CORPORATE TAXES
SIGNIFICANT DEVELOPMENTS
The company tax rate has been reduced effective January 1,1999. The share transfer tax will be abolished as of October 1,1999.
New legislation on taxation of dividends has made Denmark a very attractive tax jurisdiction for international holding companies as of January 1,1999.
New thin-capitalization rules apply as of January 1,1999.
TAXES ON CORPORATE INCOME
The company tax rate was reduced generally from 34% to 32% as from January 1,1999. Special rules apply with regard to payment of an on-account tax in the income year. If the income tax is more/less than the total of on-account payments, a supplement of 11.75%/6% of the difference will be charged/refunded in November the following year.
The on-account arrangement is compulsory for companies established after January 29, 1992 and for companies with a taxable income of more than DKK10 million in 1996 or 1997. For older companies the on-account arrangement is voluntary, and these companies can choose to pay tax in the following year at 32% plus 11.75% of the tax payable.
CORPORATE RESIDENCE
A corporation is resident in Denmark for tax purposes if itis incorporated in Denmark and registred in the Companies Register as having a Danish place of business. Further, companies having their actual place of management in Denmark will be taxable in Denmark. The actual place of management is basically the place where the daily decisions concerning the company are taken.
Rules concerning compulsory joint taxation have been introduced, under which subsidiaries located in tax-haven countries must be taxed jointly with the Danish parent company if the activities are mostly of a financial character. Special transitional provisions apply to existing companies, postponing application of the rules to 1998 or 1999.
OTHER TAXES
Value-added tax/The VAT rate is 25% of the price charged (exclusive of VAT).
Stamp taxes/Stamp taxes are payable on many types of commercial and legal documents, e. g., deed of transfer of real estate.
Share transfer tax/A share transfer tax of 0.5% on the market value applies if the seller is resident in Denmark. This tax applies to both Danish and foreign shares. The share transfer tax is however abolished as of October 1,1999.
Hydrocarbon tax/This tax is levied at the rate of 70% on profits accruing from oil and gas extracted in Denmark and in the Danish territorial sea and continental shelf. Corporation tax is deductible in computing the hydrocarbon tax.
Employer's tax (social security charges)/The employer's contribution to ATP (old-age pension) charges is DKK1,790 per annum. In addition, the employers must also contribute at the rate of 0.28% of salaries and wages paid to the employess in 1999. Companies that are exempt from VAT pay an employer's tax, which is calculated on the total annual salary cost. The
rate can be up to 8.92% in 1999, which is the rate for banks and other financial institutions, the most significant sector paying the employer's tax. This tax is deductible for tax purposes.
A social security charge of 8% on salaries and wages is borne by employees. In 1999 an additional 1% charge is made for a compulsory pension saving.
Environmental taxes/Danish companies must pay environmental taxes, which were introduced to reduce industrial carbon-dioxide pollution. In general, companies can receive a refund for the costs of pollution control, and the individual company will benefit or be penalized accordingly. A company with a branch that requires heavy consumption of energy will be likely to suffer a significant increase in tas costs. Transition rules allow companies with heavy energy consumption a few years to adjust to the new regime.
BRANCH INCOME
The tax on branch income is the same as on corporate profits. The employer's tax also applies to branches. No tax is withheld on transfer of profits to a (foreign) head office. See also "Other significant items" under "Deductions" below.
INCOME DETERMINATION
Capital gains/Capital gains and/or losses are included in ordinary taxable income. A gain on the sale of shares kept for more than three years is tax exempt. Special rules apply to investment subsidiaries in a tax haven (§2 a shares).
A gain on a sale of real estate property is calculated as the cash value of the sales sum less the cash value of the acquisition sum. According to the former rules, the taxable gain would be reduced by 5% for each year of ownership exceeding three years, to a maximum of 30%. As for real estate
sold after June 2, 1998, the reduction system is abolished with the impact that the total gain is taxable. Transitional rules apply for property acquired before January 1,1999. For such properties the maximum reduction rate of 30% is reduced by 3% each year in ten years. No reduction is given if the real estate is acqu
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