ESTABLISHING BUSINESS IN DENMARK

NJORD LAW FIRM

NJORD Law Firm is a leading law firm with a strong presence in the Nordic and the Baltic Sea Area. We provide legal services within all areas of corporate and commercial law with an emphasis on international transactions. The firm is placed in the top category of Danish legal advisers by independent observers and is acknowledged as a cutting-edge practice within a number of practice areas.

The firm’s offices in Denmark are situated in central Copenhagen, Aarhus and Silkeborg. The firm also has offices in Tallinn (Estonia), Vilnius (Lithuania), and Riga (Latvia). NJORD Law Firm is one of the few Danish law firms committed to the development of business in the Nordic and the Baltic region, which is one of the more dynamic growth areas in Europe.

An increase in international cooperation and the pace of technical developments result in new industries. The ever-changing demands of the business world present a challenge to businesses. Changes may create opportunities, but may also increase uncertainty about the laws and regulations applicable to that business.

Legal advisers play a crucial part in identifying issues and assisting their clients in making efficient use of new opportunities. NJORD Law Firm takes pride in developing new, more efficient ways to deliver high quality legal and commercial advice to its clients within all practice areas significant to the relevant business.

ESTABLISHING BUSINESS IN DENMARK

ABOUT THIS GUIDE

This guide is a general guide aimed at overseas companies, to highlight the legal issues involved when establishing business in Denmark. However, the guide will not provide comprehensive legal advice on applicable laws or other issues in connection with establishing and doing business in Denmark.

Prior to any steps towards establishing a business in Denmark, you should seek specific professional legal advice. This guide has been prepared by a team of Danish lawyers from NJORD Law Firm.

HOW THIS GUIDE WORKS

The guide considers the various business vehicles you may wish to set up in Denmark, and aims at addressing some of the main considerations that may be of relevance, such as hiring of staff, renting of office premises, and intellectual property rights. The guide also deals with the regulatory and business framework, how profits and tax are treated, as well as with insolvency and litigation matters. The web links in this guide provide further information in English regarding the various topics dealt with below.

We endeavour to answer a number of frequently asked questions. Inevitably, you may require further information with regard to some topics, or you may have specific concerns and questions, which cannot be addressed in this guide. Please do not hesitate to contact us if you require any further assistance.

DENMARK – A COUNTRY OF OPPORTUNITIES

WHY INVEST IN DENMARK?

• Denmark is a country with political stability and a well-functioning public sector.

• Denmark is an internationally oriented society with a flexible labour market, e.g. short terms of notice and high education standards.

• Denmark has a high industrial productivity and profitability. Denmark has one of Europe’s most efficient distribution systems.

• You will find IT and telecom infrastructure, together with wireless communications and use of internet and new media in Denmark to be among the most competitive in the world.

• Denmark has an ideal geographical location in relation to Scandinavia, Northern Europe, and the Baltic Sea Region.

• The workforce is competitive, with good language skills, and personal and industrial IT usage is sophisticated.

• The managerial skills are suited to a global high-tech economy.

• The Danish Government has created an excellent climate and motivation for innovative businesses and entrepreneurs.

RELEVANT LINKS

THE OFFICIAL WEBSITE OF DENMARK www.denmark.dk

INVEST IN DENMARK AGENCY www.investindk.com

MINISTRY OF FOREIGN AFFAIRS OF DENMARK www.um.dk

THE DANISH CHAMBER OF COMMERCE www.danskerhverv.dk

THE CONFEDERATION OF DANISH INDUSTRY (DI) www.di.dk

DANISH EXPORT ASSOCIATION www.dk-export.dk

COPENHAGEN CAPACITY www.copcap.com

FRAMEWORK FOR BUSINESS –CORPORATE

Commercial objectives, the extent of proposed activities, tax considerations, and business structures would be key factors behind any decision to establish a business in Denmark.

Having decided to establish a business in Denmark, you would need to determine whether to:

1.Establish a business on your own

2.Acquire an existing business

3.Enter into business with others

ESTABLISHING A BUSINESS ON YOUR OWN

Should you choose to set up a business on your own, you would have the options to establish a branch (“filial”) or to form a separate Danish subsidiary.

BRANCH OR SUBSIDIARY? The branch of a foreign company, although not a separate Danish legal person, must keep its own accounts, and its profits would be taxed in

Denmark. Profits would also be taxable in the foreign company of which it is part, but in most OECD countries and many others, tax paid in Denmark is deductible.

The Danish tax authorities may audit the branch and the foreign company in order to assess the taxable profit of the branch. If, however, you form a subsidiary, the tax authorities would not be permitted to audit the parent company.

ESTABLISHING A DANISH SUBSIDIARY A Danish subsidiary would normally be set up as a company limited by shares (“limited liability company”) with one or more shareholders (who may be individuals or legal persons). The shareholders’ liability would be limited to the amount invested in the company.

A limited liability company may be public or private. A public company may apply for its shares to be listed on the stock exchange, or offered to the public at large to issue or acquire shares or other securities. The minimum issued share capital (to be paid in cash or contributed as assets) required for a private limited liability company (“anpartsselskab, ApS”) would be DKK

40,000 (EUR 5,400) and for a public limited liability company (“aktieselskab, A/S”) DKK 400,000 (EUR 53,800).

A limited liability company is a legal person, which means that it can own property, enter into agreements, and employ staff.

Establishing a limited liability company, including registration with the Danish authorities, can be done online and typically within a few days.

• Issuing written instructions on how work is to be divided within the board and between the board and the managing director

• Ensuring that taxes are paid on time

• Ensuring that the annual accounts are prepared and filed with the authorities on time

• Reporting any changes to the information kept in the official registers

ARE

THERE ANY RESTRICTIONS

AS TO THE CHOICE OF NAME? A limited liability company may be given any name that is not too similar to that of an already existing company or trademark, provided that the name is not offensive. The name has to include ApS or A/S, depending on which type of limited liability company is chosen. If a branch office is chosen, the name must include “filial” (branch office).

There are more differences in the legal requirements to operating an ApS or an A/S. Today most companies are incorporated as an ApS. Provisions regarding the setting up and operating a company with limited liability in Denmark are listed in the Danish Company Act.

• Supervising that the managing director’s business conduct is in accordance with the instructions from the board

• Ensuring fraud prevention

• Taking out the relevant insurances

WHO IS AUTHORISED TO REPRESENT THE COMPANY? The joint board of directors will be authorised to sign on behalf of the company The company may decide on the provisions regulating the power to bind the company. The managing director can often sign on behalf of the company – possibly together with a board member.

SHOULD THE MANAGEMENT BE ORGANISED?

HOW

A public limited liability company can choose to have either a board and a managing director or a supervisory board and a managing director. A private limited liability company can choose either to have just a managing director or to have a board and a managing director. In either case, the board must consist of at least three board members (A/S) and minimum two members in an ApS.

The managing director and the board would be responsible for the management of the business and organisation of the limited liability company. There are no mandatory rules regarding the frequency of board meetings. The board would be responsible for the following:

WHAT IS THE ROLE OF THE MANAGING DIRECTOR? The board is to appoint a managing director. The managing director is responsible for the day-to-day operations of the company if not otherwise instructed by the board.

WHEN CAN A SHAREHOLDER, DIRECTOR, OR MANAGING DIRECTOR BE PERSONALLY LIABLE? A director or managing director would be liable for damages if, intentionally or gross negligently, he/she causes damage in performing his/her duties. The director or managing director may also be liable for any loss or damages suffered by a shareholder or another person due to material breach of the provisions of the Companies Act, the legislation applicable to annual accounts, or the memorandum and articles of association of the company.

