For a summary of the investment climates of Greenland and the Faroe Islands, please see the end of this report.
Denmark is regarded by many independent observers as one the world’s most attractive business environments and is characterized by political, economic and regulatory stability. It is a member of the European Union (EU) and Danish legislation and regulations conform to EU standards on virtually all issues. Denmark regularly ranks first as the world’s least corrupt nation. It conducts a fixed exchange rate policy, with the Danish Krone linked closely to the Euro. Denmark is a social welfare state with a thoroughly modern market economy reliant on free trade in goods and services. It is a net exporter of food, fossil fuels and wind power, but depends on raw material imports for its manufacturing sector. Within the EU, Denmark is among the strongest supporters of liberal trade policy.
The Danish economy experienced a period of lackluster growth following the 2008 global financial crisis and subsequent economic recessions. Averaging 1 percent annually from 2012 to 2016, economic growth lagged behind its potential for the period, especially given that unemployment, inflation, and interest rates were low and public finances sustainable. A primary headwind in the economy in recent years – restrained private consumption – abated in 2015 and finished 2016 on a strong note, recording its highest quarterly growth rate since 2007. Contributing factors to the improvement were decreasing unemployment, weaker currency, declining oil prices and record low interest rates. The Danish economy is now well into a recovery and the government estimates acceleration in growth from 1.3 percent in 2016 to 1.7 percent for 2017 and 2018, and a 2 percent increase in employment. Following a period of low activity, exports rose by over 4 percent during the last three months of 2016, driven by higher exports of both goods and services, notably sea transport services.
Denmark is reliant on international trade, which accounts for about 50 percent of GDP, and developments in its major trading partners – Germany, Sweden, the UK and the United States – have substantial impact on Danish national accounts. “Gross unemployment”, a national definition, was 4.3 percent in March 2017, and is forecast to decrease slightly in coming years as the economy improves and structural reforms take effect. The OECD Harmonized Unemployment Rate was 6.2 percent in January 2016.
Denmark is a major international development assistance donor, contributing DKK 15,963 million ($2.4 billion) or 0.71 percent of GNI to development assistance in 2016, with 71.66 percent of Danish assistance being bilateral and 28.34 percent multilateral.
Underlying macroeconomic conditions in Denmark are sound and the investment climate is favorable. Denmark is situated strategically, linking continental Europe with the Nordic and Baltic countries. Transport and communications infrastructures are efficient. Denmark is among world leaders in industries such as information technology, life sciences, clean energy technologies, and shipping. Exchange rate conversions throughout this document are based on the 2016 average exchange Danish Kroner (DKK) 6,733= 1 USD ($).
|TI Corruption Perceptions Index||2016||1 of 175||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||3 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||8 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in Partner Country ($M stock positions)||2015||USD 14,398||http://www.bea.gov/
|World Bank GNI Per Capita||2015||USD 58,550||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
A small country with an open economy, Denmark is highly dependent on foreign trade, with exports comprising the largest component of GDP. Danish trade and investment policies are liberal and encourage foreign investment.
In general, investment policies are forward-looking and aimed at fostering and developing businesses, especially in high-growth sectors. A business environment survey from the Economist Intelligence Unit (EIU) for the period 2014–2018 ranked Denmark tenth globally and fourth regionally as the most attractive nation for foreign investment. The EIU characterizes Denmark’s business environment as among the most attractive in the world, reflecting a sound macroeconomic framework, excellent infrastructure and a highly flexible labor market. Principle concerns relate to a shrinking labor supply and the prospects for macroeconomic instability, stemming from possible contagion from the Euro Area’s sovereign debt crisis. Several factors are included in the survey, and Denmark scores top marks in various categories, including the political and institutional environment, macroeconomic stability, policy towards private enterprise, foreign investment policy, financing and infrastructure.
As of February 2017, the EIU rated Denmark an “A” country on its Country Risk Service, with a stable outlook. Sovereign risk rated “AA,” and political risk “AAA.” Denmark ranked twelfth on the World Economic Forum’s 2016-2017 Global Competitiveness Report, third on the World Bank’s 2016 Doing Business ranking, and fifth on the EIU 2016 Democracy Index. “The Big Three” credit rating agencies (Standard & Poor’s, Moody’s, and Fitch Group) all score Denmark AAA.
“Invest in Denmark”, an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. The website for the agency is www.investindk.com .
Corporate tax records of all companies operating in Denmark were made public beginning in December 2012 and are updated annually.
Limits on Foreign Control and Right to Private Ownership and Establishment
As an EU member state, Denmark is bound by EU rules on 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 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 limits on foreign control. 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 (approx. $74,250) and for establishing a private limited liability company (ApS) DKK 50,000 (approx. $7,425). An “Entrepreneurial Company” (IVS) can be established for DKK 1 ($0.15). No restrictions apply regarding the residency of directors and managers of A/S or ApS.
Since October 2004, a private entity may establish a European public limited company (SE company). The legal framework of an 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 Business Authority if the official address of the company is in Denmark. The minimum capital requirement is 120,000 Euros (approx. $128,000).
Like most other countries, Denmark imposes restrictions on establishing companies providing professional services (e.g., legal, accounting, auditing, and medical services). Danish professional certification and/or local Danish experience are required to practice in Denmark. In some instances, Denmark may accept an equivalent professional certification from other EU or Nordic countries on a reciprocal basis. There are EU residency requirements for the provision of legal and accountancy services.
Ownership restrictions are applied in the following sectors:
- Hydrocarbon exploration: Requires 20 percent Danish government participation on a “non-carried interest” basis.
- Defense materials: The law governing foreign ownership of defense companies (L538 of May 26, 2010) stipulates that 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, or if foreign interests gain a controlling share 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.
- Maritime: There are foreign (non-EU resident) ownership caps 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). Ships owned by EU or European Economic Area (EEA) entities with a genuine link to Denmark are also eligible for registration, and foreign companies with a major Danish influence can register a ship in the DIS.
- 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.
- Securities Trading: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.
- Real Estate: There are certain restrictions on the acquisition of real estate in Denmark by foreigners. EU citizens and companies from EU member states can purchase any type of real estate, except vacation properties, without prior authorization from the authorities. Companies and individuals from non-EU countries that have been present/resident in Denmark for at least five years in total and are currently resident in Denmark can also purchase real estate, except vacation properties, without prior authorization. Non-EU companies or individuals that do not meet these requirements can only purchase real estate with the permission of the Danish Ministry of Justice. Permission is freely given to people with a Danish residency permit, except with regard to purchases of vacation properties. Purchases of designated vacation properties are restricted to citizens of Denmark.
