five years, with the permission of the Danish Ministry of Justice.

EU citizens, citizens of EEA countries and EU companies may purchase real property in Den-mark without the permission of the Danish Mini-stry of Justice, if they meet certain requirements. The property must, however, be intended to serve as a necessary permanent resident or the purchase must be a prerequisite for operating the purcha-ser’s own business or for supplying services.

Finally, non-Danish residents may only purchase holiday residences with permission of the Ministry of Justice, and this permission is rarely granted.

Typically, real property in Denmark is conveyed by a purchase agreement, followed by a digital deed of conveyance registered in the Danish land register. In Denmark, all properties are registered in the land register and are identified by a property number. In this land register one may find infor-mation about e.g. the owner’s identity, registered mortgage deeds, the owner’s bankruptcy and often also all other easements and encumbrances such as local restrictions on construction etc.

Typically, the purchase of real property in Den-mark is financed by a mortgage credit institution and a bank.

Registrations in the Danish land register are sub-ject to a registration fee.

Lease agreementsDanish legislation on lease of real estate is based on a high degree of protection in favour of the lessee. Both the Danish Rent Act as well as the Business Lease Act have a number of mandatory provisions which cannot be deviated from to the

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detriment of the lessee. The Danish Business Lease Act, however, opens up to a much higher degree of contractual freedom than the Danish Rent Act.

Construction agreementsIn Denmark construction agreements are based on a set of general provisions of works and supplies within building an engineering (AB 92), turnkey contracts (ABT 93) and General Conditions for Con-sulting Services (ABR 89).

The parties must expressly decide on the applica-tion of these general conditions and they may be supplemented by additional terms and conditions agreed upon by the parties.

Most disputes arising out of or in connection with the construction contracts are settled by arbi-tration in the Danish Building and Construction Arbitration Board (Voldgiftsnævnet for Bygge- og Anlægsvirksomhed).

Competition lawIn addition to the EU competition rules, the Danish Competition Act applies in Denmark. The general prohibitions in the two sets of rules are vastly similar and the prohibitions are also administered relatively similarly in the EU in general and in Denmark.

The competition rules prohibit anticompetitive agreements and the abuse of a dominant position in the market. In addition to these prohibitions, the Danish Competition Act includes mechanisms for merger control based on the same principles as the EC Merger Regulation.

The rules on anti-competitive agreements in the Danish Competition Act prohibit agreements, con-certed practices and decisions that have as their object or effect to prevent, restrict or distort com-petition. “Agreements” do not need to be written agreements to be in contravention with the Danish Competition Act. Also informal understandings or the like may constitute agreements under the act.

The prohibition against anti-competitive agre-ements is subject to a de minimis rule. This rule is based mainly on the turnover of the companies

involved in the agreement. The benefit of the de minimis exemption does not apply to agreements on certain hard core violations such as e.g. price fixing, and bid rigging.

It is possible to notify agreements to the Danish Competition and Consumer Authority with the object of obtain an express assurance of exemption to the prohibition against anti-competitive agreements.

In the event of prohibited agreements or behavior, the Danish Competition Council may issue orders to bring the agreements or behavior to an end. Additionally, prohibited agreements cannot be enforced.

The rules on abuse of a dominant position in the Danish Competition Act prohibit businesses with a dominant position on a given market from abusing such dominant position. As with the EU competition rules the market is defined by both a geographical and a product market and the typical types of abuse include predatory pricing, exclusi-vity agreement, tying and bundling.

Actions in contravention with the Danish Competi-tion Act are also subject to fines, which under very severe circumstances may amount to more than 20 mio. DKK for the companies involved and more than 200.000 DKK for the involved individuals. Cartel agreements may even lead to imprisonment.

Intellectual property lawDenmark has ratified a great number of internatio-nal treaties, conventions, regulations and direc-tives resulting in the Danish laws being identical or similar to the ones known elsewhere - and to some extend allowing an easier and cost-beneficial application process.

Patent applications may be submitted to the Danish Patent and Trademark Office (PTO) or submitted via designation of Denmark in the PCT system. Patents are granted to inventions which consists a degree of novelty and inventive steps. The period of protection is 20 years.

