1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
As a small country with an open economy, Denmark is highly dependent on foreign trade and investment. Exports comprise the most significant component (55 percent) of GDP. The Economist Intelligence Unit (EIU) ranks Denmark as the world’s second-most attractive business location after Singapore and the leading nation in the Nordic region. The EIU characterizes Denmark’s business environment as among the most attractive globally, reflecting an excellent infrastructure, a friendly policy towards private enterprise and competition, low bureaucracy, and a well-developed digital sector. Principal concerns include low productivity growth, a high personal tax burden, and limited competition in the retail sector. Overall, however, operating conditions for companies are broadly favorable. Denmark ranks highly in multiple categories, including its political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.
As of January 2021, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk is rated “A,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2019 Global Competitiveness Report, fourth on the World Bank’s 2020 Doing Business ranking, and seventh on the EIU 2020 Democracy Index. Denmark has an AAA rating from Standard & Poor’s, Moody’s, and Fitch Group. “Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. Invest in Denmark has prioritized six sectors in its strategy to attract foreign investment: Tech, Cleantech, Life Science, Food, Maritime, and Design & Innovation. The website for the agency is www.investindk.com .
Corporate tax records of all companies, associations, and foundations that pay taxes in Denmark were made public beginning in December 2012 and are updated annually. The corporate tax rate is 22 percent.
Limits on Foreign Control and Right to Private Ownership and Establishment
As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.
Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few foreign control limits. The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to come into force on July 1, 2021.
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 (Aktieselskab A/S) or Limited Partnership (Partnerselskab P/S) is DKK 400,000 (approx. USD 61,000) and for establishing a private limited liability company (Anpartsselskab ApS) DKK 40,000 (approx. USD 6,100).
As of April 15, 2019, it is no longer possible to set up an “Entrepreneurial Company” (IVS). This company type, which required a starting capital of only DKK 1 (USD 0.15), was structured to allow entrepreneurs a cheap and straightforward way to incorporate with limited liability. Due to repeated instances of fraud and unintended use of the IVS, this vehicle was abolished within Denmark but is still available in Greenland. In 2019, the capital requirements to set up a Private Limited Company were lowered, which brought Denmark more in line with other Scandinavian countries. No restrictions apply regarding the residency of directors and managers.
Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate 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 Business Authority if its official address is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 137,000).
Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.
Ownership restrictions apply to the following sectors:
- Oil and Gas: Requires 20 percent Danish government participation on a “non-carried interest” basis.
- Defense: The Minister of Justice must approve foreign investment in defense companies doing business in Denmark if such investment exceeds 40 percent of the equity or more than 20 percent of the voting rights, or if the investment gives the foreign interest a controlling share. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.
- Maritime Services: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships, or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Vessels owned by EU or European Economic Area (EEA) entities with a genuine, demonstrable link to Denmark are also eligible for registration. Foreign companies with a significant Danish interest can register a ship in the DIS.
- Civil Aviation: For an airline to be established in Denmark, it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.
- Financial Services: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.
- Real Estate: Ownership of holiday homes, also known as summer houses, is restricted to Danish citizens. Such homes are generally located along the Danish coastline and may not be used as full-year residences. On a case-by-case basis, the Ministry of Justice may waive the citizenship requirement for those with close familial, linguistic, cultural, or other close connections to Denmark or the specific property. In general, EU and EEA citizens may purchase full-year residential property or real estate that supports self-employment without obtaining prior authorization from the Ministry of Justice. Companies domiciled in an EU or an EEA Member State that have set up or will set up subsidiaries or agencies or will provide services in Denmark may, in general, also purchase real property in Denmark without prior authorization. Non-EU/EEA citizens must obtain authorization from the Ministry of Justice to purchase real estate in Denmark, which is generally granted to those with permanent residence in Denmark or who have lived in Demark for a consecutive period of five years.
Other Investment Policy Reviews
The most recent United Nations Conference on Trade and Development (UNCTAD) review of Denmark occurred in March 2013 and is available here: unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in December 2019.
The EU Commission’s European Semester documents for Denmark are available here: ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en while a 2017 Foreign Investment Regulation review by DLA Piper can be found here: www.dlapiper.com/~/media/files/insights/publications/2017/11/denmark.pdf
Denmark ranked first out of 180 in Transparency International’s 2020 Corruption Perceptions Index. It received a ranking of four out of 190 for “Ease of Doing Business” in the World Bank’s 2020 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2019, Denmark was ranked 10 out of 141 countries.
The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 6 out of 131 in 2020.
The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark,” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website, www.virk.dk , is the principal digital tool for licensing and registering companies in Denmark and offers a business registration process that is clear and complete.
Registration of sole proprietorships and partnerships is free of charge. For other types of businesses, online registration costs DKK 670 (approx. USD 103). Registration by email or post costs DKK 2150 (approx. USD 329).
The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs’ “Invest in Denmark” program provides a step-by-step guide to establishing a business at www.investindk.com/-/media/invest-in-denmark/publications/business-conditions/investindk-fact-sheet-step-by-step-web.ashx , along with other relevant resources at . The services are free of charge and available to all investors, regardless of country of origin.www.investindk.com/Downloads. The services are free of charge and available to all investors, regardless of country of origin.
Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is more straightforward, with processing generally taking about one week.
Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website ( www.virk.dk ) provides English guidance on registering a service with RUT. A digital employee’s signature, referred to as a NemID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid ID are needed to obtain a NemID. Danish citizenship is not a requirement.
Denmark defines small enterprises as those with fewer than 50 employees. Annual revenue or the yearly balance sheet total must be lower than DKK 89 million (approx. USD 13.6 million) or DKK 44 million (approx. USD 6.7 million), respectively. Medium-sized enterprises cannot have more than 250 employees. Limits on annual revenue or the yearly balance sheet total are DKK 313 million (approx. USD 47.9 million) or DKK 156 million (approx. USD 23.9 million).
Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.