Other Investment Policy Reviews
An EU Commission Staff Working Paper on the investment environment in Denmark is available here: http://ec.europa.eu/europe2020/pdf/2016/ags2016_challenges_denmark_en.pdf while a 2015 private sector investment and taxation review by Deloitte can be found here: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkguide-2015.pdf .
The most recent UNCTAD review is from March 2013, available here: http://unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . The most recent investment policy review from the OECD was completed in 1995, available here: http://www.oecd.org/denmark/34384070.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union from June 2015.
Denmark ranked first out of 175 in Transparency International’s 2016 Corruption Perceptions Index, unchanged from the prior year. It received a ranking of 3 out of 190 for “Ease of Doing Business” in the World Bank’s 2016 Doing Business Report, in which it ranked 1st in Europe. In the World Economic Forum’s Global Competitiveness report for 2016-2017, Denmark was ranked 12 out of 140 countries.
The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 8 out of 128 in 2016.
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, which can be found here: www.investindk.com/Downloads . The services are free of charge and available to all investors, regardless of country of origin.
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, German, Polish and Lithuanian. The Danish business registration website is www.virk.dk . It is the main digital tool for licensing and registering companies in Denmark and offers a business registration processes that is clear and complete.
Registration of sole proprietorships and partnerships is free of charge, while there is a fee for registration of other business types: DKK 670 ($100) if the registration is done digitally and DKK 2150 ($320) if the registration form is sent by e-mail or post.
Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (Anpartsselskab – ApS), for example, generally takes 4 to 6 weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is simpler, 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 how to register a service with RUT, a process which requires a Danish digital signature/NemID employee signature. A digital signature/NemID is also required for those wishing to register a foreign company in Denmark.
In the Danish Financial Statements Act no. 1580 of 10 January 2015 section 7(2), small enterprises are defined as enterprises with fewer than 50 employees and whose annual turnover does not exceed DKK 89 million (approx. $13.2 million) or annual balance sheet total does not exceed DKK 44 million (approx. $6.5 million). Medium-sized enterprises are defined as enterprises with fewer than 250 employees and either have an annual turnover that does not exceed DKK 313 million (approx. $46.5 million) or annual balance sheet total does not exceed DKK 156 million (approx. $23.2 million).
Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.
2. Bilateral Investment Agreements and Taxation Treaties
The United States and Denmark have shared a Friendship, Commerce, and Navigation Treaty since 1961 that, among other things, ensures National Treatment, Most-Favored Nation status, transparency of the regulatory process, and competitive equality with state-owned enterprises. Denmark has concluded investment protection agreements with the following 45 countries (and Hong Kong): Algeria, Albania, Argentina, Belarus, Bolivia, Bulgaria, Czech Republic, Chile, China, Croatia, Egypt, Ethiopia, Estonia, Ghana, 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 Bangladesh, Bosnia Herzegovina, Brazil, Cuba, Laos, Montenegro, Morocco and Serbia, but these agreements await ratification. There has been no change to the status of the investment protection agreements since the enactment of the European Union’s Lisbon Treaty, which moved competency to the EU Commission.
The U.S.-Danish Bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income has been in force since 2000. In May 2006, a protocol was signed to amend this. The most important aspect of the protocol relates to the elimination of withholding tax on cross-border dividend payments. On November 19, 2012, the United States and Denmark signed an Intergovernmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA).
3. Legal Regime
Transparency of the Regulatory System
The judicial system is extremely well-regarded and considered 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 2016-2017 Global Competitiveness Report, which ranks Denmark as the world’s twelfth most competitive economy and fifth among 27 EU member states, characterizes it as having among the best functioning and most transparent institutions in the world. In addition, Denmark ranks high on indices related to ethical behavior of firms (ranked 5th), absence of irregular payments and bribes (ranked 5th), judicial independence (ranked 12th), intellectual property protection (ranked 25th), and efficiency of legal framework in settling disputes (ranked 18th).
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. In an effort to ease business administration, the Government introduced two “legislative days” per year, i.e. new laws and regulations affecting the business sector will only come into effect on January 1st or July 1st.
As of December 19, 2012, the Ministry of Taxation made all companies’ corporate tax records public, and it updates and publicizes them annually. The publication is intended to increase transparency and public scrutiny of corporate tax payments. Greenland and the Faroe Islands retain autonomy with regards to tax policy.
The government uses transparent policies and effective laws to foster competition and establish “clear rules of the game”. The legal, regulatory, and accounting systems are transparent and consistent with international norms and they apply equally to Danish and foreign entities. The Danish Competition and Consumer Authority work to make markets well-functioning so businesses compete efficiently on all parameters. The Authority is a part of the Ministry of Business and Growth and enforces the Danish Competition Act. The purpose of the Act and Danish consumer legislation is to promote efficient resource allocation in society, to prevent the restriction of efficient competition, to create a level playing field for enterprises and to protect consumers.
Publicly listed companies in Denmark must adhere to the Danish Financial Statements Act when preparing their annual reports. The accounting principles are International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and Danish Generally Accepted Accounting Principles (GAAP); financial statements must be prepared annually. The Danish Financial Statements Act covers all businesses. According to the Act, personally owned businesses, personally owned general partnerships (multiple owners) and general funds are not required to prepare Financial statements and are included only if they voluntarily choose to prepare a Financial statement that are not used exclusively for the own use. In such cases, they are covered by the accounting class A (§18-21).
Private limited companies, public limited companies and corporate funds are obliged to prepare financial statements in accordance with which accounting class the company should follow based on size, as follows:
- Small businesses (Class B): Total assets DKK 36 million ($5.3 million), net revenue DKK 72 million ($10.7 million), average number of full-time employees during the financial year of 50.
- Medium-sized enterprises (Class C medium): Total assets DKK 143 million ($21.2 million), net revenue DKK 286 million ($42.5 million), average number of full-time employees during the financial year of 250.
- Large companies (Class C large): Companies that are neither small nor medium companies.
All government draft proposed regulations are published for consultation at the portal for public hearings, “Høringsportalen” (www.hoeringsportalen.dk ). After receiving feedback from the consultation process, and possibly undergoing amendments, proposed regulations are published at the Danish Parliament’s website (www.ft.dk ). Final regulations are published at www.lovtidende.dk and www.ft.dk . Although it is not required by law, since 15 June 2005 all ministries and agencies have been required to publish proposed regulations.