Any shareholder, who, intentionally or by gross negligence, causes damage to the company, another shareholder or person by cooperating in breach of the Companies Act, legislation applicable to annual accounts, or the memorandum and articles of association could also be held liable. If two or more persons were liable for the same damage, they would be jointly and severally liable.

ESTABLISHING A BRANCH OFFICE (“FILIAL”) A branch office would be a part of a foreign company with its own independent administration in Denmark. The foreign company and the Danish branch share a legal identity, and the foreign company is liable for the activities of the branch.

The branch office shall be managed by at least one branch manager, who would be responsible for all business activities. The branch manager would sign on behalf of the branch office and thereby the foreign company’s activities in Denmark. A branch office shall be registered with the Danish Business Authority (Erhvervsstyrelsen).

The branch office shall keep its own accounts. The provisions governing bookkeeping and accounts for Danish limited liability companies would, with some exceptions, also apply to foreign branches in Denmark.

MAY THE OWNER OR THE BRANCH MANAGER OF A BRANCH OFFICEBECOMEPERSONALLY LIABLE?

The foreign owner of a branch office would be personally liable for the debts of the branch office. Persons, including the branch manager, who are in breach of applicable laws, may become liable for damages.

BUYING A DANISH BUSINESS

When acquiring an existing business in Denmark, you could purchase either its shares or its business assets and activities. If the existing business is conducted through a limited partnership (“kommanditselskab”), or a branch office (“filial”), you can only acquire the business assets. This guide will, however, place its emphasis on share purchases.

HOWARESHARESTRANSFERREDTOTHE

BUYER?

The ownership of shares would be transferred when the parties have entered into a binding agreement on the transfer of shares - share purchase agreement. In order to exercise ownership rights, the buyer shall receive the original share certificates and be entered as the registered owner of the shares in the shareholders register. Also, the transfer should be registered at the Danish Business Authority (Erhvervsstyrelsen).

ARE THERE

ANY RESTRICTIONS ON THE TRANSFER OF SHARES IN LIMITED

LIABILITY COMPANIES? As in most other countries, shares may be freely transferred, and there are no restrictions on foreign ownership of shares. The only permitted restriction on free transfer would be any pre-emption rights, where the articles of association may provide that existing shareholders or other persons shall be entitled to purchase shares, which have been transferred to a new owner. Such provision would be common in companies with few owners. Free transfer of shares may also be limited by an agreement between the shareholders (shareholders agreement), but such agreement would only be binding on the parties concerned. An acquisition, which is contrary to a contractual restriction on the transfer of shares, would not prevent the buyer from exercising his/her rights in the company.

MAY AN INSIDER FREELY SELL AND PURCHASE SHARES IN A LIMITED LIABILITY COMPANY?

Denmark has extensive legislation, based on EU law, regarding the right for an insider to sell and purchase shares. Generally, the regulations would apply to securities normally traded in an organised market place. The definition of an insider is wide and would cover, for example, directors, the managing director, executive employees, and close advisers to the company. An insider who is in breach of the regulations may face a fine, imprisonment, or the forfeiture of any financial gains.

ESTABLISHING A BUSINESS WITH OTHERS

Rather than establishing a fully owned subsidiary, you may want to establish business in cooperation with a local partner. This can be done directly by establishing a joint venture, a limited liability company, a partnership, or a limited partnership; or indirectly by the appointment of a commercial agent or a distributor or by setting up a network of franchisees.

CONDUCTING BUSINESS AS A PARTNERSHIP P/S

If two or more persons decide to operate a business together, they have established a partnership. There are two types of partnerships: partnerships and limited partnerships. In a limited partnership (partnerselskab - P/S), the liability of at least one of the partners would be limited to the amount invested in the partnership by the said partner. A limited partnership is in general organized as an A/S (aktieselskab) and would also be overed by the Danish Company Act.

The partners may be foreign companies or citizens and are not required to be resident in Denmark. In a partnership (contrary to a limited partnership) there is no obligation to appoint a managing director or an accountant. If none of the partners in a trading or limited partnership are residents in Denmark, a person authorised to accept service in Denmark must be appointed.

JOINT VENTURES

Many companies, which lack sufficient capital, skills, or market knowledge to break into a new market, would prefer to establish a joint venture or another strategic alliance. Joint ventures would have no legal status of their own but could be organised as limited liability companies or partnerships. Your choice of type of structure or set-up would depend on commercial as well as tax considerations. A joint venture must address all major issues by way of a shareholders’ or partnership agreement, including initial and future funding, management structure, intellectual property rights, distribution of profits, and termination.

In the event that the joint venture is established as a limited liability company, it would be subject to the applicable company legislation.

Generally, the partnership agreement would regulate the shares in income of profits and losses. Where a partnership agreement is silent in this respect, profits and losses are divided equally among the partners. The partners are taxed on the profits of the partnership.

APPOINTMENTOFACOMMERCIALAGENT

If you only have limited knowledge of the Danish market, the first step in establishing a business would normally be the appointment of an intermediary, be it either a commercial agent or a distributor. While the parties to a distribution agreement enjoy the freedom of contract, the Danish Commercial Agents Act governs an agency relationship.

The Danish Commercial Agents Act is partly mandatory, including provisions protecting the commercial agent with regard to the period of notice prior to termination and the possible

The potential rights of the commercial agent to claim an indemnity upon termination (if

and to the extent that certain qualifying conditions are met) may be considered a disadvantage for a company that wants to begin exporting to Denmark. However, there are certain advantages from operating through a commercial agent: in particular, the establishment of close and direct customer contact and the ability to control resale prices without having to consider competition law. There is a grey zone between self-employed commercial agents and employed sales people. In case of ordinary employment, the principal will have to pay national insurance contributions, withhold and pay tax on the salary paid, and make holiday payments. To avoid this, the principal shall make sure that the commercial agent is truly independent and self-employed.

APPOINTMENT OF A DISTRIBUTOR As an option, rather than commercial agents, the company may want to appoint a distributor who buys the products in his/her own name and at his/her own expense for resale to the market. When appointing a distributor, the parties enjoy the freedom of contract without having to consider protective mandatory legislation.

When appointing a distributor, competition law shall be applicable, in particular the EU CommissionRegulation330/2010onvertical restraints.

FRANCHISING OR SELECTIVE DISTRIBUTION As an option, rather than appointing an intermediary, be it a commercial agent or a distributor, you may consider establishing a franchise system or a selective distribution system.

The establishment of a network of franchisees or selected distributors implies a more direct establishment on the market at the retail level. Such an establishment should be limited to business concepts that are well-structured and highly developed for the local market conditions.

In relation to these distribution systems, Danish legislation does not include any statutory provisions. Only general statutory provisions and competition law aspects need to be considered.

A franchise is a right granted by a franchiser to use certain intellectual property rights in exchange for direct or indirect fees, for the purpose of marketing particular goods or services.

www.erhvervsstyrelsen.dk

www.finanstilsynet.dk

EMPLOYMENT

When hiring employees in Denmark, the terms of employment are governed by individual employment contracts on one side and statutory legislation on the other side. Further, collective bargaining agreements play a large role in specific sectors in the Danish labour market.

