Subsidiary Entity Set Up
Entity Set Up
Denmark’s population boasts a worldwide reputation as the ‘happiest in the world,’ with high standards of living underpinned by well-developed social services and free healthcare. And these factors go hand-in-hand with attracting foreign companies entering the Danish market. However, incoming companies will find these attractions balanced by a confusing employment market, with some employee benefits covered by laws, some by collective agreements and others a matter of individual contracts.
There are speedier and more cost-effective alternatives to launching a subsidiary, with Bradford Jacobs opening the door to a hassle-free route into Denmark. Work alongside our Professional Employer Organization (PEO) recruitment specialists, then utilize our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Denmark and how to navigate its challenging legislative issues that revolve around statutes, collective agreements, and European Union directives.
Here we have set out some basic summaries of what you need to make the transition into the Danish market, whichever sector you operate in.
Starting a Business in Denmark
Foreign companies starting a business in Denmark usually prefer the option of a private limited liability company, known as an Anpartsselskab (ApS). All companies, foreign-owned or local, come under the Danish Companies Act and must register with the Danish Business Authority, the Danish Commercial and Companies Agency and be enrolled in the Commercial Registry.
The necessary stages for starting the business include:
- Confirmation of parent company’s intention to open a subsidiary, Articles of Association, details of shareholders and their initial capital investment
- Registering with the Danish Business Authority (DBA) to obtain the Central Business Registration (CVR) number and the ‘NemID’ electronic signature to access public sector internet services
- Log on with the Customs and Tax Administration (SKAT) for withholding taxes and for VAT if revenue is above DKK 50,000 ($6,720, US$8,000)
- Open an account with a Danish bank to deposit share capital of at least DKK 40,000 (€5,400, US$6,440) and have a registered Danish office, although this need not be either owned or leased by the subsidiary
Expanding Business into Denmark
Located on the northwestern corner of Europe, Denmark is a gateway to 26 fellow members of the European Union (EU) and its Nordic neighbors Sweden, Norway, and Finland. Denmark’s Gross Domestic Product (GDP) is predicted to pass 392 billion US dollars in 2021, which ranks this comparatively small nation an impressive 36th largest globally. Denmark’s well-educated workforce combine a laid-back, relaxed attitude with a sense of innovation and independence. The Danes are world leaders in several sectors, including pharmaceutics, medicine and healthcare, renewable energy, electronics, and maritime shipping.
Opening a business in any overseas territory brings issues. Moving staff across the world means lengthy processes to obtain visas and work permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to answer all these questions. Denmark welcomes foreign investment, but the employment market is complicated by its mix of laws, collective and trade union agreements affecting employee benefits and entitlements. There are other questions too: where will you find distributors, manufacturers, and offices?
There is a simple alternative. By partnering a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs, companies can plot a time-efficient and cost-effective path to locating and employing staff in Denmark.
Denmark Business Facts
- Capital – Copenhagen
- Population – 5.8 million
- Regions – There are five regions: Capital region, region Zealand, Southern, Central and Northern regions
- Official language – Danish
- Economy and world ranking – US$392 billion, ranked 36th
- Leading sectors by GDP – service 64.9%, industry 20.9%, and agriculture 1.4%. Banking, tourism, shipping, trade, and transport are strong or growing sectors
- Main exports include – medications, electrical generator sets, pig meat, refined petroleum, blood, toxins, and vaccines
- Main imports include – cars, refined petroleum, packaged medications, crude petroleum, broadcasting equipment
- Main trading partners – Germany, USA, Sweden, UK, Netherlands, and China
- Government – constitutional monarchy, parliamentary system, representative democracy
- Currency – Danish Krone DKK
Overall, the company registration process takes less than a week (without delays). Registration for a corporate bank account, however, may take more time – any time between 4 weeks to 3 months, depending on the bank’s registration process.
