Denmark2008 Investment Climate Statement - Denmark Introduction Denmark is characterized by political, economic and regulatory stability. The macroeconomic environment is sound and the investment climate is favorable. Denmark is situated strategically, linking continental Europe with the Nordic and Baltic countries. The transport and communications infrastructure are efficient. Denmark is among the world's leaders in industries such as IT, life sciences, energy technology and maritime. Openness to Foreign Investment Denmark is a small country with an open economy. Denmark is highly dependent on foreign trade and international cooperation. Danish trade and investment policies are very liberal and encourage foreign investment. In general, investment policies are forward-looking and aimed at fostering and developing businesses, especially in high-growth sectors. According to the 2007 business environment survey from the Economist Intelligence Unit, Denmark retains its position as the most attractive nation for foreign investment. Several factors are included in the survey and Denmark scores top marks in various categories such as the political and institutional environment, macroeconomic stability, policy towards private enterprise, foreign investment policy, financing and infrastructure. According to the Danish central bank, the total stock of foreign direct investment in Denmark was Danish Kroner (DKK) 674 billion (current prices, exclusive of pass-through investments) in 2006, corresponding to 41 percent of GDP. U.S. investments in Denmark accounted for 9 percent of total FDI stock in 2006. The United States is the fourth largest foreign investor in Denmark. The government agency “Invest in Denmark” is part of the Danish Trade Council and is situated within the Ministry of Foreign Affairs. The agency provides detailed information to potential investors. The website for the agency is www.investindk.com. Greenland Home Rule government's trade promotion agency, Greenland Expo, also has information for potential investors in Greenland. The website for the agency is www.greenlandexpo.com. The central and the regional governments encourage foreign investment on a national-treatment basis. There is no mandatory screening of foreign investment. According to the Danish Competition Act, the Competition Authorities require notification of mergers and takeovers if the combined turnover of the participating companies exceeds DKK 50 million. However, notification is not required if only one of the participating companies has turnover of more than DKK 10 million. The EU Commission must approve very large mergers. There are certain restrictions on foreigners' acquisition of real estate in Denmark. EU citizens and companies from EU member states can purchase any type of real estate (except vacation properties) without prior authorization from the authorities. However, companies not domiciled in the EU and non-EU citizens who are not living in Denmark or have not previously been living in Denmark for at least five years in total, can only acquire real estate with the permission of the Danish Ministry of Justice. Permission is freely given to people with a Danish residency permit, except with regards to purchases of vacation properties. Purchases of designated vacation properties are restricted to citizens of Denmark. See section the section “Right to Private Ownership and Establishment” regarding limits on foreign ownership and control in certain sectors. Conversion and Transfer Policies Denmark has not introduced the Euro currency although it meets the EU’s economic criteria for membership. Danish voters twice (in 1992 and 2000) turned down the introduction of the Euro. The Danish reservation concerning Euro participation can only be abolished by referendum. Although the current government has proposed another referendum on the adoption of the Euro, the referendum has not yet been scheduled. Denmark conducts a fixed exchange rate policy with the Danish Kroner linked closely to the Euro within the framework of ERM II. The Danish Kroner has a fluctuation band of +/- 2.25 percent of the central rate of DKK 746.038 per 100 Euro. There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark. Policies are intended to facilitate the free flow of capital and to support the flow of resources in the product and services markets. Foreign investors can obtain credit in the local market at normal market terms, and a wide range of credit instruments is available. Expropriation and Compensation By law, private property can only be expropriated for public purposes, in a non-discriminatory matter, with reasonable compensation, and in accordance with established principles of international law. There have been no recent expropriations of significance