In comparison with other countries, Denmark has a flexible labour market due to the Danish model of “flexicurity” (composed of the terms “flexibility” and “security”). The term describes a system between the unions, employers’ associations, and the state: the unions and the employers’ associations, as well as statutory legislation, provide flexible employment opportunities witheasyaccesstohiringandfiring.

In return, the state provides a stable social-welfare safety net and training opportunities for employees who have been fired. You may consider the appointment of an agent, distributor, or franchisee as an alternative to establishing business on your own and employing your own staff. Below, we provide an overview of some of the employmentlawaspectsinDenmark.

IN GENERAL

EMPLOYEE CATAGORIES In Denmark, a distinction is made between blue-collar workers, white- collar employees and managing directors. Blue-collar workers are typically characterised by working with practical work, e.g. psychical work such as construction, cleaning etc. The definition of white-collar employees is directly defined in the legislation, according to which office/sales workers and employees who supervise and issue instructions to other employees fall within the ambit of the legislation. While collective bargaining agreements typically apply for blue-collar workers, white-collar employees are covered by the Danish Act on Salaried Employees (in Danish: “Funktionærloven”), and less often by collective agreements. The Salaried Employees Act is the most important legal instrument for white-collar employees, with most provisions being mandatory to followwhenhiringandfiring.

Other staff members, e.g., managing directors, are not covered by these acts and agreements. Such executive staffmembersenjoybroadfreedomofcontract.

Based on the principle of equal treatment, temporary employees (in Danish: “vikarer”) enjoy the same rights as otheremployees

STATUTORY PROTECTION OF EMPLOYEES

The primary aim of the statutory provisions is to protect employees’ rights in relation to e.g. termination, holiday entitlement and illness. The Danish Act on Salaried Employees protect white-collar employees, but in addition to that there are several acts protecting both blue-collar and white-collar employees, such as the Danish Holiday Act, the Danish Maternity Leave Act etc.

COLLECTIVE BARGAINING AGREEMENTS in Denmark are concluded between either a union and an employer’s organisation or between the union and the individual employer. They regulate salary and working conditions in a specific industry sector or company, most often for the category of bluecollar workers, and less so for white-collar workers. Neither Danish nor foreign companies are however obligated to conclude collective bargaining agreements, and hence, terms of employment can be freely negotiated with respect to the statutory provisions. However, parties to collective agreements, especially the unions, have an interest in achieving a high degree of organisation. The unions can take certain industrial actions to try to reach an agreement with employers. Employers can choose to either join one of the employers’ associations – thus being directly covered by the terms of collective agreements – or may enter their own “company agreements” with a union.

AREFOREIGNERSABLETOWORKINDENMARK?

Any national citizen of an EU member state may work in Denmark without a work permit. EU nationals must however register with the Danish authorities, but they cannot be refused to live and work in Denmark. An employee from outside the EU shall have a work and residence permit in order to work in Denmark, and there are special permits to apply for depending on the work carried out. One of the permits most often applied for is the pay limit scheme for highly paid employees.

EMPLOYMENT CONTRACTS

It is mandatory to issue an employment contract outlining all essential terms and conditions. This is required for all employees employed for more than 1 month for more than 8 hours per week on average. An employment contract continues for an indefinite

period until terminated, unless it is specifically agreed to be a fixed term contract. Fixed term contracts can be prolonged if the employer has an objective reason. In general, if a fixed term contract is prolonged more than once, it will be considered employment on indefinite terms.

SALARY AND WORKING HOURS

There is no minimum wage in Denmark and salary is a highly negotiable term. The salary must, however, be considered “reasonable” when compared to hours worked. Collective bargaining agreements often specify a certain minimum salary, and even if an employer has not concluded a collective bargaining agreement, it is common to look to the industry’s main collective agreement when determining salary for blue-collar workers. This also helps to minimise the risk of industrial actions from unions that wish to conclude a collective agreement with your company. Blue-collar employees areoftenpaidanhourlywage.

For white-collar employees, who are most often not covered by collective bargaining agreements, salary is usually negotiated individually and paid as a monthly fixed salary. Danish employees will expect the main part of their salary to derive from a fixed base salary. For white-collar employees, a smaller percentage of salary mayconsistofcommissionorbonuspayments.

Salary-related benefits such as free mobile phone, company car, internet, laptop etc. are also negotiable terms.

There is no statutory requirement of working hours, but there is a maximum of 48 weekly hours on average within a four-month period. Besides this legislative requirement, the weekly working hours are usually regulated in the employee’s employment contract. Usual working time in Denmark is 37 hours per week. For white-collar employees, it is usually common to agree that overtime is not compensated but included in the agreed base salary. For blue-collar employees, it is normal to pay for overtime, and if the employer has concluded a collective bargaining agreement, the overtimepaywillberegulatedindetailinsuch.

TERMINATION

The notice of termination for blue-collar workers is determined in the applicable collective bargaining agreement, if any such is concluded. If not, it is subject to freedom of contract. As a general rule, the notice periods for blue-collar workers are quite short, often between 14 days (after 6 months’ employment) and 3 months (after 6 years’ employment), depending on industry and seniority.

For white-collar employees, notice of termination is regulated by the Danish Act on Salaried Employees.

According hereto, the period of notice in case of termination by the employer is between 1 and 6 months depending on the duration of the employment relationship. Employees may terminate their employment contracts with one month’s notice, irrespective of their length of service with the company. The parties may agree on a trial period of up to 3 months during which the employment relationship may be terminated by eithersidesubjecttoobservanceof14days’notice. Employees must receive their salary during the notice period. According to the Danish Salaried Employees Act, it is a requirement after one year of employment that the employer’s termination must be considered fair. For bluecollar workers covered by a collective bargaining agreement, this requirement is usually activated after 9 monthsofemployment.

A fair reason for termination can be present if, e.g., the employee does not perform as expected or if the employer is terminating the employment due to restructuring or scale down. Scale down and restructuring will most often be considered a fair reason for termination, whereas terminations based on the employee’s behavior are more often challenged. A whitecollar employee who has been dismissed unfairly may file claim for a compensation of a maximum of 6 months’ salary, depending on seniority. For blue-collar workers, the maximum compensation will derive from the collectivebargainingagreementinforce,ifany. White-collar employees are entitled to a compensation of 1 month of additional salary after 12 years of employment and 3 months of additional salary after 17 years of employment. For blue-collar workers, any compensation will be regulated by the collective bargainingagreementinforce.

Summary dismissal (immediate termination of employment) may take place only in the event that the conduct oftheemployeeconstitutesgrossmisconduct.

THEWORKINGENVIRONMENT

ItisingeneralrecognisedinDenmarkthatahealthywork environment is best achieved by cooperation between employers and employees. Employers are under a duty to create a safe working environment, both physical and mental, ensuring that the employees are protected from injuries or health damages and that the workplace complieswithhealthandsafetyregulations.

EQUAL OPPORTUNITIES

Employers shall comply with antidiscrimination legislation,basedonEUlaw,whichmakesitunlawfulfor an employer to discriminate on the grounds of sex, ethnicorigin,disability,age,orsexualorientationin

connection with recruitment, promotion, salary, and dismissal. Employers may be liable to pay high compensationincaseofbreachofantidiscriminationlaws.

