Danish Holding Company
Danish Holding Company
- Tax planning via a network of international tax advisers and attorneys
- Why form a company in a foreign country with a tax accountant specialized in international tax law?
- Basic Considerations regarding the Formation of Companies in „Zero-Tax Havens“ i.e. in countries that have not entered into Double Taxation Agreements with other countries
- Offshore Company Formation: Tax haven rankings
- Examples for the legal reduction of corporate taxes
- DTA permanent establishment concept – Our services and fees
- Parent companies and their subsidiaries in the European Union
- Beware of cheap founders!
Danish Holding Company formation -Offshore Company formation> Services provided by our Law Firm – or our Partner Network:
- Formation of the company, Apostille, upon request certified translation of the formation documents
- Certificate of Incorporation: The certificate of incorporation is an official document that confirms the name of a registered company, as well as the registration number.
- Certificate of Good Standing
- Ranging from Registered Office to maintaining a business office
- Upon request: Nominee Director (attorney acts as a trustee and acts as the Director of the company during the formation phase) and / or Nominee Shareholder (natural person or legal entity – Law firm acts as a trustee in the form of the shareholder of the company)
- Upon request: Permanent Nominee Director (Attorney acts as trustee in the capacity of Director of the company during the entire term of the agreement)
A production site, a site for the exploitation of mineral resources or construction works whose duration is greater than 12 months always constitutes the establishment of a place of business in the country of the company’s seat (for example: Belize, BVI, Cayman Islands, Nevis etc….), independent „of the place of managerial supervision” (analogous to Article 5 OECD_Model Convention). Otherwise the taxable permanent establishment is defined via the „place of managerial supervision”. As a rule this implies, that a person who maintains his ordinary residence in the country of the company’s seat must act as the Director of the company. Either the client or an agent relocates his ordinary residence to the country of the company’s seat and he, himself, acts as the Director of the company or our Law Firm in the country of the company’s seat provides a Nominee Director. Alternative: For example: The Danish client / founder acts as the Director of the company and establishes credibility that he is present in the country of the company’s seat within the course of carrying out the required managerial supervision. Due to the fact that as a rule tax havens (Belize, BVI Cayman Islands, Nevis etc…) do not maintain a public commercial register, the installation of a “Nominee Director in the formation phase” is possible and not necessarily a “permanently present Nominee Director”.
– Upon request: Bearer shares
– Upon request: Liechtenstein Institute as the shareholder of the company
The shareholder or the shareholders are the „Owner” of the company. It can be individuals or companies. Bearer shares, nominee shareholder or for example a Liechtenstein Institute as a shareholder serve to conceal the true ownership relationships. Which constellation is best suited, is dependent upon different prerequisites. We would welcome the opportunity to discuss this with you in a personal setting.
– Opening of an account in the name of the company, incl. Online banking and VisaCard (in the case of bearer shares the opening of an account is often only possible, if the client / founder is not present at the opening of the account)
– Upon request: Investment account in Switzerland (Minimum deposit 10,000 CHF)
– To the extent it is a requirement of domestic law: Provision of proof of the exempt status to the authorities (most tax havens differentiate between offshore and onshore companies. Onshore companies are taxed normally, offshore companies – i.e. companies which transact business outside of the country are not taxed. The Cayman Islands is the exception: Real zero-tax haven)
Features of Danish Holding Company Law
Danish holding companies have the following features:
a) Advance Rulings: Advance tax rulings are available thereby allowing the client to decide on whether the fiscal structure contemplated meets his requirements.
b) Company Taxes: There are no taxes on the issue of shares, on an increase of share capital or on the transfer of shares. Other than corporate income tax there are no further taxes on a company. Provincial taxes and taxes on a company’s capital net worth do not exist in Denmark.
c) Extensive Tax Treaty Network: Double taxation treaties are a necessary part of ensuring that the standard rate of withholding tax deducted in a subsidiary’s jurisdiction on outgoing dividends is either substantially reduced or completely eliminated altogether.
d) Shelf Companies: Off the shelf companies are available in Denmark. The availability of shelf companies means that an investor can put his plans into operation at once instead of having to wait up to 3 months for the company to be incorporated.
e) Regulatory Environment: Disclosure requirements are strict. This may be seen as a disadvantage or an advantage depending on the client’s needs.