in Denmark and there is no reason to believe that there may be significant expropriations in the near future. Dispute Settlement There have been no major disputes over investment in Denmark in recent years. The judicial system is extremely well-regarded and fair. The legal system is independent of the legislative branch of the government and is based on a centuries-old legal tradition. It includes written and consistently applied commercial and bankruptcy laws, and secured interests in property are recognized and enforced. The World Economic Forum's 2007-2008 Global Competitiveness Report includes Denmark's judicial system as a notable competitive advantage. Denmark is ranked as the country with the world's most efficient legal framework. In addition, Denmark ranks highly among the evaluated countries for its protection of property rights (#2), judicial independence (#3) and intellectual property protection (#4). Monetary judgments under the bankruptcy law are made in freely convertible Danish Kroner. The bankruptcy law addresses creditors' claims against a bankruptcy in the following order: (1) costs and debt accrued during the treatment of the bankruptcy; (2) costs, including the court tax, relating to attempts to find a solution other than bankruptcy; (3) wage claims and holiday pay; (4) excise taxes owed to the government; and (5) all other claims. Denmark is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. In addition, Denmark is a party to the 1961 European Convention in International Commercial Arbitration and to the 1962 agreement relating to the application of this Convention. Performance Requirements/Incentives Denmark adheres to the WTO Agreement on Trade-related Investment Measures (TRIMs) and performance requirements are applied only in connection with investment in hydrocarbon exploration, where concession terms normally require a fixed work program, including seismic surveys, and in some cases exploratory drilling, consistent with applicable EU directives. Performance requirements are mostly designed to protect the environment, mainly through encouraging reduced energy and water use. Several environmental and energy requirements are systematically imposed on households as well as businesses in Denmark, both foreign and domestic. For instance, Denmark was the first of the EU countries, in January 1993, to introduce a carbon dioxide (CO2) tax on business and industry. However, there are certain reimbursement schemes and subsidy measures to reduce the costs for businesses, thereby safeguarding Danish competitiveness. Performance incentives are available to both foreign and domestic investors. For instance, investment by foreign and domestic investors in designated regional development areas may take advantage of certain grants and access to preferential financing. Investments in Greenland may be eligible for incentives as well. Denmark does not offer favored treatment to foreign investors. Foreign subsidiaries located in Denmark can participate in government-financed or subsidized research programs on a national-treatment basis. Right to Private Ownership and Establishment A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (A/S) is DKK 500,000 (approximately USD 99,000, January 3, 2008 exchange rate) and for establishing a private limited liability company (ApS) DKK 125,000 (approximately USD 24,800). No requirements apply as to the residency of directors and managers of A/S or ApS. Since October 2004, a private entity may found a European public limited company (SE company). The legal framework of the SE company is to a large degree subject to national company law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Commerce and Companies Agency if the official address of the company is in Denmark. The minimum capital requirement is EUR 120,000. Like most other countries, Denmark imposes restrictions on establishing companies providing professional services (e.g., legal, accounting, auditing, and medical services) in Denmark. Danish professional certification and/or local Danish experience to practice in Denmark are required. In some instances, Denmark may accept an equivalent professional certification from other EU or Nordic countries on a reciprocal basis. Establishment of new, large department stores outside city centers is on a non-discriminatory economic needs-test basis and has to be approved by the local authorities. Ownership restrictions are applied in the following sectors: Hydrocarbon exploration: Requires 20 percent Danish government participation, but on a “non-carried interest" basis. Defense materials: Amendments to the legislation concerning foreign ownership of defense companies came into effect as of July 2006. The new law (L503 of 07/06/2006) replaces previous