HOLIDAYS

Minimum holiday entitlements and holiday pay are regulated by the Danish Holiday Act. The minimum holiday entitlement is five weeks per holiday year, but it is common to agree – either in collective bargaining agreements or individual contracts - on an additional five days’ paid holiday per holiday year. The monthly paid employee earns 208 days’ paid holiday for each month of employment. Upon termination, the employer is obligated to account and pay for any accrued but not taken holidays.Paymentsmust,asageneralrule,bemadetothe statutory holiday fund “FerieKonto”. The Danish Holiday Act is comprised of very detailed regulation of e.g. notice to take holidays, legal impediments to taking holidays, access to transfer holidays to a new holiday year, compensation for holidays not taken and not transferred etc.

ILLNESS

White-collar employees covered by the Danish Act on Salaried Employees are entitled to their usual salary during illness. There is no maximum duration on this entitlement. However, after 30 days, the employer will most often receive reimbursement of statutory sickness benefits and will thus be compensated to some extent For blue-collar workers, the entitlement to salary during illness, will derive from the collective bargaining agreement in force, if any, or from individually agreed terms between employees and employer. It is common that blue-collar workers receive salary during illness for a certain period, but not indefinitely like the white-collar employees. There are certain rules regarding termination of employment after 120 days of illness if such is agreed between employer and employee in the employment contract.

MATERNITY&PATERNITYLEAVE

Employees have a statutory right to be absent from work during maternity, paternity and parental leave during a total of 52 weeks, which the parents – to some extent –candividebetweenthem.

Subject to the meeting the statutory criteria, parents are entitledtostatutorymaternitypayduringtheleave.Thisis paid by the government. Whether the employee is also entitled to salary from the employer during the leave depends on whether the employee is a white-collar employee, or employed under collective bargaining agreements,oronindividuallyagreedconditions.

A white-collar employee, who has become a mother, is entitled to half of her usual salary for a total of 18 weeks. Blue-collar employees are usually entitled to full salary for several months, if covered by a collective agreement. If an employer pays salary during leave, the employer is entitled to reimbursement of the maternity benefits that the employee would have received.

PENSIONS

Employees in Denmark accrue statutory retirement pensions (state pension and state supplementary pension) from the Danish government. However, though not mandatory, it is common practice for employers to pay a supplementary pension for their employees. The usual market standard is an employer contribution around 8% of the monthly salary, whilst the employee usually pays 4% of the salary. If the employer has concluded a collective bargaining agreement, the pension contribution is most often regulated in the agreement.

MASS REDUNDANCIES AND TRANSFER OF UNDERTAKINGS

Statutory legislation applies in case of mass redundancies, including obligations to provide information and negotiate. The threshold level for a mass redundancy depends on the size of the company in question, but it shall involve at least 10 employees in a company with at least 20 employees.

In case of an undertaking in Denmark, the companies shall comply with the Danish Act on Transfer of Undertakings, which is implemented from the EU directive on the same topic. As a rule, this entails that the employees are transferred from seller to buyer on their existing employment terms and conditions. The employees cannot object to the transfer, unless under unique circumstances. It is unfair to terminate employees based on the undertaking itself, unless terminations are made due to economic, technical or organisational reasons.

PROPERTY AND ENVIRONMENT

Land and property can be either leased or owned according to Danish law. The choice between buying and leasing property should be made after careful considerations and after obtaining legal advice regarding the specific business in hand.

LEASE OF PREMISES

The statute applicable to business leases is the Danish Business Lease Act, and it is in general made to protect the tenant. However, the parties are to a large extent free to agree on the terms of the lease. A lease agreement may be entered into for either a specified or an unspecified term. The majority of business leases in Denmark run for an indefinite period of time. Furthermore, the landlord is only entitled to terminate the lease if the termination is based on one of the specific reasons listed in the Business Lease Act.

BUYING AND SELLING REAL ESTATE

Please find below a brief description of the typical process involved when buying and selling a real estate situated in Denmark,

including the costs and tax issues involved and the most common types of precautionary measures normally taken in connection therewith.

THE TRANSACTION INVESTIGATIONS Usually, a transaction commences by the purchaser conducting a due diligence on all relevant information regarding the real estate in question. The key types of legal information are information from the Danish land registry, lease agreements and rent levels, searches conducted by local authorities, and information on the insurance policies taken out on the real estate.

The seller normally prepares a “sales package”, containing the usual documents required by the purchaser. Depending on the real estate in question, an environmental report and a building survey may be essential in order for the purchaser to establish whether there are any specific problems which should be taken into consideration when drafting the sales and purchase agreement or which could otherwise affect the decision to go through with the transaction.

COMPLETION OF THE REAL ESTATE TRANSACTION

When the parties have agreed on a transaction of the real estate, the terms are laid down in a sales and purchase agreement and a digital deed of conveyance is prepared, usually by the purchaser’s legal counsel. The digital deed of conveyance will be in Danish and make reference to certain of the main terms of the sales and purchase agreement, including, among others, the date of completion and the purchase price.

In order to secure the title to the real estate against creditors and bona fide contracting parties, the deed of conveyance is required to be registered with the Danish land registry. When the deed of conveyance has been digitally signed by all parties, the deed of conveyance will therefore be submitted to the land registry for registration, accompanied by the registration fee. This is usually handled by the purchaser’s legal counsel.

In addition to the above documentation, a completion statement is prepared. This is a statement of all expenses to be refunded between the parties in connection with the sale of the real estate. Real estate tax is for example usually paid in January, covering the first six months of a calendar year. If the date of completion is 1 March, the purchaser will need to refund the seller an amount corresponding to the period 1 March to 30 June. Furthermore, the completion statement will handle any deposit and lease income paid by tenants, etc. The completion statement is usually drafted by the purchaser’s legal counsel based on information received from among others the Seller.

Depending on the agreement between the parties, the purchase price of the real estate will normally be deposited on an escrow account and will only be released from this account, with possible reductions in accordance with the completion statement, when the

purchaser has obtained unconditional title to the real estate according to the land registry The release of the purchase price will usually take place between one and three months after the actual entering into possession of the real estate by the purchaser.

COSTS AND TAX

CAPITAL GAIN TAX Any gain from the sale of land and buildings in Denmark is taxable as income for the seller (for companies at a rate of 22% (2015 level)), subject to certain deductions. Sale of tax depreciable buildings will lead to taxation of recaptured depreciations.

REGISTRATIONFEES The registration fee for registration of the deed of conveyance with the land registry is a base fee of DKK 1,750 plus 0.6% of the highest value of the purchase price or the public value of the real estate. In some geographical parts of Denmark (Sealand) this stamp duty is usually divided equally between the parties, while it in other parts of Denmark (Jutland) is borne by each of the parties by half. Basically, this is subject to negotiations between the parties.

Depending on the corporate structure of the seller of the real estate, the possibility of carrying out the transaction as a sale of the corporate body owning the real estate - Special Purpose Vehicleinstead of an asset sale should be considered. No registration fee is payable if the object of the transaction is a limited company already being the owner of the real estate. Such structure of a transaction is therefore often considered in order to minimise the registration fee and capital gain tax. In these transactions, security in the real estate itself may, however, not be possible due to Danish financial assistance law.

VAT

Sale and purchase of real estate is as a main rule not subject to Danish VAT. However, some exemptions are applicable to commercial transfer of real estate.

Commercial transfers of new buildings are subject to VAT in Denmark. The transactions subject to the new rules include:

• transfer of new buildings with or without land;

• transfer of building sites, irrespective of whether they are developed or not; and

• separate transfers of built-up sites.