International Regulatory Considerations
Denmark adheres to the WTO Agreement on Trade-related Investment Measures (TRIMs). No inconsistencies have been reported.
Legal System and Judicial Independence
Denmark has a world-class legal system; the judicial branch enjoys significant independence.
Laws and Regulations on Foreign Direct Investment
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 . “Invest in the Faroes” is a counterpart unit in the Faroese government concerned with promoting Faroese trade; the website is www.invest.fo . For more information regarding investment potential in Greenland, please see Greenland Holding at www.venture.gl or the Greenland Tourism & Business Council at www.greenland.com .
There is no mandatory screening of foreign investment.
Competition and Anti-Trust Laws
The Danish Competition and Consumer Authority (CCA) review transactions for competition-related concerns. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the combined turnover of the participating companies exceeds DKK 50 million (approx. $7.4 million). However, notification is not required if one of the participating companies has turnover of less than DKK 10 million (approx. $1.5 million). If the combined turnover of the merging companies exceeds DKK 900 million (approx. $134 million) and at least two of the merging companies each have turnover exceeding DKK 100 million (approx. $14.9 million) or if one of the merging companies has domestic annual turnover exceeding DKK 3.8 billion (approx. $565 million) and at least one of the merging companies has global annual turnover exceeding DKK 3.8 billion (approx. $565 million), the merger or takeover is also subject to approval by the CCA. Large scale mergers also require EU Commission approval.
Expropriation and Compensation
By law, private property can only be expropriated for public purposes, in a non-discriminatory manner, 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 expect significant expropriations in the near future.
Denmark has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1968. ICSID has also been extended to the Faroe Islands and Greenland. Denmark is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards that meet certain criteria. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. In addition, Denmark is a party to the 1961 European Convention on International Commercial Arbitration and to the 1962 agreement relating to the application of this Convention. Denmark adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985.
Denmark adheres to the New York Convention and declared in 1976 that the Convention applies to the Faeroe Islands and Greenland. There have been no major disputes over investment in Denmark in recent years.
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 ranks 8th in “resolving insolvency” in the World Bank’s 2017 Doing Business Report.
4. Industrial Policies
Performance incentives are available both to foreign and domestic investors. For instance, 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. Foreign subsidiaries located in Denmark can participate in government-financed or subsidized research programs on a national-treatment basis.
Foreign Trade Zones/Free Ports/Trade Facilitation
The only free port in Denmark is the Copenhagen Free Port, operated by the Port of Copenhagen. The Port of Copenhagen and the Port of Malmo (Sweden) merged their commercial operations in 2001, including the free port activities, in a joint company named CMP. CMP is one of the largest port and terminal operators in the Nordic Region and one of the largest Northern European cruise-ship ports; it occupies a key position in the Baltic Sea Region for the distribution of cars and transit of oil. The facilities in the free port are mostly used for tax-free warehousing of goods imported, for exports, and for in-transit trade. Tax and duties are not payable until cargo leaves the Free Port. Also, the processing of cargo 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.
Performance and Data Localization Requirements
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 use of energy and water. 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. This includes certain reimbursement schemes and subsidy measures to reduce the costs for businesses, thereby safeguarding competitiveness.
Performance requirements are governed by Danish legislation and EU regulations. Potential violations of the rules governing this area are punishable by fines or imprisonment.
Performance requirements are applied uniformly to both domestic and foreign investors.
The Danish government does not follow “forced localization” policies, nor does it require foreign IT providers to turn over source code and/or provide access to surveillance. The Danish Data Protection Agency, a government agency, the Ministry of Justice and the Ministry for Culture are the entities involved with data storage.
5. Protection of Property Rights
Property rights in Denmark are well protected by law and in practice. Real estate is, for the most part, financed through the well-established Danish mortgage bond credit system, the security of which compares to that of government bonds. 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 (FSA) 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 a reliable system of recording security interests. Denmark is ranked twelfth globally in the World Bank’s Doing Business Report for its “ease of registering property.”
Intellectual Property Rights
Intellectual property protections in Denmark are particularly well-regarded. Denmark adheres to key international conventions and treaties concerning protection of property rights. Denmark has ratified the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The WIPO (World Intellectual Property Organization) internet treaties, the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT), have been signed, ratified, and are in force.
Denmark tracks and reports seizure of counterfeit and pirated goods, including to the EU authority EUIPO (European Union Intellectual Property Office). The Danish Tax Authorities seized 51,021 products on suspicion of being counterfeit in 2015 and estimate that Danish companies lose some DKK 4.5 billion (USD 670 million) annually due to counterfeit and pirated goods.
Other measures against counterfeit goods is a cross-ministerial collaboration including all the authorities involved with IPR, i.e. Tax Authorities, Ministry for Culture, Danish Patent and Trademark Office and the Public Prosecutor in an online collaboration to inform consumers and retailers of IPR and counterfeit and pirated goods. There is also a hotline for consumers to report sales of counterfeit goods and companies to report allegations of its goods being counterfeited.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
A list of attorneys in Denmark known to accept foreign clients can be found at https://go.usa.gov/xXRGR This list is provided by the American Embassy as a convenience to United States citizens; it is not meant to be a complete list of attorneys in Denmark, and the absence of an attorney from the list is in no way a reflection on competence. A complete list of attorneys in Denmark, Greenland and the Faeroe Islands may be found at the Danish Bar Association web site: www.advokatnoeglen.dk .
Contact at Embassy Copenhagen covering IP: Economic Officer Stephen S. Wheeler; CopenhagenICS@state.gov.
6. Financial Sector
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 freely available. Denmark adheres to its IMF Article VIII obligations. The Danish banking system is under the regulatory oversight of the Financial Supervisory Authority. 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. In 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic market place, OMX Exchanges, which is 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 February 2008, the exchanges were acquired by the NASDAQ-OMX Group.
Money and Banking System
The major Danish banks are rated by international agencies, and their creditworthiness is rated high by international standards. They have all passed European and national stress tests by a considerable margin.
Like banks in many other countries, Danish banks experienced significant turbulence in 2008 – 2009. In October 2008, the Danish Parliament passed legislation that calls for all private banks and the Danish government to finance jointly a “safety net” program that provides unlimited guarantees for bank deposits and certain classes of bank creditors through September 2010. Both Danish and foreign deposits were covered by the legislation. A total of 133 banks joined this so-called “Bank Package.” In spite of this legislation, some local businesses reportedly complain of continued tight lending practices and difficulty in obtaining bank financing. When the “Bank Package” expired in September 2010, the Government had acquired a profit from the agreement.