ownership restrictions with control. The Minister of Justice has to approve foreign ownership of more than 40 percent of the equity or more than 20 percent of the voting rights in a defense company doing business in Denmark. The approval will be granted unless there are foreign policy considerations or security issues weighing against approval. Aircraft: Unless a waiver is granted, non-EU physical and legal persons may not directly own or exercise control over aircraft registered in Denmark. Ships registered in the Danish International Ships Register (DIS) must, as a general rule, be Danish-owned. Ships owned by Danish citizens, Danish partnerships or Danish limited liability companies are eligible for registration. Furthermore, ships owned by EU or EEA entities with a genuine link to Denmark are eligible for registration. Also, foreign companies with a major Danish influence can register a ship in the DIS. Protection of Property Rights Property rights in Denmark are well-protected by law. Intellectual property protections in Denmark are particularly well-regarded. Denmark adheres to key international conventions and treaties concerning protection of property rights. The WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) has been ratified. The WIPO internet treaties: WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT), have been signed but not yet ratified because Denmark is awaiting a joint EU ratification process. Real estate is for the most part financed through the well-established Danish mortgage bond credit system, the security of which almost compares to that of government bonds. However, to comply with the covered bond definition in the EU Capital Requirements Directive (CRD), the Danish mortgage banking regulation was amended effective July 1, 2007. With the amended Danish mortgage banking regulation, commercial banks now have the same opportunities as mortgage banks and ship-financing institutions to issue covered bonds. Only issuers that have been granted a license from the Danish financial supervisory authority are able to issue Danish covered bonds. Secured interests in property are recognized and enforced in Denmark. All mortgage credits in real estate are recorded in local public registers of mortgages. Except for interests in cars and commercial ships, which are also publicly recorded, other property interests are generally unrecorded. The local public registers are reliable system of recording security interests. Transparency of the Regulatory System Danish laws and policies granting national treatment to foreign investments are designed to support the Danish goal of increasing FDI in Denmark. Denmark applies high standards with regard to health, environment, safety, and labor laws. These policies are universally applied and are not used to impede foreign investment. Danish corporate law is generally in conformity with current EU legislation. The legal, regulatory and accounting systems are relatively transparent and in accordance with international standards. Bureaucratic procedures are streamlined and transparent, and proposed laws and regulations are published in draft form for public comment. On 1 June, 2007, the Danish Parliament enacted Bill L213 on Controlled Foreign Company (CFC) taxation and private equity funds. The bill reduces the corporate tax rate from 28 percent to 25 percent (effective January 1, 2007). The bill also limits tax speculation for private equity funds in particular. Additionally, the bill capped deductibility of net financing costs (effective July 1, 2007), and changed taxation of dividend and liquidation distributions. Furthermore, the Bill included amendments to the taxation of CFCs indirectly forced upon the Danish government by a European Court of Justice (ECJ) ruling in the British Cadbury-Schweppes case. The Danish rules now include specific criteria for when CFC taxation will be triggered, such as the relative size of financial assets and CFC income. Efficient Capital Markets and Portfolio Investment Denmark has fully liberalized foreign exchange flows, including those for direct and portfolio investment purposes. Credit is allocated on market terms and is freely available. The Danish banking system is generally sound and under strict control by the Financial Supervisory Authority. The Danish Competition Authorities have, however, on several occasions mentioned that competition in the Danish financial sector is insufficient. A possible barrier for foreign banks in Denmark is that the national payment system, PBS, is jointly owned by Danish banks and that it is difficult for foreign banks to gain access. The assets of the three largest banks, Danske Bank, Nordea Bank Danmark, and Jyske Bank amounted to approximately USD 462 billion in 2006 (ultimo 2006 