It is possible to register a building for VAT purposes in order to obtain VAT deduction on construction and repair of buildings. Building for private housing can, however not be registered for VAT. If the building is registered for VAT purposes, the buyer will need to assume the obligation to adjust the VAT that has already been deducted. If the future use of the real estate is subject to VAT, the obligation to adjust is usually assumed by the purchaser. A transaction of a real estate will only trigger the VAT adjustment obligation if a real estate registered for VAT prior to the transaction will not be used for a purpose liable to VAT after the transaction.

Furthermore, an enforcement notice may be held in force in respect of subsequent owners of a polluted property subject to the following conditions:

if the property is a company in operation, i.e. it has not closed down,

if prior to the takeover of the company, notice had been given that an enforcement notice would be served - or an enforcement notice had been served and the enforcement notice had not been complied with,

if the seller had not complied with enforcement notices issued, irrespective of an injunction or a restraining order,

if a t the time of the takeover of the company, the buyer knew or should have known that notice had been given of the issue of an enforcement notice or that an enforcement notice had been issued, and

if t he buyer has taken over the company from someone who was or might become obliged to comply with an enforcement notice.

INTELLECTUAL PROPERTY

The system for the protection of intellectual property rights is welldeveloped in Denmark. Business names, trademarks, inventions, and designs can be protected against competitors by registration. The intellectual property rights mentioned above may often be licensed, but there are no specific laws governing licensing. However, Denmark is a signatory to most international conventions regarding intellectual property rights.

WHAT HAPPENS IF INTELLECTUAL PROPERTY RIGHTS ARE INFRINGED?

Sanctions for the infringement of intellectual property rights would vary between different types of intellectual property. In most cases, infringements would give rise to both criminal and civil liability The means of preventing infringements in Denmark were improved by the introduction of an act which confers upon the holder of intellectual

property rights the power to carry out civil law searches of premises (infringement investigation), including searches for counterfeit goods, in order to secure evidence. If there are reasonable grounds for suspecting that someone has committed an infringement, the court may order a search for objects or documents deemed to be of importance to the proceedings. This enforcement tool is valuable and unique to the rightful holder when enforcing his/her rights in Denmark.

PATENTS A patent would protect technical inventions and provide its owner with the exclusive right to exploit the invention for a certain time. Patents would be protected against competitors by registration.

The right to a patent would belong to the inventor or his/her successor(s) in title. The Danish Patent and Trademark Office may only grant patents upon application and registration. An application shall contain a full description of the invention, including any drawings, a claim of the invention that the applicant wants to protect, and an abstract, etc. The Danish Patent and Trademark Office would conduct an initial formal examination of the application. The applicant would receive

a preliminary finding from the Danish Patent and Trademark Office, stating whether the invention may be patentable.

A patent may only be granted in respect of a new invention. The requirements in Denmark are the same as for European patents, i.e. they are based on the principle of absolute novelty. In general, the patent shall be granted for any invention that could be applied in industrial use, is new, and would involve an inventive step. The maximum duration of a patent would be 20 years from the application date.

TRADEMARKS Trademarks would be protected against competitors by registration or use.

Exclusive protection of trademarks may be obtained either by registration with the Danish Patent and Trademark Office or by proprietary use. It normally takes up to half a year to register a trademark. The requirements for making an application for the registration of a trademark would be as follows: a combination of words, letters or numerals, drawings, symbols, etc, a declaration of the goods or services, and a list of the classes for which protection is requested.

The Danish Patent and Trademark Office would examine whether the application complies with formal requirements, such as classification, the distinctiveness of the trademark, and any potential conflict with prior trademarks, names, trade names, etc. Third parties could object to the application within two months from the day when the application was published. The duration of the protection would be indefinite but subject to renewal every 10 years. A trademark registration may be cancelled if the trademark has not been used for the last five years and the registrant is unable to show any valid reason for not having used the trademark.

COPYRIGHT The types of works that copyright would protect are literary works, e.g. novels, newspapers, and computer programs, and artistic works, e.g. paintings, drawings, photographs, sculptures, and works of architecture as well as industrial design, etc. Copyright is an unregistered right which is established once the requirements of copyright are fulfilled.

The protection of copyright would not depend upon formal procedures. The work would be protected by copyright as soon as it is created and is sufficiently original. The author’s work would be protected when it is created. The author may assign the financial rights to his/her work but not the moral rights, which would always remain with the author. Copyright protection would normally last throughout the author’s lifetime plus 70 years. In respect of neighbouring rights, such as rights of performers, producers of sound recordings, and broadcasting organisations, the protection would last for 50 years from the day of creation.

DESIGNS Protection could be available for a product resulting from its aesthetic aspects or its ornamentation. A design refers to the appearance of the whole or a part of a product resulting from the features of the lines, contours, colours, shape, texture, and/ or materials of the product itself and/or its ornamentation. The registration of designs would normally serve as protection against competitors’ abuse.

Designs meeting certain requirements may also benefit from protection even without prior registration (unregistered Community designs). A design would be protected by law to the extent that it is new and has an individual character.

An application for registration with the Danish Patent and Trademark Office should contain, inter alia, personal details about the applicant, an indication of the products in which the design is intended to be incorporated or to which it is intended to be applied, and illustrations of the design. Applicants would be permitted to combine multiple variations of the same design in a single application.

The Patent and Trademark Office would assess whether the application complies with formal requirements. Apart from that, the Danish Patent and Trademark Office would only examine whether the design for which protection is applied for falls within the definition of design and that it is not contrary to public policy or accepted principles of morality If the application is accepted, it would be open to objection for two months.

Registered designs would be protected for five years and renewable for another two five-year periods. Denmark is a signatory to the Paris Convention and the Locarno Agreement.

CONFIDENTIAL

INFORMATION AND TRADE

SECRETS

Confidential information and trade secrets are governed by the protection of the Danish Trade Secrets Act, which prohibits abuse and disclosure of trade secrets and associated activities, e.g. corporate espionage and unauthorised commercial use. Corporate espionage would be punishable by imprisonment, but unauthorised commercial use would only give rise to civil liability in the form of damages. However, the law does not reduce the necessity of confidentiality agreements between business parties.

THE BUSINESS ENVIRONMENT –MARKETING AND COMPETITION

When doing business in Denmark, you would be subject to general business regulations, such as the Sale of Goods Act, the Contracts Act, the Competition Act, and the Data Protection Act. This chapter summarises the general principles of these statutes.

PRINCIPLES OF CONTRACT LAW

Danish law does not impose any formal requirements for the formation of contracts. Almost any contract could be oral. The courts would interpret contracts subjectively and see through the strict wording in order to determine the intention of the contracting parties at the time of entering into the agreement.

The general principles of contract law are set out in the Contracts Act, including provisions governing the formation of contracts, powers of attorney, and the invalidity of contracts.

HOWISACONTRACTFORMED? There are no formal requirements for the formation of

a contract. Offers, acceptance, and contracts may be made orally in most cases, but a written contract is typically recommended Unless otherwise stated or agreed, an offer in writing would be binding during a reasonable length of time. Terms of acceptance, which differ from the offer, or late acceptance, would generally be treated as new offers, which may be accepted or rejected.

WHEN IS A CONTRACT

VOID?

A contract may be void by reason of duress, fraud, or unreasonableness. A contract may also be held unenforceable if its enforcement would be deemed unfair or unreasonable.

IS A CONTRACT INTERPRETED IN DENMARK?

