As a general rule, payments made before conversion are taxed as interest. When the transfer of a business consists of a sale of shares, the transaction is VAT-exempt. KPMG International provides no client services. . Danish companies within a Danish tax group are jointly and severally liable for corporate tax and WHT. capital gains tax for a period of 5 years after the taxpayer has left the country. Get the latest KPMG thought leadership directly to your individual personalized dashboard, View Print friendly version of this article Opens in a new window, Denmark - Taxation of cross-border mergers and acquisitions. Capital loss cannot be offset against other kinds of income, but only against capital gain and dividend from listed shares. There are a number of exemptions from the WHT. The question of whether the receiver of the interest payments should be considered as the beneficial owner must be analyzed on a case-by-case basis. Taking a look at the capital gains tax rates in Denmark compared to other countries in the Europe. If the joint taxation is discontinued during this period, the retaxation balance will be subject to full retaxation. The country has opted out of certain elements of the EU's Maastricht Treaty and issues concerning certain justice and home affairs. WHT protection requires that the receiver be considered as the beneficial owner of the interest and not a mere conduit/flow-through company. Generally, structures that were tax-efficient 5 years ago may now be either inefficient or exposed to tax audits and contingent tax liabilities. Profitable operations can be absorbed by loss-making companies in the buyers group, thereby effectively gaining the possibility to use the losses. A change of ownership takes place where more than 50 percent of a Danish companys share capital or voting power at the end of any income year is held by shareholders other than those who owned it at the beginning of the year in which the loss arose. It is too soon to draw any definite conclusions until further legal precedence has been established. Ria Falk KPMG Acor Tax Tuborg Havnevej 18 Hellerup, Copenhagen Denmark. Basically, the business taxable profit is all taxable income with deduction of all corporate expenses. No deduction for the purchase price or for underlying goodwill. As these rules are complex, local advice should be sought to ensure that a debt pushdown will be effective. Danish tax law and practice is constantly changing, and amendments are usually comprehensive, complex and detailed. When using the Business Tax Scheme, the business profit that is not cashed for private use is taxed at 22%, which is equivalent to the corporate tax. After 84 months, the expatriate is taxed according to ordinary income tax rules. See below under Hybrids for further details. In any case, the current proposal contains broader CFC rules than those introduced in ATAD. Should the targets shares or assets be acquired? 27% / 42%. In order to obtain the approval to apply the Business Tax Scheme, a number of formalities regarding bank accounts, withdrawals, and accounting, ensuring that private and corporate funds can be distinguished, must be observed. Besides the capital gains taxation, there may also be possible taxation related to contributions made to the foreign pension plan if such are still being made. A wide range of acquisition vehicles is available to a foreign buyer who wishes to acquire the shares or assets of a Danish target. The Kingdom of Denmark is party to more than 80 tax treaties. The most important apply in the following instances. Further, the Organisation for Economic Co-operation and Development (OECD) has proposed a general anti-avoidance rule in the context of the Base Erosion and Profit Shifting (BEPS) Action 6. Finally, the Danish WHT is reduced in accordance with a relevant tax treaty, provided this company is for Danish tax purposes regarded as beneficial owner of the dividend payment. However, the Danish tax system includes a number of rules that may limit the tax-deductibility of interest and other financial expenses. Each case must be examined based on its facts, and a number of administrative requirements must be satisfied. Capital gains tax. A person must declare income/gain/loss along with the filing of a Danish tax return each year, including profit/loss above a threshold of DKK 2,000 concerning bonds, certain other securities, and realisedgains due to exchange rate fluctuations on deposits or debt in foreign currency. Value is to be converted to Danish kroner using the exchange rate at the start of the year/end of the year, so this will cover both gain due to increase in value of the pension plan and gain due to currency fluctuations. Exit tax Although Denmark levies an exit charge on a deemed disposal of worldwide assets upon breaking Danish tax residence, this only applies for longer-term residents who have lived in Denmark for 7 out of 10 tax years prior to departure. DKK5.5 million). KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (KPMG International), each of which is a separate legal entity. Finland and France follow, at 34 percent each. Up to 56% (i.e. It is not possible to provide an exhaustive list of the situations in which the CFC rules have implications. Developments in the mergers and acquisitions (M&A) tax area over the past 5 years amount to a tightening of anti- avoidance rules and a more aggressive approach by the tax authorities to arrangements that erode the Danish tax base. Denmark 's top tax rate on dividends and capital gains is close to the highest in the OECD at 42 percent. Yes. The tax return must be filed by 1 May or no later than 1 July in the year following the relevant income year. The corporate income tax rate has not changed since 2016, and remains at 22 percent for 2021. However, the capital gain realised by the The tax rate is 0.92% of the taxable value up to DKK3,040,000 (408,602) and 3% on the value in excess of the limit. Please refer to the section on Holding Rules below. This legislation has been abolished