exchange rate of 5.66 DKK per USD) corresponding to approximately 75 percent of the total assets in the Danish banking sector. The major Danish banks are rated by international agencies and the creditworthiness is very high by international standards. Differentiated voting rights - A and B stocks - are used to some extent and several Danish companies are controlled by foundations, which can restrict potential hostile takeovers including foreign takeovers. The Danish stock market functions efficiently and in 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic market place, OMX Exchanges, headquartered in Stockholm. Besides Stockholm and Copenhagen, OMX also includes the stock exchanges in Helsinki, Tallinn, Riga and Vilnius. In order to increase the access to capital for primarily small companies, the OMX in December 2005 opened a Nordic alternative marketplace -- “First North” –- in Denmark. In May 2007, the U.S. NASDAQ stock exchange presented an offer to buy the OMX. Shortly after the Dubai stock exchange, Borse Dubai, presented offers to OMX shareholders and in September, NASDAQ and Borse Dubai announced that they had entered into an agreement pursuant to which NASDAQ and OMX will be combined and Borse Dubai will get a 19.9 percent stake in the combined NASDAQ OMX Group Inc. Completion of the deal is expected during the first half of 2008 and it will create the second-largest transatlantic stock exchange. Political Violence Denmark is a politically stable country. Incidents involving politically motivated damage to projects or installations are very rare in Denmark. During 2007, there were some instances of street riots in Copenhagen sparked by the closing of a youth center which resulted in isolated vandalism and arrests. The Copenhagen City Council is taking steps to address the concerns of the protestors in order to reduce the potential for future incidents. The riots have not been directed against businesses and have not had a continuing impact on the investment environment. Corruption According to the 2007 Corruption Perceptions Index by Transparency International, Denmark is tied for the least corrupt country in the world. Transparency International has local representation in Denmark. Corruption is covered under the Danish Penal Code and the Ministry of Justice is responsible for combating corruption. Penalties for violations range from fine to imprisonment of up to four years for a private individual’s involvement and up to six years for a public employee’s involvement. Since 1998, Danish businesses cannot claim a tax deduction for the cost of bribes paid to officials abroad. Denmark is a signatory of the OECD Convention on Combating Bribery. In the 2005 final report from the Independent Inquiry Committee (IIC), 22 Danish firms were mentioned as having been involved in illicit payments under the Oil-for-Food program. The IIC report received significant attention in Denmark. The Public Prosecutor for Serious Economic Crime has investigated the involvement of Danish firms in the Oil-for-Food scandal. The police have concluded investigations related to 17 Danish companies. In January 2008, the police transferred the cases to the Attorney General, who will present final recommendations to the Minister of Justice. Any profits found to have been gained illegally may be confiscated by the government. Bilateral Investment Protection Agreements As of May 2007, Denmark has concluded investment protection agreements with the following 46 countries: Algeria, Albania, Argentina, Belarus, Bolivia, Bulgaria, Czech Republic, Chile, China, Croatia, Egypt, Ethiopia, Estonia, Ghana, Hong Kong, Hungary, India, Indonesia, Kuwait, Latvia, Lithuania, Malaysia, Mexico, Mongolia, Mozambique, Nicaragua, North Korea, Pakistan, Peru, the Philippines, Poland, Romania, Russia, Slovakia, Slovenia, South Korea, Sri Lanka, South Africa, Tanzania, Tunisia, Turkey, Uganda, Ukraine, Venezuela, Vietnam, and Zimbabwe. Further, Denmark has signed Investment Protection Agreements with Bosnia Herzegovina, Brazil, Cuba, Laos, and Morocco, but these agreements await ratification. The U.S.-Danish Bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income was concluded in 1999 and came into force on March 31, 2000. In May 2006, a protocol was signed to amend the existing tax treaty between Denmark and the United States. The most important aspect of the protocol relates to the elimination of withholding tax on cross-border dividend payments. The Protocol has been ratified in Denmark and was signed by President Bush in December 2007. It is expected to enter into force in 2008. OPIC and Other Investment Insurance Programs OPIC programs are not applicable to U.S. investments in Denmark, but may be used by at least 95 percent U.S.