In January 2009 a second initiative was passed, “Bank Package 2,” which provided government lending to financial institutions in need of capital to uphold their solvency requirements. Only Danish banks were eligible for inclusion in the second initiative: a total of 43 applicants received DKK 46 billion (approximately $6.8 billion). A government-run Financial Stability Company was initiated to take over failed banks. By the end of 2010, ten banks had been taken over or divided and sold by the Financial Stability Company.
A third package was enacted in July 2010 without a set expiration date, which ensured the orderly winding down of failed banks through the Financial Stability Company in the period after September 30, 2010, when Bank Package I expired. The package guarantees all deposits up to DKK 750,000 (approx. $111,600). The third Bank Package received much national and international scrutiny for making Denmark one of the EU’s toughest jurisdictions in terms of dealing with banks in distress. The package included provisions stipulating that senior debt holders would shoulder losses in the event of a bank failure.
A fourth Bank Package was passed in August 2011 proposing to identify systemically important financial institutions, ensure the liquidity of banks which assume control of a troubled bank, support banks acquiring troubled banks by allowing them to write off obligations of the troubled bank to the government, and change the funding mechanism for the sector-funded guarantee fund to a premiums-based, pay-as-you-go system. According to the Danish Government, Bank Package 4 provides mechanisms for a sector solution to troubled banks without senior debt holder losses, but does not supersede Bank Package 3. Senior debt holder losses are still a possibility in the event of a bank failure.
On October 10, 2013, the Danish Minister for Business and Growth concluded a political agreement with broad political support which, based on the most recent financial statements, identified seven financial institutions as “systemically important”: Danske Bank, Nykredit, Nordea Bank Danmark, Jyske Bank, BRFkredit, Sydbank and DLR Kredit.
These were identified based on three quantitative measures: 1) a balance sheet to GDP ratio above 10 percent; 2) market share of lending in Denmark above 5 percent; or 3) market share of deposits in Denmark above 5 percent. If an institution is above the requirement of any one of the three measures, it will be considered systemically important and must adhere to the stricter requirements on capitalization, liquidity and resolution.
Some experts anticipate a revision of the Danish system of troubled financial institution resolution mechanisms in connection with a decision to join the EU Banking Union. The national payment system, “Nets” was sold to a consortium consisting of Advent International Corp., Bain Capital LLC, and Danish pension fund ATP in March 2014 for DKK 17 billion ($2.5 billion). The assets of the three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – constitute approximately 75 percent of the total assets in the Danish banking sector.
Foreign Exchange and Remittances
There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark. Policies in place 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.
Denmark has not adopted the Euro currency. The country meets the EU’s economic convergence criteria for membership and can join if it wishes to do so. Denmark conducts a fixed exchange rate policy with the Danish Krone linked closely to the Euro within the framework of ERM II. The Danish Krone (DKK; plural: Kroner, in English, “the Crown”) has a fluctuation band of +/- 2.25 percent of the central rate of DKK 746.038 per 100 Euro. The Danish Government supports inclusion in a European Banking Union, as long as it can be harmonized with the Danish Euro opt-out and there is a guarantee that the Danish mortgage finance system will be allowed to continue in its present form.
The Danish political reservation concerning Euro participation can only be abolished by national referendum, and Danish voters have twice (in 1992 and 2000) voted it down. The government has stated that in principle it supports adopting the Euro, but no referendum is expected for the foreseeable future. Regular polling on this issue shows a majority of public opinion remains in favor of keeping the Krone. According to the Stability and Growth Pact, a Euro country’s debt to GDP ratio cannot exceed 60 percent and budget deficit to GDP cannot exceed 3 percent. Denmark’s debt to GDP ratio was 37.7 percent by the end of the fourth quarter of 2016. Denmark ran a budget deficit of 0.9 percent in 2016. The government estimates budget deficits of 1.6 percent for 2016 and 0.9 percent for 2017, well within the Stability & Growth Pact parameters.
Sovereign Wealth Funds
Denmark has no sovereign wealth funds.
7. State-Owned Enterprises
Denmark is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). State owned entities (SOEs) hold dominant positions in rail, energy utility and broadcast media in Denmark. Large scale public procurement must go through public tender in accordance with EU legislation. Competition from SOEs is not considered a barrier to foreign investment in Denmark. The World Economic Forum’s 2016-2017 Global Competitiveness Report ranks Denmark as twelfth when it comes to judicial independence and finds that Denmark has some of the best functioning and most transparent institutions in the world.
As an OECD member, Denmark promotes and upholds the OECD Corporate Governance Principals and subsidiary SOE Guidelines.
Denmark has no current plans to privatize its State-owned enterprises.
8. Responsible Business Conduct
As an OECD member, Denmark promotes, through the Danish Business Authority, the Guidelines for Multinational enterprises and the UN Guiding Principles on Business and Human Rights. Information on Denmark’s National Contact Point (NCP) for the OECD Guidelines can be found at: http://mneguidelines.oecd.org/ncps/denmark.htm
The Danish Business Authority has published a National Action Plan to advance Corporate Social Responsibility (CSR) and RBC in Denmark; the most recent plan covers the 2012 – 2015 period and contains 42 initiatives focusing on business-driven CSR. A survey by the London Business School and Harvard Business School concluded that corporate management is considered the most trustworthy in Denmark, Finland and Singapore. All major companies in Denmark have a public CSR strategy.
Denmark is the least corrupt country in the world according to the 2016 Corruption Perceptions Index by Transparency International, which 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 fines 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 to the OECD Convention on Combating Bribery and the UN Anticorruption Convention, and a participating member of the OECD Working Group on Bribery. In the Working Group’s 2014 “Phase 3” report on Denmark, the country was urged to be more proactive in its investigations and to prosecute foreign bribery allegations.
Resources to report corruption:
The Danish State Prosecutor for Serious Economic and International Crime,
1604 Kobenhavn V.
Phone: +45 72 68 90 00
Ministry of Foreign Affairs of Denmark’s development assistance agency DANIDA to report any knowledge of corruption within DANIDA projects or among staff or DANIDA partners. http://um.dk/en/danida-en/about-danida/Danida-transparency/Report-corruption
Contact at “watchdog” organization
Transparency International Denmark
Porcelaenshaven 18a, lokale 0.113
2000 Frederiksberg http://transparency.dk/
Chairman Knut Gotfredsen,
Phone: 4020 8333,
Contact at Embassy Copenhagen responsible for combating corruption:
U.S. Department of State
Dag Hammarskjolds Alle 24, 2100 Copenhagen, Denmark
+45 3341 7100
10. Political and Security Environment
Denmark is a politically stable country. Incidents involving politically-motivated damage to projects or installations are very rare. This is reflected in the EEU’s “AAA” rating of Denmark in terms of political risk.