Additional (principally tax-related) advantages of establishing a holding company in Denmark include that: dividends are tax exempt regardless of the underlying taxation of the subsidiaries; capital gains are tax exempt after an ownership period of three years; no Danish withholding tax on dividends paid to foreign parent companies in tax treaty countries; no Danish withholding tax on interest paid to foreign companies; and no capital duty on formation and increase of the capital of a holding company.
Danish holding companies have the following characteristics:
- Loans to Shareholders: companies cannot lend funds to shareholders or directors.
- Audit: Accounts must be audited and after auditing are lodged in a registry to which the public has access.
- Minimum Share Capital: The minimum share capital requirement is high being approximately DKK 125,000 (or equivalent in euro, or another currency if permitted) for a private company and DKK 500,000 (or equivalent in euro, or another currency if permitted) for a public company. All the share capital must be fully paid up in cash or in kind before registration. In the event of the contribution being in non-liquid assets an accountant must confirm the value. (N.B. If the value of the holding in the subsidiary exceeds the minimum capital requirements no cash injection is required).
- Bearer Shares: Private companies cannot issue bearer shares whereas Public companies can.
- Shareholder Register: There is no public shareholder register unless in the case of a private company which has a single shareholder or in the case of a public company which has a shareholder who has more than 5% of the shares.
- Directors: A minimum of 3 directors is required for a public limited liability company of which at least 2 must be resident in Denmark. One manager must also be resident there. In the case of a private company neither directors nor managers need be domiciled in Denmark.
- Cost: Denmark is not a cheap jurisdiction in which to operate. However when one considers the advantages entailed in using the jurisdiction and the potential savings to be made cost may not be such a significant factor.
Comparison of Dutch and Danish Holding Company Regimes
Since Holland has traditionally cornered the market in international holding companies it is useful to compare the relative advantages and disadvantages of both jurisdictions in assessing the impact of the Danish holding company regime:
a) Capital Gains Tax: The Danish holding company is exempt from capital gains taxes on the sale of a shareholding in its subsidiary if it has held the shares for at least 3 years. In Holland the participation exemption (at the time of writing) is 5% with no time limit.
b) Withholding Taxes on Outgoing Dividends: Dividends distributed by a Dutch holding company are subject to a standard dividend withholding tax rate of 15% unless the provisions of the EU Parent-Subsidiary Directive apply or unless the rate is reduced by way of a double taxation treaty. Under the current network of double taxation treaties this rate is reduced to 5% in the case of a few countries, 7.5% in the case of the Dutch Antilles, 10%-15% in the case of most treaty countries and 15% for non-treaty countries.
The current situation in Denmark is that there is exemption from withholding tax for outgoing dividends to countries which have double tax treaties with Denmark, subject to a minimum 15% participation level.
c) Withholding Taxes on Incoming Dividends: Holland has slightly more double taxation treaties than Denmark and so has slightly more leverage in reducing withholding taxes deducted on incoming dividends remitted to a holding company based in its jurisdiction. Denmark is nonetheless in the top 10 worldwide jurisdictions from the point of view of the number of double taxation treaties negotiated.
d) Corporate Income Tax on Dividend Income: Dividend income received by a Danish holding company is exempt from corporate income tax in Denmark provided it has held 15% of the subsidiary shares for 12 months and the subsidiary is not a “Controlled Foreign Corporation”. The threshold for the eligible holding is due to be reduced to 10% as of January 2009.
