Denmark is considered to be one of the more sophisticated jurisdictions in which to set up a business, so it is an appealing destination for companies looking to set up or expand into the European Union (EU).
As a foreign investor, setting up a business in a place that is both stable and sophisticated is highly important, and Denmark offers this favoured combination. Many businesses in Denmark are set up as sole proprietorships, but that is only possible if you are a Danish resident. As a foreign investor, this is not an option and some of the commonly used entity types are:
- Private limited companies (Anpartsselskaber or ApS)
- Public limited companies (Aktieselskaber or A/S)
- Branch office (Filial)
In this article, we will discuss the two main entity types that foreign investors expand into: Danish Private Limited Company, known as ApS, and branch registration, which is known as Filial. Before we jump into these two entity types, there’s an important element to cover, first: the NemID. Denmark is a highly digital society and so to enter into any official or legal correspondence, like setting up a company, you will need the help of somebody with a NemID.
A NemID is essentially a digital signature; it’s an electronic number that can be used to interact with the public sector in Denmark. All residents and businesses are granted a particular ID and it is needed in order to access or liaise with any kind of government authority, business registry, social security, and so on. An individual with a NemID is necessary to apply and sign for the company formation.
There are no residency requirements for a director or a shareholder for a Danish entity. Any individual, over the age of 18, can be appointed as a director.
Steps to Setting up a Danish Private Limited Company (ApS)
This is the most common entity type for foreign investors, the predominant reason being it can be formed with a single member or a single investor. That single investor can be a company or an individual.
The first step when it comes to setting up an ApS is getting the right documents. To set up a company in Denmark, the key documents are the memorandum of association and the articles of association which include important details such as company name, registered office, business purpose, and members and directorship. Generally, being a civil law country, a notary is a person who drafts the documents of the company.
The second step is to set up a Danish bank account. This is arguably the most important step as there is a minimum capital requirement of 40,000 Danish Kroner that needs to be invested, for all types of entities, before a company can be formed. That means the foreign investor has to submit 40,000 Kroner, the equivalent of around 5,300 Euros (EU) or 6,100 United States Dollars (USD) and put it in a Danish bank account in order to move any further along in the process.
Once the documents have been drafted by the notary and the capital is in the bank account, the third step is registration with the Danish Business Register. As mentioned earlier, this requires the input of someone with a NemID, i.e. a Danish resident. You need a local registered office address and so, if the individual setting up the company doesn’t have their own team in Denmark, they would use a local law firm or service company to help with the registration.
It typically takes a week for the company to be formed once the registration is submitted. As soon as the company is formed, the ApS will receive a CVR (Central Business Register) number, which is a registration number that all companies in Denmark must have in order to be identified. This will come with fees that must be paid to the Danish Business Registry and the notary. The notary holds an important position here as, like in other civil law countries, they are responsible for submitting the documents for initially forming the company.
Taxation is a key element to factor in when setting up a company overseas; this step involves registering for tax purposes. Once the company is registered with the business authority, you can register for value-added tax (VAT). This is a mandatory process upon business formation in Denmark that is referred to as SKAT.
VAT registration should happen right after the company is formed with the business registry. The corporation tax rate in Denmark is 22% and the VAT currently sits at 25%, which is among one of the highest in the European Union.
If you wish to hire local employees, you will need to register as an employer which involves payment of social security workers, compensation, and so on, for the newly hired staff members. This can take about two weeks to achieve and, to avoid delays when it comes to hiring and paying employees, it is advisable to register as an employer directly after the company is formed.
Once the company is up and running, the board of directors or the supervisory board will typically manage the day to day affairs of the company. The company has an obligation to file annual financial statements with the Danish Business Registry every year, at the end of the financial year. In this case, the financial year ends at the same time as the calendar year. However, if a company has a preference, they can request to make a change and submit the financial statements over a different 12-month period.
If a company meets the financial threshold they may be required to obtain an audit of their financial statements. Denmark uses two accounting standards, GAAP and IFRS. These are the preferred accounting standards that are used for preparation and financial statements to ensure that shareholders are informed of the financial results. From a registry perspective, these are the annual obligations for an APS company.
The next entity type is a Filial, which is a branch office of a foreign limited company.
Establishing a Branch in Denmark
It is entirely possible to set up a Danish branch of an already existing foreign company. The Danish branch will be considered as an extension of the foreign incorporated company, i.e. the parent company.
Your business name must contain the name of the parent company with the addition of the word ‘filial’ which signifies its status as a branch.
This is possible if a parent company is based within the EU, the EEA (European Economic Area), The United States, Switzerland, South Korea, or Georgia. If the parent company is based in any of these jurisdictions you can simply extend that company to set up a branch in Denmark, without having to go down the ApS route. The Danish branch can have separate management if needed. However, a declaration from the business authorities in the parent country is required.
It’s important to remember that the branch doesn't have a separate legal existence - it is still part of the parent company, meaning that any liabilities that arise from the business in Denmark would extend over to the parent company.
This is one disadvantage of opting to establish a branch. However, a distinct advantage of expanding into Denmark for the first time is that you can use it to test the waters; you retain the familiarity of doing business with your own laws in the United States or anywhere else in the world whilst being able to conduct business in Denmark.
Whilst the filial branch is attached to a foreign, parent company, you are still liable to pay local taxes on income generated in Denmark. If sales are made in Denmark, even though the parent company is in the U.S., the branch is subject to pay Danish corporate income tax. You will still need to file for VAT and corporate tax, however, you won’t need to go through the process of filing for registration as a new company, which saves time.
You will need to appoint a local branch manager who will then be responsible for running the business activities in Denmark. You can register your branch by filing a form with the Danish business authority which typically takes around two to three days.
To form the branch, it’s necessary to submit the latest annual reports of the parent company with the Danish Business Registry, provide a copy of the articles of the parent company, along with its accounts and, lastly, you must be able to show that the parent company exists in good standing in the jurisdiction of its incorporation.
Whilst it is not known for being a low-cost or low tax jurisdiction, Denmark is a favoured country for foreign investors due to its political stability, high standard of living, ease of doing business, sophistication and efficient setup process.
An experienced service provider can offer professional assistance and help you to set up a company or establish a branch in Denmark.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.