HOW

When interpreting contracts, Danish courts would take a subjective approach seeing through the strict wording of the contract in order to determine the intention of the parties. It is a fundamental principle of Danish contract law that the intentions and beliefs of the parties determine the contents of the contract. If an agreement does not expressly regulate a certain matter, statutory provisions may be included in the contract in order to fill the gap.

WHAT HAPPENS IF A CONTRACT IS INCOMPATIBLE WITH STATUTES?

Contract provisions, which are incompatible with mandatory statutory provisions, would be void. The whole agreement may be void if the relevant provisions constitute the essence of the agreement.

SALE OF GOODS AND SUPPLY OF SERVICES

Commercial parties are free to determine the terms and conditions of sale of goods and supply of services in Denmark. If an agreement for the sale of goods does not expressly regulate a specific issue, the provisions of the Sale of Goods Act would be applicable. There are no specific provisions regarding the supply of services, except to consumers, and it would therefore be important to ensure that an agreement covers all the key issues.

In case the of sale of goods, the parties are free to determine the terms and conditions of the agreement. Where an agreement does not govern a particular issue, the following general principles would apply:

● The seller shall be under an obligation to deliver goods in accordance with the agreement as to the type, quantity, quality, and other properties of the product. The goods shall meet the normal standard, which the buyer would reasonably regard as satisfactory, and shall be delivered on time.

● The buyer shall pay for the goods upon delivery. If the price is not specified in the agreement, the buyer shall pay what would be reasonable, taking into account the nature and condition of the goods, the prevailing market price upon conclusion of the agreement, and other relevant circumstances.

● If a delivery date has not been specified, the goods shall be delivered within a reasonable period after the purchase. The risk of loss of the goods would pass from the seller to the buyer when the buyer has recieved the goods. If someone other than the seller transports the goods to the buyer, the risk shall pass when the goods are handed over to the carrier.

● If the seller does not deliver the goods on time, the buyer could demand performance in accordance with the agreement. If the delay would constitute a material breach of the agreement, which the seller anticipated or ought to have foreseen, the buyer would be entitled to terminate the agreement. The buyer may also be entitled to damages. Unless the seller has been negligent, the damages would be limited to direct damages.

● If the seller delivers defective goods, the buyer could demand remedy at the expense of the seller. The seller has a right to remedy the defective goods in order to avoid sanctions other than damages. If the seller fails to remedy the defective goods, the buyer would be entitled to a reduction of the purchase price in proportion to the defect. The buyer could cancel the delivery if the defect is material to him and the seller ought to have foreseen this. The seller may also be liable for damages. Unless the seller has been negligent, damages would be limited to direct damages.

In case of supply of services, the agreement would determine the rights and obligations of the parties. If there is no agreement, or if the agreement does not regulate a specific matter, the provisions of the Sale of Goods Act would be implied in order to determine the rights and obligations of the parties.

DEALING WITH CONSUMERS

Several statutes shall be considered when dealing with consumers. All these statutes are drafted in order to protect the consumer to a reasonable extent and are therefore consumer-friendly.

The EU directive on distance contracts was recently implemented in Denmark. A distance contract would mean any contract concerning goods or services concluded by means of distance communication or during a visit by the seller, e.g. to the home of the consumer. The seller shall give the consumer the following information: the name and address of the seller; the main characteristics of the product or the service; the price including all taxes; the cost of delivery; the means of payment and delivery; and the right of the consumer to withdraw from the agreement.

The information shall be provided prior to the entering into of the agreement and also at the time when the seller confirms the order of the consumer. The consumer would have the right to withdraw from a purchase agreement for goods within two weeks from receipt of the goods and may cancel a purchase agreement for services within two weeks from the conclusion of the agreement. Where the right of withdrawal has been exercised, the seller shall reimburse any payment made by the consumer.

MARKETING

Marketing shall be fair and proper. The business shall be obliged to document that its advertisements are not misleading or unfair in any respect.

The Danish Marketing Practices Act is generally applicable to businesses and is supplemented by special regulations regarding the marketing of specific products, e.g. drugs, tobacco, and alcohol. The Act prohibits all unfair or improper marketing. Unfair marketing shall include marketing which is unethical, e.g. intrusive, aggressive, or which exploits fear. Misleading information regarding the price or the characteristics of the product shall also be prohibited. The business may be fined if it is in breach of the provisions of the Marketing Practices Act.

The Danish Marketing Practices Act is somewhat more restrictive than EU law and is therefore currently being reassessed.

PRODUCT LIABILITY

The Danish Products Liability Act provides that a manufacturer, importer or supplier would be liable for damages suffered by a consumer caused by defects in a product. The provisions of the law implement the EU directive and are directory.

A person shall be entitled to damages if he/she suffers personal injuries caused by a defective product. If the product is intended and used for consumer purposes, compensation shall also be paid where the product causes damage to property. There shall be no compensation available for damages caused to the product itself. The manufacturer, importer or supplier shall not be liable to pay damages if either:

1. the defect did not exist in the product when the product was sold,

2. the state of scientific and technical knowledge when the product was sold was not such that the defect could have been discovered, or

3. the defect is attributable to compliance with any mandatory requirements imposed by a public authority.

COMPETITION

The Danish Competition Act contains two prohibitions; against anti-competitive agreements, and against arrangements and conduct which amount to an abuse of a dominant position. There may also be an obligation to notify acquisitions and mergers to the Danish Competition and Consumer Authority. The Act is based on the equivalent provisions of EU competition law. Case law from the Commission and the Court of Justice of the European Union shall be taken into account when applying the Danish Competition Act.

Anti-competitive agreements or arrangements may be exempted from the application of the Act if the undertaking can show that the benefits of the agreement or arrangement outweigh the negative effects from competition.

Certain types of agreements benefit from block exemptions. A business may, at its own risk, assess whether an agreement falls within the terms of a block exemption.

In the event of an infringement, an undertaking may be ordered to terminate the infringement and be liable to pay a fine. Very serious offences may lead to imprisonment.

In addition, agreements or clauses in agreements, which infringe the prohibition against anti-competitive agreements or arrangements, are void. In rare cases, a business may be found liable to pay damages to third parties.

The Competition Act also contains rules governing concentrations of undertakings, which would include mergers and the acquisition of control by the purchase of assets or shares in another business. A joint venture, which performs all the functions of an autonomous economic entity on a long-term basis, could also constitute a concentration for the purposes of the Competition Act.

A concentration shall be notified to the Competition and Consumer Authority where

a) the combined aggregate annual turnover in Denmark of the undertakings concerned is at least DKK 900 million, and at least two of the undertakings concerned each has a turnover in Denmark of DKK 100 million or more, or

b) at least one of the undertakings concerned has a combined aggregate annual turnover in Denmark of DKK 3.8 billion or more, and the combined aggregate worldwide annual turnover of at least one of the other undertakings concerned is more than DKK 3.8 billion.

The undertakings concerned are generally the merging undertakings or the business acquiring control and the business of which control is being acquired. A concentration shall be notified by the merging parties or the party or parties acquiring control.

The Competition and Consumer Authority may prevent a concentration if it finds that the merger is likely to have long-term, adverse effects on competition, or suggest remedies, which eliminate such adverse effects.

DATA PROTECTION

Danish law on data protection is based on EU law and therefore equivalent to the laws in other EU member states. The provisions are mandatory and intended to protect the person to whom the data relates.