11. Labor Policies and Practices
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. Investors find that Danish rules on the hiring and firing of employees generally enable them to adjust the workforce quickly to changing market conditions.
The Danish labor force amounted to approximately 2.9 million persons in 2016. Denmark’s OECD-harmonized unemployment rate was 6.2 percent in January 2017, relative to the EU-28 (8.1 percent) and OECD (6.1 percent) averages. Unemployment is expected to increase slightly in the coming years due to policies intended to increase the labor supply.
The public sector in Denmark is large and accounts for approximately 30 percent of the employment at full-time equivalence. The labor force participation rate for women is among the highest in the world. In 2016, 77 percent of working-age women participated in the labor force and the employment rate was 70.4 percent. The male labor force participation rate and employment rate were 82 percent and 75.3 percent respectively.
The Danish labor force is highly organized, with approximately 75 percent belonging to a union. 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. Most aspects of wage and working conditions are determined through collective bargaining rather than legislation.
The contractual workweek for most wage earners is 37.5 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, gained through other labor market agreements.
Denmark has well-functioning unemployment insurance and sick-pay schemes that are not financed by employers. Maternity leave in Denmark is 52 weeks, to be divided between the parents as they see fit, though 18 weeks are earmarked for the mother and at least 2 weeks for the father. Employers are obliged to pay salary for at least 14 weeks, while the government supports the remainder of the leave.
Danish wages are high by international standards and have contributed to the use of capital-intensive technologies. Investors from certain industries see the high average wage level as somewhat detrimental to Danish competitiveness. However, employer contributions to social security (including health care) are very low. As a result, total employee costs for employers are lower in Denmark than in many other industrialized countries. Nominal wages increased by 1.8 percent from Q4 2015 to Q4 2016, while inflation remained subdued at 0.3 percent in 2016 leading to significant real wage increases. Nominal wages are forecast to increase by approximately 2 percent in the coming years, which will allow for real wage increases with a continued subdued inflation.
In general, work permits are easy to obtain for foreign managerial staff. However, permits for non-managerial workers from countries outside the EU (citizens of EU countries do not require work permits) and other Nordic countries are granted only if substantial professional or labor-related conditions warrant.
Special rules, detailed in the so-called Positive List Scheme, apply to certain professional fields experiencing a shortage of qualified manpower. The list is updated twice annually. Foreigners who have been hired in the designated fields will be immediately eligible for residence and work permits. The minimum educational level required for a position on the Positive List is a Professional Bachelor’s degree, e.g. pedagogue. In some cases, a Danish authorization must be obtained. This is explicitly stated on the Positive List. E.g. non-Danish trained doctors must be authorized by the Danish Patient Safety Authority. In 2017, professions covered by the Positive List Scheme include engineers, scientists, doctors, nurses, IT specialists, marine biologists, lawyers, accountants and a wide range of other Master’s or Bachelor’s degree positions. As of January 1, 2017, the Pay Limit Scheme extends to positions with an annual pay of no less than DKK 408,800 (approximately $60,715) annually, regardless of the field or specific nature of the job. Persons who have been offered a highly paid job have particularly easy access to the Danish labor market through the Pay Limit Scheme.
Denmark also introduced a Green Card scheme to issue residence permits of up to two-years to foreign nationals, allowing them to seek employment in Denmark. Permits are issued based on an individual evaluation, using a point system based on education, language skills and adaptability. The residence permit can be extended for three years if an earning requirement of a minimum of DKK 323,198 ($48,000) is fulfilled. The Green Card scheme is under review.
There are several other schemes meant to make it easier for certified companies to bring employees with special skills or qualifications to Denmark. These schemes vary in duration and requirements
Generally, personal income tax rates in Denmark are among the highest in the world. However, foreign key employees and researchers may choose to be subject to a favorable 26 percent income tax rate, plus a labor market contribution for a gross of 31.92 percent income tax in the first five years of working in Denmark, the so-called “Researcher’s Tax.” Some conditions must be fulfilled in order for key employees to be eligible for the 26 percent tax scheme: for example, since January 1, 2016, wages had to total at least DKK 62,300 ($9,270) per month before the deduction of labor market contributions and after Danish labor market supplementary pension contributions. There are also limits based on an individual’s previous work history in the Danish labor market. Compared with the general Danish progressive income tax system, this is an attractive incentive. Further information can be obtained from Danish embassies or from the Danish Immigration Service (www.nyidanmark.dk ).
Denmark has ratified all eight ILO Core Conventions and been an ILO member since 1919.
12. OPIC and Other Investment Insurance Programs
OPIC programs are not applicable to U.S. investments in Denmark, but may be used by at least 95 percent U.S.-owned subsidiaries in Denmark to support their investments in qualifying countries.
Denmark is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2015||$301,352||2015||$295,100||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source||USG or International Statistical Source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2015||$9,505.84||2015||$14,398Amt||BEA data available at http://bea.gov/international/direct_investment_
|Host country’s FDI in the United States ($M USD, stock positions)||2015||$18,001||2015||$14,274||BEA data available at http://bea.gov/international/direct_investment_
|Total inbound stock of FDI as % host GDP||2015||3.1%||2015||4.9%||N/A|
Table 3: Sources and Destination of FDI
Host country statistical source: Statistics Denmark: http://www.dst.dk/en/Statistik/emner/nationalregnskab-og-offentlige-finanser/aarligt-nationalregnskab
The total stock of FDI inbound to Denmark in 2015 corresponded to 46.1 percent of GDP (current prices, exclusive of pass-through investments). Danish outbound direct investment corresponded to 70 percent of GDP in 2015. The largest foreign investor in Denmark in 2015 was Sweden, followed by the Netherlands, UK, Norway and Luxembourg. U.S. investment accounted for 6.9 percent of the total 2015 FDI stock in Denmark, the sixth largest source of FDI.
Major U.S. direct investment in Denmark is in telecommunications, energy utility, information technology, biotechnology, data centers, oil exploration, financial services and facility services. During recent years, several U.S.-based private equity funds have invested in Danish firms, such as DONG, ISS, the Legoland Parks, and TDC. Apple and Facebook are currently constructing data centers in Viborg and Odense, respectively, estimated to cost in the hundreds of millions of dollars. Over 400 U.S. companies have subsidiaries in Denmark, of which several are regional headquarters.