-owned subsidiaries in Denmark to support their investments in qualifying countries. Denmark is a member of the Multilateral Investment Guarantee Agency (MIGA). Labor The Danish labor force is generally stable, well-educated and efficient. Language skills are good and English is considered a natural second language among a very high proportion of Danes. Furthermore, the Danish labor market is flexible. Danish rules on the hiring and firing of employees are not burdensome, which enables employers to adjust the workforce quickly to changing market conditions. The Danish labor force amounts to approximately 2.9 million persons. Denmark’s EU-harmonized unemployment rate was 2.9 percent in October 2007, which is very low both historically as well as compared to the EU and OECD averages. There are labor market pressures in various parts of the manufacturing and the services sector as well as in the construction sector. The public sector in Denmark is large and accounts for approximately 36 percent of the employment at full-time equivalence. The labor force participation rate for women is among the highest in the world. In 2006, almost 75 percent of working-age women participated in the labor force and the employment rate was 71 percent. The male labor participation rate and employment rate were 82 and 79 percent respectively. The Danish labor force is highly organized, with approximately 80 percent belonging to a union. However, labor disputes and strikes occur only sporadically. As a general rule, labor/management relations are excellent, based on dialogue and consensus rather than confrontation. Working conditions are laid down in a rather complex system of legislation and organizational agreements. Many aspects of wage and working conditions are determined through collective bargaining rather than regulated by legislation. The contractual workweek for most wage earners is 37 hours. By law, employees are entitled to five weeks of paid annual leave. However, the majority of the labor force has the right to six weeks of paid annual leave through labor market agreements. Denmark has well functioning unemployment insurance and sick pay schemes, which are not financed by employers. Maternity leave in Denmark is 52 weeks and employers are obliged to pay salary for at least 14 weeks. Danish wages are high by international standards, and have contributed to the use of capital-intensive technologies. However, employer contributions to social security (including healthcare) are very low. As a result, total employee costs for employers are lower in Denmark than in many other industrialized countries. In general, Work permits are not difficult to obtain for foreign managerial staff. However, permits for non-managerial workers from countries outside the EU and the Nordic countries are granted only if substantial professional or labor-related conditions warrant it. Special rules, detailed in the so-called Job Card Scheme, apply to certain professional fields experiencing a shortage of qualified manpower. Foreigners who have been hired in the designated fields will be immediately eligible for residence and work permits. In 2008, professions covered by the Job Card Scheme include engineers, scientists, doctors, nurses, IT specialists, economists, lawyers and accountants. As of 1 May 2007, the Job Card Scheme extends to positions with an annual pay of DKK 450,000, irrespective of the field or specific nature of the job. Denmark also introduced a Green Card scheme to issue six-month residence permits to foreign nationals, allowing them to seek employment in Denmark. Permits are issued based on an individual evaluation using a point system. However, a residence permit issued under the Green Card scheme is nota work permit. If offered a job, the applicant must apply for a work permit. A work permit is only granted for research and specialist positions, as well as positions covered by the above-mentioned Job Card scheme. Generally, personal income tax rates in Denmark are among the highest in the world. However, foreign key employees and researchers may be subject to a favorable 25 percent gross tax rate in the first three years of working in Denmark. Compared with the general Danish progressive income tax system, this is an attractive incentive. Further information can be obtained from the Danish embassies or from the Danish Immigration Service (www.nyidanmark.dk). Denmark adheres to the ILO conventions protecting worker rights. Foreign Trade Zones/Free Ports The only free port in Denmark is the Copenhagen Free Port, which is operated by the Port of Copenhagen. The Port of Copenhagen and the Port of Malmo (Sweden) in 2001 merged their commercial operations, including the free port activities, in a joint company named CMP. The facilities in the free