WHAT IS DATA? Data shall be defined as any kind of information which directly or indirectly relates to a living individual and which is being processed and includes an expression of fact or opinion about the individual. Sensitive personal data may include information about the individual’s racial or ethnic origin, political opinions, health, sex life, and criminal convictions. Stricter rules shall apply to the processing of sensitive personal data.

WHAT IS PROCESSING OF DATA?

Processing is defined as any operation carried out on personal data.

HOW SHOULD DATA BE DEALT WITH?

Anyone processing data shall comply with certain principles. The data shall be lawfully processed, treated in accordance with good practice, and processed for a limited purpose. Furthermore, it shall be adequate and relevant, correct, not excessive, and not kept for any longer than necessary.

HOW CAN DATA BE PROCESSED LAWFULLY? The main rule is that data can only be processed lawfully if the individual has given his or her consent.

WHAT HAPPENS IF DATA ARE NOT PROCESSED LAWFULLY? If data are processed unlawfully, the persons responsible may be fined or imprisoned. They may also be liable to pay damages to the individual.

BUSINESS STRUCTURE AND TAX

For tax reasons, when establishing a business or investing in Denmark, it is important that the structure of the business or the acquisition is compliant with Danish law and does not imply adverse tax consequences. Tax incentives for foreign experts are among the favourable parts of the Danish tax regime.

CORPORATE TAXATION

UNLIMITED TAX LIABILITY For tax purposes, a coroporation is considered resident in Denmark if it is incorporated incorporated in Denmark and registered at the Danish Business Authority as having a Danish place of business. Foreign companies with whose actual place of management is in Denmark are also considered resident in Denmark. The actual place of management is typically the place where the management decisions concerning the company’s day-to-day operations are made.

LIMITED TAX LIABILITY Foreign companies can be subject to limited tax liability either through a branch or a permanent establishment or through

withholding taxes on certain types of Danishsourceincome.

Danish branches and permanentestablishments of foreign companies are taxed under the same rules and rates as Danish resident companies:

● Companytaxrate Taxable income –including capital gains – is normally subject to a corporate tax of 22% (2021). The tax rate is identical for public limited companies, private limited companies, and permanent establishments.

● Danish income subject to withholding tax Certain types of payments to nonresidents are subject to Danish withholding tax, which may be reduced according to a double taxation treaty.

● Dividends Dividends paid to a parent company in another EU member state or a state with which Denmark has entered a double taxation treaty are exempt from withholding tax if the shares qualify as subsidiary shares. The same applies to dividends paid on group shares (that are not subsidiary shares, i.e holdings below 10%) provided that the recipient company is resident within the EU/EEA.

Dividends paid on portfolio shares to a foreign shareholder are normally levied a withholding of 27%.

● Interest Interest is generally not subject to withholding tax unless if it is paid to a foreign group member company that is tax resident outside the EU and outside any of the states with which Denmark has entered a taxation treaty. In this situation, interest withholding tax is levied at 22%. Certain other exemptions apply, mainly relating to CFC taxation.

● Royalties Royalties are subject to a 22% withholding tax, while arts are subject to a VAT exemption. In most cases, the payer may reduce its withholding in accordance with the tax treaty applicable to the payee. Also, the EU Interest and Royalty Directive may provide an exemption from withholding tax if the payee is an immediate parent, sister or subsidiary company resident in the EU.

TAX BASE Taxable income is generally calculated as the turnover of the business activities minus depreciations, interest, and other business expenses.

CAPITAL GAINS Gains and losses realised on the sale of tangible and intangible assets, including goodwill, are generally included in taxable income. However, gains realised on the sale of shares are tax-exempt if the shares qualify as either “subsidiary shares” or “group shares”.

“Subsidiary shares” are shares held by a corporate shareholder that holds a minimum of 10% of the share capital in a subsidiary located in the EU, the EEA, or a country with which Denmark has entered a double taxation treaty.

“Group shares” are defined as shares in companies with which the shareholder is jointly taxed or might be jointly taxed.

If the shares do not constitute group shares, subsidiary shares or treasury shares, they constitute portfolio shares. Gains on portfolio shares are fully taxable regardless of the holding period. Losses on the sale of portfolio shares are generally tax deductible.

TAX LOSSES Tax losses may be carried forward indefinitely

Certain restrictions on the right to carry tax losses forward apply when more than 50% of the share capital or 50% of the voting rights at the end of the financial year are owned by shareholders different from those that held control at the beginning of the income year in which the tax loss was incurred.

Similarly, under certain circumstances, tax losses are cancelled if a Danish company receives a debt forgiveness or is the subject of a comparable transaction. However, there are numerous exceptions (e.g. intercompany transactions).

CFC TAXATION According to the Danish CFC (taxation of controlled financial companies) rules, a Danish company must include in its taxable income the total income of a subsidiary, foreign or Danish, if such subsidiary qualifies as a CFC.

The consequence of CFC taxation is that the Danish holding company is taxable of a pro rata share of the Danish/foreign company’s income, irrespective of the rules in a double taxation treaty, if any.

MANDATORYDANISHJOINTTAXATION

A mandatory joint taxation regime obliges all Danish resident companies and Danish branches that are members of the same

domestic or international group to file a joint group tax return. The definition of a group generally corresponds to the definition of a group for accounting purposes. The tax consolidated income is equal to the sum of the taxable income of each individual Danish company or branch which is a member of the consolidated group.

VOLUNTARY INTERNATIONAL JOINT

TAXATION A non-Danish subsidiary may be included as a member of a Danish tax grouping provided that the group includes all its foreign companies and branches in the Danish tax grouping. In effect, this all-ornothing provision rules out the possibility for major international groups to have their Danish subgroup file a Danish group tax return that includes only certain “cherry-picked” (typically loss-making) foreign group members.

● Taxreturns Tax returns are completed based on audited financial accounts with adjustments for tax. Tax returns must be filed no later than six months following the end of the accounting year Corporations with an accounting year-end that falls within the period from 1 January to 31 March must file a tax return no later than 1 August in the same calendar year.

● Paymentoftax Corporate income tax must be paid on a current year basis in two equal instalments due on 20 March and 20 November. The authorities request payments of 50% of the average of the final income tax of the last three years. In addition, voluntary additional payments may be made on the same dates; such voluntary payments are adjusted interest rate when set against the final tax bill.

The final tax bill is settled by 20 November in the following year. Underpaid tax is then payable by 20 November with a surtax of 5.1% of the tax amount (rate for

2010 tax year). Overpaid tax is refunded by November of the following year with interest of 1.6% (rate for 2010 tax year).

TAXATION OF INDIVIDUALS

TERRITORIALITY AND RESIDENCE

Individuals are subject to full tax liability when they (1) take up residence or (2) stay in Denmark without taking up residence when the stay exceeds six consecutive months interrupted only by short stays abroad (and then as from the day of arrival). An individual subject to full tax liability in Denmark is taxed on his/her worldwide income and gains received or accrued.

Individuals are subject to limited tax liability on Danish source income.

EMPLOYEE GROSS INCOME All remuneration from employment, whether in cash or in another kind, is subject to tax when the employee has obtained a legal right to the remuneration, regardless of where payment is made and regardless of whether remitted. The liability extends to any living or housing allowance and any reimbursement of tax or other personal liability, whether paid directly to an employee or borne by the employer on the employee’s behalf.

CAPITALGAINSANDINVESTMENTINCOME

Taxable gains and investment income are added to taxable income. Certain allowances are available.

DEDUCTIONS As opposed to corporations, individuals may deduct certain non-business expenses.