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Utility model applications may be submitted to the Danish national PTO allowing for protection of a creation which may be of industrial usage and which is a solution to a technical problem. Utility model registrations are subject to renewal two ti-mes and for a total maximum period of protection of 10 years.

Trademark applications may be submitted to the Danish national PTO, to the Office for Harmoni-zation in the Internal Market – trademarks and designs (OHIM) or through the WIPO system de-signating Denmark. Registrations issued by OHIM have direct effect in Denmark, whereas applicati-ons submitted via the WIPO system are assessed separately by the Danish national PTO. A trade-mark right is granted, if the sign is qualified to distinguish the applicant’s goods and service from the goods and services of a third party – that is if the sign has a distinctive character. The protection period for a registered trademark is indefinitely but must be renewed every 10th year. Notably for Denmark is that a trademark right may be claimed to a sign on the mere basis of the sign being used during the course of trade as a sign in Denmark for specific goods and/or services. Registered trade-marks are not privileged to such said unregistered trademark right.

Copyrights are unregistered rights in Denmark, thus no copyright register is available. A copy-rights are established upon creation but subject to the works being the result of the creator’s original and independent actions. The period of protection is 70 years following the death of the creator.

Design applications may be submitted to the Danish national PTO or to OHIM with direct effect to Denmark. Protection is granted if the design is new and may be obtained for a total maximum pe-riod of 25 years, however subject to renewal every 5th year. Notably for the European design protec-tion is that it is granted to unregistered designs as well for a period of 3 years. Registered European designs are not privileged to unregistered designs.

The Danish marketing practices act provides a degree of protection to trade secrets, protection against product imitations, misuse of feature

rights and disloyal acts of conduct. The marketing practices act is often used as a supplement to the traditional intellectual property laws.

The Danish judicial system provides for efficient enforcement of intellectual property rights al-lowing three main measures to be taken 1) infringement proceedings, hereunder claiming injunction, damages, compensation and/or reward; 2) preliminary injunctions; 3) Search orders hereunder to seize evidence for infringement and extend hereof. Execution of requests for prelimi-nary injunctions is conditioned on the proprietor proving it probable that the infringing activities do currently occur. Execution may be subject to collateral security. A proprietor must initiate a con-firmatory action on the merits following a decision regarding a preliminary injunction. Execution of a search order is conditioned on the proprietor proving it probable that evidence of the infringing activities may be found on the premises. Execution may be subject to collateral security. A proprietor must initiate actions on the merits following the execution of a search order.

Insolvency lawToday the Danish Bankruptcy Act currently descri-bes two different types of insolvency proceedings: restructuring and bankruptcy.

Formal restructuring processThe main objective of a formal restructuring process is to (1) enter into a compulsory settle-ment, thus restoring the debtor’s solvency, or (2) to transfer the assets or part of the assets to a third party, or (3) a combination of both. In case such settlements fail to be reached, the debtor will be declared bankrupt.

The restructuring administrator (invariably a lawyer) will assess whether the debtor’s business can be continued as a viable entity. It is for the re-structuring administrator to provide information to the creditors, to approve major transactions in the debtor’s business in the restructuring period, to make decisions on bilateral contracts, and to draw up a restructuring plan and a restructuring proposal.

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The court-appointed accountant will assist the restructuring administrator in drawing up the restructuring plan and the restructuring propo-sal within certain time limits. The restructuring administrator and the court-appointed accountant must meet certain independence requirements. Their fees are payable by the debtor and rank as preferential claims in case of bankruptcy. The fee is determined by the bankruptcy court.

Bankruptcy proceedingsIn bankruptcy proceedings, the debtor’s assets are realized and the proceeds distributed among the creditors as prescribed in the Danish Bankruptcy Act. Bankruptcy proceedings can be commenced by the debtor himself or any creditor who holds a valid claim against him.

If bankruptcy proceedings have been commenced against a Danish company, a trustee will be ap-pointed to act on behalf of the estate. In practice, the trustee will invariably be a lawyer, and will be appointed by the court or, if requested by a credi-tor, elected by those of the unsecured creditors who are likely to receive dividend.

The above does not constitute legal consulting. This guide does not include EU law considerations, although EU law aspects will often have to be considered an integral part of many transactions. ANDERSEN PARTNERS THEREFORE DISCLAIMS ALL LIABILITY FOR THE CONTENTS OF THIS GUIDE.

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