port are mostly used for tax-free warehousing of goods imported, for exports, in transit trade and for distribution. Tax and duties are not payable until cargo leaves the Free Port. Also, the processing of cargo, for example, and the preparation and finishing of imported automobiles for sale, can freely be set up in the Free Port. Manufacturing operations can be established with the permission of the customs authorities, which is granted if special reasons exist for having the facility in the Free Port area. The Copenhagen Free Port welcomes foreign companies establishing warehouse and storage facilities. Foreign Direct Investment Statistics The total stock of FDI in Denmark corresponded to 41 percent of GDP in 2006 (current prices, exclusive of pass-through investments). Conversely, Danish investment abroad comprised 46 percent of GDP in 2006. The largest foreign investor in Denmark is Sweden followed by Luxembourg, the Netherlands and the United States. U.S. investment accounted for 9 percent of the total 2006 FDI stock in Denmark, but declined by almost 20 percent compared to 2005. This is due in part to an 11 percent decrease in the exchange rate in 2006 (from 6.32 to 5.66 DKK to USD). Major U.S. direct investment in Denmark is in telecommunications, information technology, biotechnology, oil exploration, financial services and facility services. During recent years, several U.S.-based private equity funds have invested in Danish firms, such as ISS, the Legoland Parks and TDC. The U.S. pharmaceutical company Biogen-Idec is in the process of investing USD 225 million in expanding its Danish plant. Approximately 375 U.S. companies have subsidiaries in Denmark, of which several are regional headquarters. The main destinations for Danish FDI are Sweden (12 percent), Germany (11 percent) and the United States (9 percent), while the EU held 62 percent of the stock in 2006. Following are tables for foreign direct investment at current prices. Pass-through investments are not included since they have no or very little real-economic significance for the pass-through country. The source is the Danish Central Bank, www.nationalbanken.dk, and the end-year exchange rates are used: 6.32 USD in 2005 and 5.66 USD in 2006. Note that due to repatriations of equity capital and repayments of intercompany loans some of the flow-figures below are negative (n/a) and the share of total can exceed 100 percent. Foreign Direct Investment in Denmark Table 1. FDI in Denmark, STOCK
% of Total, Origin: 2005 2006
% of Total, Sector: 2005 2006 (Sector of the Danish enterprise)
Table 2. FDI in Denmark, FLOW
% of Total, Sector: 2005 2006
Danish Direct Investment Abroad Table 3. Danish Direct Investment Abroad, STOCK
Table 4. Danish Direct Investment Abroad, FLOW
Major FDI in Denmark by U.S. companies: Microsoft IT IBM IT HP/Compaq IT Intel IT Computer Sciences Corp., USA IT ADC Telecommunications Inc. IT Motorola Telecom Texaco Energy Amerada Hess Hydrocarbon exploration Ashland Road Construction Masco Furniture and Sanitary Fittings York Holding Corp. Refrigerating Equipment Tenneco Inc. Automotive 3M Tapes, Health Care and Pharmaceuticals Pfizer Pharmaceuticals Merck, Sharp & Dohme Pharmaceuticals Eli Lilly Pharmaceuticals Sauer Inc. Fluid Power CP Kelco Hydrocolloids Doane Pet Care Co. Pet Food GE Capital Financial Services Biogen IDEC Biotechnology Among the biggest U.S. corporate takeovers in Denmark are Microsoft's acquisition of the Danish software company Navision in 2002 (USD 1.2 billion) and IBM's acquisition of Maersk Data in 2004 (estimated USD 400 million). In May 2007, Greenland Home Rule and Alcoa signed a memorandum of understanding to study the feasibility of the construction of an aluminum smelter and associated hydropower generation and transmission facilities in Greenland. Upon completion, the Alcoa investment (estimated USD 2.5 billion) would be the largest U.S. direct investment ever in the Kingdom of Denmark. U.S. companies ExxonMobil and Chevron also own approximately 48 percent of a partnership that, in October 2007, was awarded licenses for the exploration and exploitation of hydrocarbons off the coast of Western Greenland. Other FDIs in Denmark mostly come from Denmark’s neighboring countries or other nearby countries, including Sweden, Iceland, Norway, Finland, Germany, and the United Kingdom. Most of those nations’ major companies, and numerous smaller ones, have a presence in Denmark, either as regional headquarters, sales/marketing offices or in production. Some foreign companies with large investments in Denmark are Statoil (Norway); L.M. Ericsson (Sweden); Nordea (Sweden); Vattenfall (Sweden), APV (United Kingdom); Bayer (Germany), and Q8 Oil (Kuwait). |
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