with effect as per 1 January 2020 and special regulation on hybrid mismatch has been introduced effective from 1 January 2020. All rights reserved. Through product development and national, as well as international, experience, our professionals have developed broad expertise and are able to provide unique services. However, there are exceptions that should be considered in each case. A beneficial reward scheme has been reintroduced from 1 July 2016. The Danish tax authorities may challenge either the total cash value or the allocation between depreciable assets. A foreign company that acquires the assets of a Danish company and continues the business activity in Denmark is normally regarded as having a permanent establishment (PE) in Denmark after closing. The effect of the CFC rules is that the income of the subsidiary is apportioned to its Danish parent company and subject to Danish corporate tax. By continuing to browse this site you agree to the use of cookies. Error! Denmark has the world's highest capital gains tax rates, with a top rate of 42% on earnings over about $9,000 1. shareholdings below 10 percent) are tax-exempt. For some work-related benefits in kind, a limit of DKK 6,600 (2022) applies. Consumption Taxes in Denmark Consumption taxes are charged on goods and services and can take various forms. The tax rate is fixed at 15.3%. Generally, taxation commences from the date of arrival. They're taxed at lower rates than short-term capital gains. In certain cases, foreign pension plans will not qualify as tax approved under Danish tax rules, and, in that case, the pension plan will be subject to mark-to-market taxation. Previously, the prohibition against financial assistance stated that it was illegal for a Danish target company (A/S or ApS) to grant direct or indirect financial assistance for the purpose of financing the acquisition of the target companys shares. While waiting for the Danish courts judgment, the legal position is still unclear and legal practice in this area seems to be fast-moving. The use of equity may be more appropriate than debt in certain circumstances, for example. Where it is decided to use debt, a further decision must be made as to which company should borrow and how the acquisition should be structured. an interest payment under a hybrid financial instrument) leads to non-inclusion in the other jurisdiction. The bottom tax base is represented by the personal income plus positive net capital income. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Useful Denmark Tax Facts: The tax year in Denmark is from January 1 until December 31 Danish tax refunds often take around 3-4 months to process Your rsopgrelse is the official government document you receive from the Danish tax authorities The average Danish tax refund our customers receive is 1,200 Tax liability for non-Danish employees The transfer pricing rules are relevant in relation to many aspects of a transaction, such as shareholder loans, intercompany guarantees, cash pool arrangements, and transfer of goods, services and assets. Partner & Territory Tax Leader, PwC Denmark. where one companys equity is exchanged for equity in another company) or where shares in a newly incorporated company are issued to the shareholders in the merging companies in exchange for their equity, with both sides receiving little or no consideration in the form of cash or other assets. Capital gains are taxed with a marginal tax rate of 42 pct. Capital gains and dividend incomeif not included in the individual income taxare typically taxed at a flat rate. In general, six months after the end of the accounting year. We serve a significant proportion of Denmark's largest companies, public and private institutions, and have a soundly based portfolio of clients in most industries. Losses generated during the income year may be offset in full. The transfer of a business (or part of a business) as a going concern is outside the scope of VAT provided that the following conditions are met. Special rules apply for free housing provided by the employer. The choice of joint venture primarily depends on the most beneficial tax positions with regard to, for example, the offset of losses or interest expenses against profits subject to corporate or personal income tax. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The principles underlying each are discussed below. A change in ownership (more than 50 percent) may restrict this so that the losses may not be used to reduce the taxable income below the net income from capital. The income brackets are adjusted annually. Error! This report starts with a brief description of the most important recent developments. The Danish CFC rules apply to a Danish parent company with a controlling influence in a subsidiary whose income is mainly of a financial nature. 5.4. The income derived by the PE is taxable in Denmark in accordance with Danish tax legislation as well as any tax treaty with the country in which the foreign company is resident. Registration of a change of ownership of land and buildings is subject to a duty of DKK1,750 plus 0.6 percent (as of 2021) of the fair market value. Advance binding rulings may be applied to specific transactions or arrangements, either planned or completed. However, losses originating from tax years before the commencement of the tax group may only set off profits in the same company or companies participating in the tax group at the time the loss arose. strategic joint venture, where the joint venture partners cooperate on specific strategic objectives. Each transaction should be examined based on its facts, and local tax advice should be sought. As a general rule no WHT on interest payments applies. This also applies to foreign parent/related companies. A companys exit from a tax group may give rise to a number of challenges and should be discussed with local tax advisors. For travel costs and capital gains taxes on the disposal of your residential property is tax under... 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