The main destinations for Danish FDI are Sweden (15 percent), United Kingdom (12 percent), Germany (10 percent), the United States (9 percent) and Singapore (6 percent). EU countries held 60.4 percent of the stock in Denmark in 2015.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||138,607||100%||Total Outward||209,752||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||398,824||100%||All Countries||217,514||100%||All Countries||181,310||100%|
|United States||115,357||29%||United States||84,798||39%||Germany||47,428||26%|
Other Areas in the Kingdom of Denmark
Greenland’s status within the Kingdom of Denmark is outlined in the Self Rule Act (SRA) of 2009, which details the Greenlandic government’s right to assume a number of responsibilities from the Danish government, including the administration of justice, business and labor, aviation, immigration and border control, as well as financial regulation and supervision. Greenland has already acquired control over taxation, fisheries, internal labor negotiations, natural resources, and oversight of offshore labor, environment, and safety regulations. Denmark continues to have control over the Realm’s foreign affairs, security, and defense policy, in consultation with Greenland and the Faroe Islands. Denmark also retains authority over border control issues, including immigration into Greenland. Greenland is not a part of the EU or Schengen Area, and special rules apply for foreigners arriving from a Schengen country. Denmark provides Greenland with an annual block grant of DKK 3.6 billion — roughly $540 million — that accounts for a quarter of Greenland’s GDP and about half the public budget.
The Greenlandic government proposes to increase revenues by promoting greater development of fisheries, extractive resources, and tourism, and by trimming the public sector through privatization of enterprises currently owned by the government. Key initiatives include improving access to financing for new businesses and enhancing Greenland’s corporate tax competitiveness. Rising prices for fish and shellfish, the predominant Greenlandic exports, have generated good earnings for large parts of the fisheries sector, and catches of prawn, by far the most important single species, have increased recently following years of declines. Catches of mackerel are also on the rise and could become an important addition to revenue.
Efforts to develop tourism include increases in accommodation (hotel rooms), a reduction in passenger tax for cruise ships, and a focus on promoting foreign language education to create a more multilingual workforce. The government is calling for stricter safety requirements for navigation in Greenlandic waters. In the mineral extractives sector, two smaller mines (ruby and anorthosite) are expected to come online in 2017, while two other companies have applied for permission to extract rare earth elements in southern Greenland, in one case combined with extraction of uranium. The government endorses maintaining the previous government’s relaxation of a ban on uranium mining, and states that all IAEA and EURATOM standards must be met. However, the issue of uranium mining in Greenland remains sensitive.
Greenlandic Economic Outlook
Greenland is currently enjoying an economic upswing, though its highly specialized economy – over 90 percent of exports is fisheries – also faces significant challenges. The economy contracted between 2012 and 2014, grew by 1.7% in 2015 and Greenland’s government estimates nominal GDP growth of 5 percent in 2016, followed by 0.5– 1 percent growth in 2017. The 2016 upswing is driven by an increase in the prawn quota off West Greenland, increasing municipal construction budgets and the expansion of the port in Nuuk, and the government-financed construction of a prison in Nuuk along with court buildings in several coastal towns. There are also indications that private consumption and tourism contributed positively to GDP growth in 2016, and will continue to do so in 2017. Increasing public spending at government and local levels is expected to have an expansionary effect in 2016 and 2017.
Inatsisartut (the Greenland Parliament) and Naalakkersuisut (the Government of Greenland) adopted a Finance Act for 2017 with an annual budget deficit of DKK 145 million ($21.5 million) from 2017 to 2020, which could jeopardize the government’s ability to handle a future downturn. The municipalities and government have no net debt, but including government-owned enterprises, the net debt totaled DKK 1.9 billion ($280 million) in 2015, which corresponds to approximately 13 percent of GDP.
The Greenland Economic Council – an independent advisory council –concluded in the Council’s 2014 report that, “Five years after the implementation of the Self-Rule Government, the reforms that would be necessary for the creation of a self-sustaining economy have not been put into place.” The Council warns of the effects of increasing public expenditures as demographic shifts push larger portions of the population into retirement, resulting in fewer Greenlanders active in the labor market. The Greenlandic Government’s 2016 Growth and Sustainability Plan is deemed by the Council as an ambitious and realistic way to close the gap between expected expenditures and revenues, if the Government is willing to make tough and often unpopular choices.
Natural resource exploration (i.e. hydrocarbons and minerals) has declined in recent years, and Greenland’s undiversified economy is lacking in new revenue streams as a demographic burden puts greater pressure on the public budgets. Exploration for hydrocarbons off the west coast of Greenland, previously expected to generate approximately DKK 5 billion ($745 million) from 2010 – 2011, has since declined. No exploration was conducted in 2012 to 2014 and in spring 2016 all but one oil company handed back licenses for oil exploration off West Greenland. There remains significant potential for offshore hydrocarbons and minerals in Greenland, but reserves are unproven and given depressed world commodity prices, lack of infrastructure and a generally difficult environment, it is unclear when further exploration and exploitation will become viable.
Greenland exported DKK 2.786 billion ($414 million) in the first nine months of 2016, a 39.8 percent increase over the same period in 2015, mainly attributable to shrimp and halibut. 88 percent of Greenlandic exports were fish products, with the remainder being raw materials and machinery. Exports went primarily to Denmark (76 percent), followed by Portugal (9.7 percent), and Iceland (4.2 percent). Greenland imported goods worth DKK 3.090 billion ($586 million) in the first nine months of 2016, primarily machinery (23.5 percent), foods (22.4 percent), intermediate products (15.4 percent), and fuels (12.5 percent). Imports came from Denmark (71 percent), Sweden (12.7 percent), and China (2.6 percent) among others. Imports from the United States represented 0.9 percent of total imports. Due to its vast geographic expanse, Greenland’s physical and telecommunications infrastructure is less interconnected and developed than in other parts of the Kingdom of Denmark. The labor force was comprised of 26,844 people in 2015, and the average unemployment rate was 9.1 percent. The Greenlandic government is actively trying to attract investments to Greenland to diversify the economy and integrate it into the world economy as part of a long-term path toward eventual independence from Denmark.
Establishing a Company in Greenland
A foreign company can establish a commercial enterprise in Greenland in one of the following ways: through a subsidiary, a registered affiliate, a representative office or a taxable entity. A subsidiary is only liable for its own assets. The capital requirement for establishing a corporation (A/S) is DKK 500,000 (approx. $74,400) and for establishing a private limited liability company (ApS) is DKK 125,000 (approx. $18,600). At least one of the founders of an A/S must be a resident of Greenland.