● Business deductions An employee may be entitled to deduct travelling expenses, subscriptions to professional associations, necessary business literature, tools of

trade, etc. (if exceeding DKK 5,600 per calendar year). As opposed to corporations, individuals may deduct certain non-business expenses:

● Non-business expenses An individual subject to full tax liability can deduct all interest paid and contributions or premiums paid under certain pension schemes with a Danish pension fund or insurance company

● Personal allowances A personal allowance of DKK 43,400 (in 2015) is granted with the effect of reducing income tax payable at ordinary rates. The allowance is granted to each individual, but where a spouse cannot utilize the entire personal allowance, the balance is transferred to the other spouse.

SPECIAL TAX REGIME FOR EXPATRIATES

A special legislation relates to foreign employees working temporarily in Denmark. Assuming that certain conditions are met, these expatriates can be covered by a 26% tax rate for a period of up to 60 months. The 26% rate is after a deduction of labour market contribution of 8%.

TAX RATES: STATE AND LOCAL INCOME

TAX Personal income after deduction of 8% labour market contributions, i.e. the effective marginal tax rate is (100-8) x 51.5% or (8 + 47.38) = 55.38%.

Income and allowances are divided into three categories:

1. P ersonal income – e.g. cash salary, director’s fee, free company car, and free telephone – less pension contributions

2. Capital income, e.g. net interest income and net capital gains

3. Other allowances deductible from the total taxable income

Church tax (members only) will be imposed at a flat rate dependent on the municipality in question. The country average is 0.7%

TAX CREDITS An individual resident in Denmark is entitled to deduct foreign income taxes paid or accrued on foreign source income from the Danish tax payable up to a maximum of Danish tax paid on the part of the taxable income, which is foreign source income.

TAX RETURNS Husbands and wives file separate returns for the income year. Taxpayers receive a pre-printed tax return in March, containing information that the tax authorities have already obtained from employers, financial institutions, etc. If the tax return is not correct, it shall be corrected, signed, and filed no later than 1 May.

Taxpayers with more complicated tax returns (most expatriates) shall file tax returns no later than 1 July.

The tax year for individuals is the calendar year.

PAYMENT OF TAX It is required that employers withhold income tax from salaries paid out (“A-tax”). For other types of income, an advance tax (“B-tax”) has to be paid in ten equal instalments during the income year.

VAT

Denmark applies the VAT system established by the European Union.

Denmark imposes VAT on imports and taxable deliveries of goods and services at a rate of 25%.

A number of business activities are exempted from paying VAT. The most important ones are within hospitals, medical and dental care, insurance, banking, and certain financial activities.

WINDING UP

A limited company and other legal entities may be winded up by going into solvent liquidation or being declared bankrupt. Upon completion of the bankruptcy proceedings or liquidation, the legal entity ceases to exist.

LIQUIDATION

The owners of a company can decide for the company to enter into solvent liquidation. The owners will choose a liquidator to be in charge of the company. Furthermore, the court can decide for a company to be put into liquidation upon request of compulsory dissolution from the Danish Business Authority. In this case, a liquidator will be appointed by the court.

The liquidator shall make sure that all outstanding creditors are paid, and distribute the remaining assets to the owners, upon which the company will be dissolved.

BANKRUPTCY

HOW IS A COMPANY DECLARED BANKRUPT? A petition for bankruptcy can be filed

by a creditor or by the company itself - or by any other legal entity

The bankruptcy decree is declared by the court upon a hearing if the court is satisfied that the company is insolvent. A company is insolvent when it cannot pay its debts by their due dates and when this inability to do so is not just temporary.

WHO TAKES RESPONSIBILITY FOR THE COMPANY SUBSEQUENT TO THE

BANKRUPTCY? When issuing a bankruptcy decree, the court will appoint a trustee of the bankruptcy estate. The trustee is the only person entitled to represent the bankruptcy estate and is obliged to realise all the company’s assets. In cooperation with the major creditors, the trustee may decide to carry on the business of the company for a limited period.

The trustee investigates the causes of the bankruptcy, examines whether the company, the board members or managing director have violated the law, and review the company’s books.

When all assets are realised, all outstanding issues solved, and the claims have been

approved, the trustee will prepare the accounts of the bankruptcy estate. Upon the approval of the court (and the creditors), the trustee will pay out dividend payments in the order of priority of the creditors, and the company ceases to exist.

WHAT ARE THE RESPONSIBILITIES OF THE PARTNER, BOARD DIRECTOR, AND MANAGINGDIRECTOR? The partners or the board members and managing director shall assist the trustee and inform him of all the company’s assets and debts.

RESTRUCTURING

A limited company or any other legal entity with financial problems can seek an arrangement with its creditors to avoid bankruptcy

In order to have time to investigate the possibilities of an arrangement, a creditor

or the company – or any other legal entitycan file a petition for reconstruction to the court. The court appoints a supervisor and can also appoint a person skilled in accounting to watch over the interests of the creditors.

A reconstruction leads to either a scheme of arrangement or a transfer of assets. If the reconstruction fails or is not approved, the company is declared bankrupt.

The petition for reconstruction is approved, unless a majority of the creditors disapprove, thereby enforcing the reconstruction on the minority of the creditors.

THE DANISH CENTRAL CUSTOMS AND VAT ADMINISTRATION

www.skat.dk

DISPUTE RESOLUTION

A dispute may be settled in court or by arbitration. Arbitration clauses would be common in business-to-business agreements. Undisputed claims may be quickly settled by a summary procedure.

LITIGATION AND ARBITRATION

Arbitration would be widely used in the commercial market in Denmark. Many business-to-business agreements would include an arbitration clause and would also be common in standard form contracts. Most of the arbitration proceedings shall be conducted in accordance with the Danish Arbitration Act and the Danish Institute on Arbitration (Copenhagen Arbitration).

In the event that the parties in dispute have not agreed to settle the matter by way of arbitration, the dispute shall be resolved in court. The court may assist the parties in reaching a settlement of the dispute and may also appoint a mediator. If the parties cannot reach a settlement, the court will resolve the matter.

Arbitration and court proceedings are normally instituted by written submissions from both parties followed by a preliminary hearing. Written preparation of the case may, if necessary, continue after the preliminary hearing. Once the case is prepared, the arbitrators, or the court, will hear the case at a final hearing. The arbitrators, or the court, shall then pass their judgement.

If the case has been tried by the court, the party who is dissatisfied may appeal the judgement. One of the major differences between arbitration and court proceedings is that court proceedings are normally conducted in public, whereas arbitration shall be private. In addition, arbitration will usually provide a quicker and more expedient way of dealing with a dispute than court proceedings, because the parties cannot appeal the decision of the arbitration tribunal.

However, arbitration will be more expensive than a court action, because the parties would be responsible also for the fees of the arbitrators.

FOR MORE INFORMATION

We hope that the information in this guide has proved useful in providing a brief overview on how to establish a business in Denmark, the options available to companies, and their rights and obligations when conducting business in Denmark.

Should you require further information with regard to any of the matters dealt with in this guide, or if you have specific concerns or questions, please do not hesitate to contact us.

njordlaw.com

NJORD Copenhagen

Pilestræde 58 1112 Copenhagen

copenhagen@njordlaw.com

NJORD Silkeborg

Godthåbsvej 4 8600 Silkeborg, Denmark

silkeborg@njordlaw.com

NJORD Aarhus

Åboulevarden 17

8000 Aarhus

aarhus@njordlaw.com