In Denmark, if the subsidiary is a CFC then it must have paid tax at 75% of the Danish rate; in Holland an offshore subsidiary must have paid some tax in its own jurisdiction if the favorable holding company fiscal regime is to apply. Thus income received from subsidiaries located in the Middle East or offshore havens such as Gibraltar in which no tax or low tax is paid may not qualify for the special treatment available under the participation exemption rules.
e) Capital Taxes: Denmark has no taxes on the issue or transfer of shares. In Holland the participation exemption (at the time of writing) is 5% with no time limit.
f) Minimum Participation: In Denmark the preferential fiscal treatment given out to Danish Holding companies only applies if the holding company holds at least 20% of the foreign subsidiary’s shares for 12 months. In Holland by contrast the favorable fiscal regime applies if the Dutch holding company holds at least 5% of the foreign subsidiary shares with no time limit applied. (N.B. under the EU Parent-Subsidiary Directive dividends paid to subsidiaries in another EU member state are exempt from withholding tax if the parent holds at least 15% of the subsidiary for a minimum period of 12 months (due to be reduced to 10% as of January 2009).
g) Advance Rulings: Advance rulings in Holland are considerably more effective than those available in Denmark.
h) Withholding Taxes on Royalty Payments: In Denmark 25% (reduced from 30% as of April 1, 2008) withholding taxes are deducted from royalties relating to patents, trademarks or information concerning industrial commercial or scientific expertise whereas royalties relating to copyright, literary, artistic or scientific work are exempt from withholding taxes. In the case of Holland no withholding taxes are deducted for royalty payments made by a Dutch company irrespective of their nature.
i) Withholding taxes on Interest Payments: The Netherlands imposes no withholding taxes on loan interest payments. In Denmark, interest paid to non-residents is subject to a 25% withholding tax (reduced from 30% as of April 1, 2008).
j) Regulatory Environment: Disclosure is comprehensive in Denmark and audits are required for all companies. In Holland by contrast audits are only required for large companies and reporting requirements are much less detailed.
k) Infrastructure: Holland has a well developed infrastructure for the provision of fiscal and related holding company services whereas Denmark is a relative newcomer in this field.
l) Shelf Companies: Shelf companies are available in Denmark but not in Holland. It generally takes 8-14 weeks to incorporate a company. Accordingly shelf companies are much sought after.
We are a network of international tax advisors and attorneys, with focus of interest on foreign formation of businesses for the legal minimization of taxes,
limitation of liability and/or restart after domestic insolvency. We are able to found the following companies:
- English Limited (0-19% income tax for medium-sized businesses up to a profit of £350,000, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
- Cypriot Limited (10% income tax rate, independent of profits, no taxation of distribution of profits, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
- US Corporation (pure form of stock corporation, taxes depending on the kind of activity and on federal state, DTA concept)
- Dubai Company (NO taxes, except for banks, oil companies and chemopetrol enterprises, DTA concept)
- Companies in Liechtenstein (low taxes, depending on purpose and legal form, offshore, no DTA concept)
- Swiss GmbH (low taxes depending on canton, DTA concept)
Our English company is mainly consulted by clients from high tax countries in the EU, such as Danish and Swedish clients. In particular for these clients, there are broad opportunities within the framework of double tax agreements, EU freedom of establishment and the EU directive on parent companies and their subsidiaries to legally reduce the tax load in their domestic country (e.g. Sweden, Denmark), or to place the sole right of taxation abroad. Click here for examples…..
The fees for formation of businesses depend on the services:
- Formation of the company, entry in the commercial register, any required documents, apostille
- Nominee services: nominee manager/supervisory board, nominee partner/shareholder
Please note: Nominee services are required, if the founder of the company has his centre of vital interests in a state other than the state of the company’s registered office, i.e. for example not in England in case of an English Limited company, but the state of registered office should still be entitled to the right of taxation: “place of business management” as the place of tax law permanent establishment according to double taxation agreement (DTA). Therefore, nominee services may be required, provided that the actual founder wants to remain unknown, e.g. after insolvency or prohibition of trade. It is important that the nominee is an attorney or tax office, respectively, in the formation state (state of registered office), and that the nominee can always be reached. Any “cheap founders” do not install any attorney or tax office as nominees, which may have disastrous consequences for the client.