Advantages and Challenges of Denmark Market
Advantages of expanding into the Danish market include:
- Workforce: Well-educated, highly skilled, and motivated workforce
- Communicating: Wide use of English language
- Sectors: In the front rank globally for life sciences, renewable energy, and IT
- Logistics: Highly developed Road, rail, air, and sea links with Europe and worldwide; ranked No. 1 by the World Bank for ease of trading across borders
- Links: Freedom of movement for personnel throughout the European Union’s 27 member nations with access to 450 million consumers
- Global Position: Impressive stable of multinational Danish companies such as Carlsberg and Lego and international giants Microsoft and Dell
- Taxation: Corporation tax rate of 22% among the lowest in the European Union, with tax incentives for foreign companies and highly qualified expatriates
Challenges of expanding into the Danish Market include:
- Expenditure: High wage and labor costs
- Bureaucracy: Foreign companies face unfamiliar complex tax and regulatory issues
- Start-ups: Ranked only 45th internationally by the World Bank for ease of starting a business
- Trade: Comparatively small, open economy susceptible to demand for its exports
- Limited Company / Subsidiary or Branch in Denmark?
International companies targeting Denmark for expansion will generally choose a private limited liability subsidiary, known as an Anpartsselskab (ApS). However, there are also some key characteristics of a branch office that one might want to look into before making a decision on your company type to expand with into Denmark. The key points for both company types are as follows:
Main characteristics of a subsidiary:
- Subsidiaries are independent legal entities from the owning foreign parent company
- Generally, the parent company has no responsibility for the debts or liabilities of the subsidiary
- The subsidiary can follow independent business activities from the parent company, under a different name
- The subsidiary must be registered with the Danish Business Authority (DBA) with a minimum nominal share capital of DKK 40,000 (€5,375, US$6,256)
- Minimum of one shareholder with no upper limit
- Pays Corporation Tax at 22%
- Required corporation documents include Articles and Memorandum of Association, register of shareholders and shareholders’ operating agreement
- Must file annual accounts with the DBA
Main characteristics of a Branch:
- A branch is not a separate legal entity from the parent company, but an extension
- The branch must follow the same business activities as the parent company and have the same name with the suffix ‘Filial’ added to the title
- The parent company is responsible for any debts or liabilities of the branch
- Branches are subject to 22% Danish Corporation Tax
- The branch must file the annual reports of the parent company with the DBA
Expert guidance is vital when weighing the options between a subsidiary and branch in Denmark. There is an alternative route – one that is quicker, stress free, cost effective and will have you up-and-running in days rather than weeks or even months. Bradford Jacobs will locate top talent for your company. Once you select your new employee our Employer of Record (EOR) specialists will handle every aspect of employment law, including payroll and tax.
Legal Structures for Denmark Market Entry
All companies in Denmark operate under the Danish Companies Act, which is largely based on European Union corporate law, and must register with the Danish Business Authority, the Danish Commercial and Companies Agency and be enrolled in the Commercial Registry. There are four types of limited liability companies (Kapitalselskab). They are:
- Public Limited (Aktieselskaber or A/S)
- Private Limited (Anpartsselskaber or ApS)
- Partnership Company (Partnerselskaber or P/S)
- Entrepreneurial Company (Iværksætterselskaber or IVS)
NB: Changes to the Danish Companies Act ruled out new Entrepreneurial Companies (IVS) being established after April 2019, stipulating that existing IVS companies had to convert to private limited companies by April 2021 with minimum nominal share capital of DKK 40,000 (€5,375, US$6,256).
The legal structure for a private limited liability company:
The legal structure for a subsidiary allows it to operate independently from the parent company, under its own name and able to follow its own commercial and business activities. The subsidiary can have an unlimited number of shareholders who have no liability beyond their share contributions. The shareholders elect directors, who can then appoint managers to manage day-to-day operations.
The legal structure for a branch:
A branch is not a separate legal entity from the owning foreign parent company and carries on the same business under the same name as the parent company as its permanent representative in Denmark. The parent company has total responsibility for any debts or liabilities of the branch. The branch must provide Articles of Association of the parent company, and lodge the parent company’s annual accounts with the Danish Business Authority. A designated branch manager oversees the business activity and supervises financial reporting.