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 (55 percent) of GDP. Danish trade and investment policies are liberal. In general, investment policies are forward-looking, aimed at fostering and developing businesses, especially in high-growth sectors. The Economist Intelligence Unit (EIU) ranks Denmark second globally and first regionally on its business environment ranking. The EIU characterizes Denmark’s business environment as among the most attractive in the world, reflecting a sound macroeconomic framework, excellent infrastructure, low bureaucracy and a friendly policy towards private enterprise and competition. Principal concerns include a high personal tax burden, low productivity growth and uncertainties relating to Brexit, as the UK is a close trading partner that shares many of Denmark’s policy goals within the EU. Overall, however, operating conditions for companies should remain broadly favorable. Denmark scores top marks in various categories, including the political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.
As of January 2019, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk rated “AA,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2018 Global Competitiveness Report, third on the World Bank’s 2019 Doing Business ranking, and fifth on the EIU 2018 Democracy Index. “The Big Three” credit rating agencies Standard & Poor’s, Moody’s, and Fitch Group all score Denmark AAA.
Corporate tax records of all companies, associations and foundations, which 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 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 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) or Limited Partnership (P/S) is DKK 400,000 (approx. USD 63,317) and for establishing a private limited liability company (ApS) DKK 40,000 (approx. USD 6,331.
As of 15 April, it is no longer possible to set up an “Entrepreneurial Company” (IVS). The company type was intended to allow entrepreneurs a cheap and simple way to incorporate with limited liability, with a starting capital of only DKK1 (USD 0.16). Due to repeated instances of fraud and unintended use of the IVS, it has been abolished. Simultaneously, the capital requirements to set up a Private Limited Company were lowered, bringing Denmark more in line with other Scandinavian countries, and to ensure it will continue to be cheap and simple to establish limited liability companies in Denmark. Currently there are approx. 45,000 IVS in existence. These companies have a deadline of 2 years to re-register as Private Limited Companies (ApS), with a minimum capital of DKK 40,000. If they fail to re-register, they will be forcibly dissolved. 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 the official address of the company is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 135,000).
Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept an 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 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 Danish 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. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.
- Maritime: 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). 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 significant Danish interest 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: Purchases of designated vacation properties, or ‘summer houses’, are restricted to citizens of Denmark. Such properties cannot be inhabited year-round, and are located in municipally designated ‘summer house area’ zones, typically near coastlines. 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.
Other Investment Policy Reviews
The most recent UNCTAD review of Denmark occurred in March 2013, available here: . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in October 2017.
Denmark ranked first out of 175 in Transparency International’s 2018 Corruption Perceptions Index. It received a ranking of 3 out of 190 for “Ease of Doing Business” in the World Bank’s 2019 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2018, Denmark was ranked 10 out of 140 countries.
The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 8 out of 126 in 2018
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 is . 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 (USD 106) if the registration is done digitally and DKK 2150 (USD 340) if the registration form is sent by e-mail or post.
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, along with other relevant resources which can be found here: .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 (Anpartsselskab – ApS), for example, generally takes four to six 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 ( ) provides English guidance on how to register 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, though not Danish citizenship.
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. USD 13.6 million) or annual balance sheet total does not exceed DKK 44 million (approx. USD 6.7 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. USD 47.5 million) or annual balance sheet total does not exceed DKK 156 million (approx. USD 23.7 million).
Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.
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. Secured interests in property are recognized and enforced. The World Economic Forum’s (WEF) 2018 Global Competitiveness Report, which ranks Denmark as the world’s tenth most competitive economy and fifth among EU member states, characterizes it as having among the best functioning and most transparent institutions in the world. Denmark ranks high on specific WEF indices related to macroeconomic stability (1st), labor market (5th), business dynamism (12th), ICT adoption (8th) and innovative capabilities (12th).
In an effort to facilitate business administration, Denmark maintains only two “legislative days” per year—January 1st and July 1st—the only days on which new laws and regulations affecting the business sector can come into effect. Danish laws and policies granting national treatment to foreign investments are designed to increase FDI in Denmark. Denmark consistently applies high standards with regard to health, environment, safety, and labor laws. 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. Public finances and debt obligations are transparent.
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,” consistent with international norms and applicable 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 government agency under the Danish Ministry of Industry, Business and Financial Affairs. It 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.
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 of DKK 44 million (USD 6.7 million), net revenue of DKK 89 million (USD 13.5 million), average number of full-time employees during the financial year of 50.
- Medium-sized enterprises (Class C medium): Total assets of DKK 156 million (USD 23.7 million), net revenue of DKK 313 million (USD 47.5 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.
According to the Danish Financial Statements Act, personally owned businesses, personally owned general partnerships (multiple owners) and general funds are characterized as Class A and thus have no requirement to prepare financial statements unless the owner voluntarily chooses to do so.
All government draft proposed regulations are published at the portal for public hearings, “Høringsportalen” ( ), to solicit inputs from interested parties. After receiving feedback and possibly undergoing amendments, proposed regulations are published at the Danish Parliament’s website (www.ft.dk). Final regulations are published at and . All ministries and agencies are required to publish proposed regulations. Denmark has a World Bank composite score of “4.75” for the Global Indicators of Regulatory Governance, on a 0 – 5 scale. With respect to governance, the World Bank suggests the following areas for improvement:
- Affected parties cannot request reconsideration or appeal adopted regulations to the relevant administrative agency;
- There is no existing requirement that regulations be periodically reviewed to see whether they are still needed or should be revised.
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
Since the adoption of the Danish constitution in 1849, decision-making power in Denmark has been divided into the legislative, executive and judicial branches. The principle of a three-way separation of power and the independence of courts of law help ensure democracy and the legal rights of the country’s citizens. The district courts, the high courts and the Supreme Court represent the three basic levels of the Danish legal system, but the legal system also comprises a range of other institutions with special functions.
For further information please see:
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 . The Faroese government promotes Faroese trade and investment through its website . For more information regarding investment potential in Greenland, please see Greenland Holding at or the Greenland Tourism & Business Council at .
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 of foreign investors, nor any reported biases against foreign companies from municipal or national authorities.
A new EU investment screening framework encouraging member states to screen foreign investments in strategic sectors is expected to lead to national foreign investment screening legislation, effective in 2020.
Competition and Anti-Trust Laws
The Danish Competition and Consumer Authority (CCA) reviews 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. USD 7.6 million). However, notification is not required if one of the participating companies has turnover of less than DKK 10 million (approx. USD 1.5 million). If the combined turnover of the merging companies exceeds DKK 900 million (approx. USD 137 million) and at least two of the merging companies each have turnover exceeding DKK 100 million (approx. USD 15.1 million) or if one of the merging companies has domestic annual turnover exceeding DKK 3.8 billion (approx. USD 577 million) and at least one of the merging companies has global annual turnover exceeding DKK 3.8 billion (approx. USD 577 million), the merger or takeover is also subject to approval by the CCA. Large scale mergers also require approval from EU Competition authorities.
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.
ICSID Convention and New York Convention
Investor-State Dispute Settlement
International Commercial Arbitration and Foreign Courts
There have been no major disputes over investment in Denmark in recent years. Denmark has been a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) since 1968. ICSID offices have also been extended to the Faroe Islands and Greenland. Denmark is a party to the 1958 (New York) 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. Denmark declared in 1976 that the New York Convention applies to the Faroe Islands and Greenland. 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.
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. In the World Bank’s 2019 Doing Business Report, Denmark ranks 6th in “resolving insolvency.”