- Domicile in the formation state: domicile address in the foundation state, deliverable postal address, mail forwarding service, telephone, fax
Please note: If taxation is to be effected in the state of registered office, for example in England, domicilation must meet the requirements of a regular registered office. A “mailbox” or an “answering machine” does not constitute a regular registered office, and may lead to the assumption of a bogus company (beware of cheap founders!)
- Opening of an account for the company, including internet banking and VisaCard
Please note: Most cheap founders only offer “help with opening a bank account”. The company usually does not get any bank account and/or the nominee has access to the bank account. We install a bank account for the company in the state of the company’s registered office, with sole account authority for the client!
Please send us an Email with your objectives. We require the following details:
- Where are you resident (as natural person) according to tax laws?
- What are your objectives (e.g. reduction of corporate taxes, indemnity, capitalization, restart after insolvency)
- Would you like to actively do business in the foundation country (state of registered office) of the company (such as industry), or do you not intend any active business in the foundation country?
We will then explain any possible constructions in a summary with advantages and disadvantages. Any futher consultation (per e-mail, telephone or in our office) will be charged at € 150,00 per hour. Why form a company in a foreign country with a tax accountant specialized in international tax law?
The prospect will find numerous agencies specialized in foreign company formations in the internet. As a rule, however, these companies do not employ Tax Accountants specialized in international tax law. Frequently, such formation agencies are not – or only insufficiently – versed in international tax law, or are not permitted to provide advice on legal or tax matters in countries as a consequence of the Legal Advice Act. Formation agencies – or even Tax Accountants – located in the forming countries (for example: Cyprus, Belize etc…) often are only knowledgeable in domestic tax law. If one takes a look at the relevant internet offers, it quickly becomes apparent, that a great deal of the providers publish incorrect or insufficient information, working according to the strategy “The cheaper the better”.
The following factors, among others, are to be observed within the scope of international tax planning / company formation in a foreign country:
-Most countries have laws for the prevention of tax evasion and/or have laws that formulate the right to impose taxes domestically. It is not in the interest of these countries, that companies and individuals have their income taxed in foreign countries, even though “in truth” the managerial supervision is located domestically and / or the activities are transacted / performed domestically and / or “in truth” the taxpayer resides in country and/or a production site is not installed in the foreign country. In many countries, (for example: USA and Germany) “tax evasion” is, in fact, a criminal offense. For this reason, it is somewhat naive to believe, that the right to impose taxes can be relocated to a foreign country, by simply investing a few hundred Euro for the formation of a company in a foreign country. It is true, that almost everything can be done, however domestic tax laws must be observed and – to the extent a production site is not installed in a foreign country, or no site for the exploitation of mineral resources or construction works, whose duration is greater than 9-12 months exist (in the event a Double Taxation Agreement exists this will always constitute a permanent establishment), the impression must be avoided that the foreign company is just a „bogus company”.
– The permanent establishment in a foreign country:
1. Managerial supervision
A production site, a site for the exploitation of mineral resources or construction works, whose duration is greater than 9-12 months, always constitutes the establishment of a place of business in the formation country – at least in the event of a DBA-situation (Double Taxation Agreement). Otherwise the definition of a permanent establishment is based, among other things, on the “place of managerial supervision”. As a rule, this means that a resident of the formation country (ordinary residence) acts as the Company Director. Either the client relocates his ordinary residence to the formation country and acts as the Director of the company himself OR a citizen of the formation country is hired to take the position of Director OR the client himself acts as the Director, and provides proof that he is present in the formation country to perform customary managerial supervision OR our Law Firm in the foreign country provides a Nominee Director.