An established company planning to do business in Greenland must obtain a GER (Greenland’s Company Register) registration number. This also applies to subsidiaries. A registration number can be acquired from the Greenlandic Tax Authorities.
A registered affiliate has no capital requirements, but only a company with a legally registered office in the EU, USA, Canada or the Nordic countries can open an affiliate. It is legally not treated as an independent company, but rather as an extension of the main company. This means that the head office is liable for all the affiliate’s assets.
A representative office is not regulated or defined, and may not enter contracts or deliver services. It is meant to be a marketing office, or an office to establish contacts with the goal of eventually entering the market.
An exploration license is viewed as a taxable entity. There is more lenient regulation in the extraction industry regarding company composition: if a foreign company is granted an exploration license, it is not required to register as an affiliate, but the license is taxable, and therefore the firm must submit tax information like a regular company. However, a loss can be carried forward and written off against future profits. A GER registration is required.
A foreign company can do business in Greenland in a consecutive or non-consecutive 90 day period over 12 months without being required to register as a business.
Greenland has double taxation treaties with the following countries: Denmark, Faroe Islands, Iceland, and Norway. Greenland has signed a Foreign Accounts Tax Compliance Act (FATCA) agreement with the United States.
The corporate income tax rate is 30 percent. An additional surcharge of six percent of the tax payable is charged, bringing the total corporate tax rate to 31.8 percent. Companies which are operating under the Mineral Resources Act can apply for an exemption of the surcharge, thereby lowering the tax rate to 30 percent.
Taxation of royalty payments is 30 percent. Greenland has no value added tax (VAT) system, sales tax or similar taxes. There are, however, some payable duties, such as taxes for cruise liners, ports duties, etc. There are four types of depreciation in the Greenlandic tax law. Buildings can be depreciated five percent annually. Ships, planes, and hydrocarbon prospecting can be depreciated 10 percent annually. Mineral licenses can be depreciated 25 percent annually, and operating equipment can be depreciated at a rate of 30 percent annually. Assets with a cost of less than DKK 100,000 ($14,900) may be depreciated in the year of acquisition.
The Greenlandic labor force was 26,844 persons in 2015. Average unemployment for 2015 was 9.1 percent – higher than the OECD average of 6.78 percent, yet a decrease from 10.3 percent in 2014. According to Statistics Greenland, 39 percent of the Greenlandic population in 2015 has an education beyond primary school. Of those, 56.4 percent have a vocational education.
In December 2012, Greenland passed legislation known as the “Large Scale Act,” which allows companies to use foreign labor during the construction phase of development when project costs exceed DKK 5 billion ($743 million) and workforce requirements exceed the local labor supply. The Act is intended for potential mining or infrastructure projects in Greenland. The Act lays out the framework for politically-negotiated Impact Benefit Agreements (IBA) for the Government of Greenland and the employer to agree on the exact conditions of employment for foreign labor. The scale of Greenlandic labor utilized will be negotiated for each project and will vary depending on local capacity and the negotiated agreement for each project.
Foreign workers will enjoy the same legal protections as Greenlandic workers, in theory, including the same $13.85 per hour minimum wage and retention of the right to strike, but employers may deduct up to $180 from their pay each week to cover the cost of company-provided lodging, food, and clothing.
Investment in Natural Resources
Greenland possesses significant mineral deposits, including rare earth elements, zinc, lead, molybdenum, uranium, gold, platinum, ruby and pink sapphires, and other critical minerals. Greenland is also believed to have large quantities of iron ore and copper, although there has been limited exploration to date. Despite a harsh climate and ice coverage in Greenland, satellite images taken over the past several decades record a continuing significant disappearance of surface ice from the island. If the trend continues as expected, mining industry experts anticipate the retreating ice will make the island’s rich stores of raw materials more easily accessible.
Greenland’s policy framework is relatively attractive for most mining activities. In October 2013, the Greenlandic Parliament abolished the country’s 25-year “zero-tolerance” policy towards uranium and other radioactive minerals, lifting the ban on mining where uranium is present. This decision will facilitate the exploitation of rare earth mineral deposits, which are often found co-mingled with radioactive minerals in Greenland.
With the 2009 SRA, Greenland gained rights to its mineral and hydrocarbon resources, and it acquired the regulatory authority over these on January 1, 2010. The SRA also created a revenue mechanism: if exploitation of Greenland’s natural resources becomes commercially viable, Greenland will keep the first DKK 75 million ($11.1 million) in annual revenues derived from these resources, with further revenues split equally between the Danish and Greenlandic Governments. Denmark’s share will be transferred by deducing the equivalent amount from the annual block grant to Greenland of DKK 3.6 billion ($535 million). Once the value of the block grant has been reached, any additional revenue will be subject to negotiations between the Danish and Greenlandic governments. The Greenlandic Government welcomes this lucrative eventuality, but remains aware of the potential impact that an influx of wealth from these activities could have on Greenlandic society.
Most of Greenland’s identified rare earth deposits are licensed by the Bureau of Minerals and Petroleum and some have reached advanced stages of exploration. Greenland was granted the award for “best country to do mining in 2013-2014,” together with Mongolia, Azerbaijan, and Australia, at Europe’s Mines & Money conference in December 2013. However, by 2016, Greenland’s ranking had slid in the annual mining survey from Canadian Fraser Institute, to 55th out of 104 mining jurisdictions surveyed, in terms of investment attractiveness.
Greenland General Business Information
OPIC programs are not applicable to U.S. investments in Greenland. Information about the Greenlandic Government can be found at: http://naalakkersuisut.gl/en . Information from the Greenlandic Government on natural resource exploration and extraction can be found at: http://www.govmin.gl .
Statistics on Greenland can be found at: http://www.stat.gl/default.asp?lang=en
By law, private property can only be expropriated for public purposes in areas where the Greenlandic Self-government has the competencies, in a non-discriminatory manner, and with reasonable compensation. There have been no recent expropriations of significance in Greenland and there is no reason to expect significant expropriations in the near future.
There have been no major disputes over foreign investment in Greenland in recent years. While it is common that disputes are settled in Greenlandic courts, the Danish Supreme Court remains the highest appeals court for disputes in Greenland. If the dispute is very specialized and within the purview of the Danish Administration of Justice Act, the parties involved can choose the Danish Maritime and Commercial Court as a court of first instance. Potential investors should be cognizant of the need to manage expectations in Greenland with regard to understanding corporate responsibility and financial obligations.