In the event, a Nominee Director is provided the following factors must be observed:
-The responsibilities of the Nominee Director should be performed by an Attorney or Tax Consultant in the formation country of the company (in the case of a legal entity as a Trustee Director of a Law Firm). This ensures, that the trustee relationship is not disclosed for “incidental” grounds. Only attorneys can effectively protect the trustee relationship from third party access. It goes without saying, that attorneys will demand the corresponding fees and will not just demand a few Euros for their services as a Trustee Director.
Under certain conditions, it can even be required or useful, that a person in the formation country is employed as the Director of the company, i.e. with an employment contract between the company and the Director, payment of payroll taxes and social security contributions; to the extent they are collected. We are also able to provide such an “employed Director”.
The so-called “Formation Directors” are “absolute nonsense”, who resign after the company has been registered and transfer the company and position to the actual beneficiary. In this situation, the “actual Director” can quickly be identified. A Trustee Director must of course be registered and reachable during the entire agreement term.
One “can” deviate from such an arrangement, if the foreign company is formed in a country, which has not entered into a Double Taxation Agreement and / or a Mutual Legal Assistance (MLA) Agreement.
An “Offshore Director is also “absolute nonsense”, an example of this is that a legal entity acts as the Director of an English Limited in Belize. Such a constellation is “asking for it” i.e. asking to be accused of “Avoidance Abuse” and of course, such a company will not be able to open an account or be issued a Value Added Tax ID Number.
2. The place of business in a foreign company
A “Post Office Box” or an “Answering Machine” does not constitute an ordinary place of business. Accordingly, “Registered Office Addresses” do not meet the prerequisites for a proper place of business.
The minimum requirements of a proper place of business are:
-Serviceable postal address, also for registered mail
-Reachable by telephone during normal office hours, personal call reception with the name of the company.
It does not always have to be “large offices”, but it must not be a post office box. The configuration / structure of the place of business is to a high degree dependent upon the company activities. If one assumes that a company can only perform its business activities, if it has 3 offices and 4 employees on-site, then a pure virtual office would indeed appear rather odd. In this situation a “sense of proportion” is required, everything must be plausible.
3. The company account in a foreign country
Many formation agencies offer “help in opening an account”. This means, in plain English, that an account is not opened, for example an English bank will not open an account, if the Director resides on Belize (unless he is present at the opening of the account, which is not probable). Also many banks will not open a company account, in the event only bearer shares are issued (with the exception that the owners are present at the opening of the account or in certain countries such as Switzerland or Belize. However, in these countries the owners must at least be disclosed to the bank and often must be present at the opening of an account.) “Just fill out a few forms” and the opening of an account is done, is, in most cases, nothing but a fairytale and has nothing to do with real-world business practices.
-Taxes must not be paid in tax-haven countries?
Also in this case, a great deal of nonsense is published in the internet. In reality, there are only very few “zero-tax havens”, like for example the Cayman Islands. In fact, many countries (Belize, BVI, Nevis etc…) offer the formation of so-called offshore companies (as a rule International Business Companies, IBCs), i.e. companies who only transact business and generate revenues outside the country, however onshore companies (companies, who transact business domestically) are indeed taxed. Offshore companies must of course provide proof, that they only transact business outside of the country, and they must of course keep their books in order. In addition, there are a series of other taxes (withholding tax, capital gains tax, inheritance tax, property tax, income tax etc…) that may be of interest to our clients and may under certain circumstances be levied in “tax-haven countries”.
– Are tax-haven countries always the most suitable countries for the formation of a company?
Certainly NOT. Tax-haven countries are defined as countries that have not entered into Double Taxation Agreements, Mutual Legal Assistance (MLA) Agreements, or extradition treaties for fiscal offences with other countries that at a minimum do not tax revenues that have been generated outside of the country.
The “screening effect” is not in effect against double taxation, specifically due to the lack of a Double Taxation Agreement. If a company, located in a tax-haven country is, for example, a stockholder of a company in Germany or the USA, in that event dividends distributed to such company in a tax-haven country are subject to the full withholding tax in Germany or the USA; while Double Taxation Agreements, as a rule, limit the withholding tax rate to 5%. Double Taxation Agreements also define under which circumstances the prerequisites for the existence of a permanent establishment are met and that a stock of goods or merchandise (warehouse), a permanent agent or a representation in another contracting state as a rule do not constitute a permanent establishment. Should, for example, a company in Belize maintain a stock of goods or merchandise (warehouse) in another country, this warehouse as a rule does constitute a permanent establishment in the other country, i.e. taxation of the proceeds generated there.
Also the EU Parent Subsidiary Directive does not apply to tax-haven countries. This can have substantial disadvantages for associated companies; because in the case of the application of the EU Parent Subsidiary Directive the dividends distributed between the companies are tax-free (this fact of course is only advantageous to clients from EU states).
Companies in tax-haven countries do not receive Value Added Tax IDs. This could result in substantial disadvantages, if these companies want, for example, to transact business with European companies.
In addition, if one considers the fact that for example Cyprus (EU Member, Double Taxation Agreement with almost all countries) has an income tax of only 10% or the Canton of Zug in Switzerland has a total tax burden of 15.5% for companies or that the EU special economic zones (Maderia, Canary special economic zone) entice with income tax rates below 5%, one should ask oneself the question, if the formation of a company in a tax-haven country is really the correct alternative.
Factors, such as “economic and political stability”, play also a major role. Example Belize: As long as the British military protects Belize against territorial claims of its neighbor Guatemala, investments can reasonably be made. If the protectors withdraw, one can assume the worst will happen. Should one decide to make an investment, one should take out an insurance policy against imminent domain.
Of course, good reasons may exist with regard to forming a company in a tax-haven country. Specifically the fact that Mutual Legal Assistance (MLA) Agreements, and extradition treaties for fiscal offences do not exist and that many tax-haven countries do not maintain a commercial register, can be very helpful in certain constellations.
And of course there are also clients, who setup an “actual company” in tax-haven countries, with offices, employees and an employed Managing Director who maintains his ordinary residence in the foreign country. In such cases, of course, the situation is to be assessed differently.
– Tax Planning within the scope of “associated companies”
Within the scope of associated companies, it is of extraordinary importance, if the EU Parent Subsidiary Directive is applicable and / or if a Double Taxation Agreement has been entered into and / or if the respective country levies withholding tax on outgoing distributed dividends. This – and other details – must be considered in international tax planning.
-Tax Planning within the scope of Holding companies
Numerous details must also be observed in the formation of a foreign holding:
- Location of the subsidiaries (DBA-Situation, EU, Non-DBA Situation?)
- Advantages and disadvantages of individual holding locations, with regard to the high priority objectives
- How are non-holding-activities taxed in the seat country of the Holding?
- Does a holding privilege even exist (for example Cyprus, Switzerland, Spain), i.e. no taxation on the distribution of incoming dividends (for example, Cyprus, Switzerland, Spain, the Netherlands) or low taxation?
- How are outflows /dividend distributions of the Holding taxed, if they are distributed out-of-country or distributed in-country (withholding tax)?
- How are interest and license payments of the Holding taxed?
- How are deductions due to losses from sale and write-downs to the lower going concern value addressed?
- How are deductions of expenditures for interests / stockholder debt financing addressed?
International tax planning is a very complex subject and belongs in the hands of trained specialists. “Just forming a company on the fly for a few hundred Euros” can have fatal consequences for the client. Good advice costs good money. And a waterproof company constellation, which would standup to subsequent verification – is simply not feasible for a small amount of money.