While democratic institutions and the legal framework in general are strong, there have been some concerns about legislation being passed through parliament without significant hearing processes and public input.
The Faroe Islands
For more than two centuries the Faroese economy has relied on fisheries and related industries. Fisheries remain the key sector, accounting for about 95 percent of exports. Salmon alone accounts for 45 percent of exports. The Faroe Islands’ small, open, but non-diversified economy makes it highly vulnerable to changes in international markets. The Faroe Islands have full powers to set tax rates and fees, and to set levels of spending on the services they provide. Denmark upholds an annual block grant of DKK 642 million – roughly $95 million.
In 2013, the Faroese economy began a strong recovery, after several years of stagnation. The Economic Council for the Faroe Islands estimates that nominal GDP rose 5.8 in 2014 followed by estimated growth of 6.2 percent in current year prices in 2015 and upwards of 8.5 percent in current year prices for 2016. Growth in nominal GDP in 2014 was mainly export driven while growth in 2015 and 2016 was primarily driven by domestic demand. The Council estimates nominal growth of 4.1 percent in 2017 again driven by domestic demand. Fish exports, with increased catches of mackerel and herring as well as higher prices for salmon globally, also contributed to growth. Unemployment is low and falling at 2.3 percent in January 2016, down from 8 percent in 2011.
The fall in world oil prices acted as a stimulus by improving the terms of trade considerably. Central and local government and publicly owned companies are planning massive investments in infrastructure and hospitals. Investment in 2016 is expected to total $1.3 billion ($193 million) or 7.3 per cent of GDP, which is 20 percent higher than in 2014. Public sector investment is expected to rise by a further 34 per cent until 2018. Construction of the Eysturoy and Sundoy tunnels to connect the Faroe island chain, with an expected cost of approximately DKK 2.64 billion ($390 million) or 13 percent of GDP, are planned for the period 2016-21. This enormous investment resulted in the Danish Systemic Risk Council issuing an official warning of the buildup of systemic risk on the Faroe Islands in the fall of 2016. Seven in ten construction firms say that shortage of labor is an impediment to growth, and the magnitude of the public investments could further push the economy beyond its labor capacity limit.
According to the Danish Central Bank, the biannual confidence indicators show that Faroese firms and consumers are generally not as optimistic about the economy as they have been in previous years. In particular, consumers take a less positive view of their own finances and the Faroese economic outlook in the near term. Looking further ahead, the Faroe Islands face a demographic challenge. Currently there are 4.5 people in the working age group aged 16 to 66, for every person aged 67 or older. By 2050, the number will have decreased to 2.1 persons for every dependent elder. The Economic Council for the Faroe Islands estimates that a permanent fiscal improvement of 5 percent of GDP will be required in order to stabilize government debt, which is currently at a low level.
The Faroe Islands have in recent years engaged in several disputes with the EU over fishing quotas. The disagreements escalated in September 2012, when the EU adopted measures which allowed it to impose penalties on the Faroe Islands. In March 2013, the Faroe Islands unilaterally increased their quota for herring and mackerel. EU member states responded by voting in favor of imposing sanctions which went into force in August 2013; these were lifted a year later after a political understanding between the two parties was reached on herring catches. Subsequently a five year agreement with the other coastal states in the North Atlantic was signed on mackerel quotas, reducing uncertainty for fisheries and improving profitability, since the agreement allows for more efficient capacity utilization. Fisheries account for close to one-sixth of the total gross value added in the Faroe Islands and about 95 percent of goods exports, excluding ships and aircraft.
As a non-EU member, the Faroe Islands continue to have open access to the Russian market despite Russia’s retaliatory trade embargo on certain food imports from the EU. This has allowed the Faroese to sell increased quantities of salmon to the Russian market at higher than normal prices, even while prices have dropped significantly in the European market.
In February 2017, credit agency Moody’s reaffirmed the Faroe Islands’ “Aa3” rating of high quality and very low credit risk, with a stable outlook, reflecting its fiscal autonomy and revenue and expense flexibility with a track record of prudent budgeting. The stable and historical relationship with Denmark is deemed an additional strength.
The Faroe Islands retain control over most of their internal affairs, including the conservation and management of living marine resources within the 200 nautical mile fisheries zone, natural resources, financial regulation and supervision and transport. Denmark continues to exercise control over foreign affairs, security, and defense, in consultation with the Faroese Government.
The Islands exported approximately DKK 7.973 billion ($1.18 billion) worth of goods in 2016, 96.1 percent of which were fish products, with the remainder being marine vessels and aircraft. In recent years, construction, transportation, banking, and other financial services sectors have grown, and offshore oil and gas exploration is developing, though commercially viable finds have not been made. In 2015, the majority of exports went to Russia (25.9 percent), the U.S. (8.8 percent), followed by the UK (8.6 percent), Denmark (7.5 percent), and Germany (5.3 percent). Goods imports totaled DKK 6.588 billion ($978 million) in 2016. The vast majority of imports came from Europe in 2015; 1.3 percent originated in the United States. Denmark provided 27.7 percent of imports, Norway 15.3 percent, Germany 10 percent, Netherlands 6.2 percent, China 6.0 percent, and Sweden 4.7 percent. Imports consist of items for household consumption (21.8 percent), e.g. food, tobacco and beverages; input to industry (22.1 percent) machinery (13.0 percent) and fuels (9.8 percent).
The labor force comprised about 25,810 people in December 2016. In many areas, the Faroese labor market model resembles that of the other Nordic countries, with high standards of living, well-established welfare schemes and independent labor unions. A majority of people in the Faroe Islands are bilingual or multilingual, with Danish and English being most widely spoken after Faroese. The Islands boast well-developed physical and telecommunications infrastructure and have well-established political, legal, and social structures. The standard of living for the total population (expected to reach 50,000 in spring 2017) is high by world standards, and Gross National Disposable Income per capita eclipsed that of Denmark in 2014. The Faroe Islands opened their own securities exchange in 2000; active trading of shares followed in 2005. The exchange is collaboration with the VMF Icelandic exchange on the Nasdaq OMX Nordic Exchange Iceland.
The most recent figures available show Foreign Direct Investment into the Faroe Islands totaled DKK 1.6 billion ($238 million) in 2012, about half of which originated from Denmark. The Faroese government has indicated interest in attracting further foreign investment. “Invest in the Faroes” is the Faroese government unit promoting Faroese trade. The website is http://www.government.fo/
14. Contact for More Information
Ulrik R. Jakobsen
Dag Hammarskjolds Alle 24,