Executive Summary
Denmark is regarded by many independent observers as one of the world’s most attractive business environments and ranks highly in indices measuring 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. It maintains 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 heavily driven by trade in goods and services. Given that exports account for about 60 percent of GDP, the economic conditions of its major trading partners – the United States, Germany, Sweden, and the United Kingdom – have a substantial impact on Danish national accounts.
Denmark is a world leader in “green technology” industries, such as offshore wind and energy efficiency, and in sectors such as shipping and life sciences. Denmark is a net exporter of food. Its manufacturing sector depends on raw material imports. Within the EU, Denmark is among the strongest supporters of liberal trade policy. Transparency International regularly ranks Denmark as being perceived as the least corrupt nation in the world. Denmark is strategically situated to link continental Europe with the Nordic and Baltic countries. Transport and communications infrastructures are efficient.
The Danish economy experienced a contraction of 2.1 percent of GDP in 2020 due to COVID-19 followed by a 4.7 percent rebound in 2021, thereby weathering the pandemic with among the lowest declines in GDP in the EU. Denmark’s economic activity and employment have surpassed their pre-pandemic levels and trends, but companies across sectors cite labor shortages as a key challenge. In May 2022, the Ministry of Finance revised its GDP growth projections, forecasting 3.5 percent GDP growth in 2022, decelerating to 2 percent annual GDP growth in 2023. The Ministry projects the Danish economy will weather headwinds from the Russian invasion of Ukraine and surging energy prices, as well as elevated levels of inflation, due to its robust foundation, although economic activity will be at a slightly lower level. The Ministry anticipates the impact will mainly be through increased inflation and disruption of trade. Denmark’s underlying macroeconomic conditions, however, are healthy, and the investment climate is sound. The entrepreneurial climate, including female-led entrepreneurship, is robust.
New legislation establishing a foreign investment screening mechanism to prevent threats to national security and public order came into effect on July 1, 2021. The mechanism requires mandatory notification for investments in the following five sectors: defense, IT security and processing of classified information, companies producing dual-use items, critical technology, and critical infrastructure. It allows for voluntary notification for all sectors. The legislation does not apply to Greenland or to the Faroe Islands, though both are looking into potential legislation.
In 2020, the Danish parliament passed the Danish Climate Act, which established a statutory target for reducing greenhouse gas emissions by 70 percent from 1990 levels in 2030 and achieving net zero by 2050. In April 2022, the government presented a reform proposal on Danish energy policy to move towards the above goals and simultaneously achieve independence from Russian natural gas. The proposal includes plans for increased domestic production of biogas as well as natural gas from the North Sea, a quadrupling of combined onshore wind and solar power production capacity by 2030, and an expansion of district heating. The government also proposed green taxation to finance the transition with a differentiated carbon emission tax in addition to the EU carbon trading system.
Note: Additional information on the investment climates in the constituent parts of the Kingdom of Denmark, the Faroe Islands and Greenland, can be found at the end of this report.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
As a small country with an open economy, Denmark is highly dependent on foreign trade and investment. Exports comprise the most significant component (60 percent) of GDP. The Economist Intelligence Unit (EIU) ranks Denmark as the world’s sixth-most attractive business environment and the leading nation in the Nordic region. The EIU characterizes Denmark’s business environment as reflecting excellent infrastructure, a friendly policy towards private enterprise and competition, low bureaucracy, and a well-developed digital sector. Principal concerns include low productivity growth, a high personal tax burden, and potential capacity constraints on the labor market. Overall, however, operating conditions for companies are broadly favorable. Denmark ranks highly in multiple categories, including its political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.
As of February 2022, the EIU rated Denmark an “AA” country on its Country Risk Service, noting the country is on the “cusp of an upgrade.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2019 Global Competitiveness Report and sixth on the EIU 2021 Democracy Index. Denmark has an AAA rating from Standard & Poor’s, Moody’s, and Fitch Group. “Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. Invest in Denmark has prioritized six sectors in its strategy to attract foreign investment: tech, cleantech, life sciences, food, maritime, and design and innovation. The website for the agency is https://investindk.com .
Limits on Foreign Control and Right to Private Ownership and Establishment
As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not discriminate between EU and other investors.
Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few foreign control limits, nor any reported bias against foreign companies from municipal or national authorities when compared to domestic investors. A foreign investment screening mechanism came into force July 1, 2021, to prevent threats to national security and public order from foreign direct investment, but there are otherwise no additional permits required by foreign investors. The mechanism requires mandatory notification for five sectors and allows for voluntary notification for all sectors. The sectors requiring mandatory notification are defense, IT security and processing of classified information, companies producing dual-use items, critical technology, and critical infrastructure. Mandatory notification applies for investments reaching 10 percent ownership or control, and voluntary notification can be made for investments where the company reaches 25 percent ownership or control. A pre-screening process exists to determine if the investment is in the critical technology or critical infrastructure sector. Notification and guidance all take place online, handled by the Danish Business Authority: https://businessindenmark.virk.dk/topics/Economy/Investments/
A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (Aktieselskab A/S) or Limited Partnership (Partnerselskab P/S) is $63,000 (DKK 400,000) and for establishing a private limited liability company (Anpartsselskab ApS) $6.300 (DKK 40,000). In 2019, the government lowered the capital requirements to set up a private limited liability company, which brought Denmark more in line with other Scandinavian countries. No restrictions apply regarding the residency of directors and managers.
Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if its official address is in Denmark. The minimum capital requirement is $137,000 (EUR 120,000).
Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.
In addition to investment screening cases, ownership restrictions apply to the following sectors:
Oil and Gas: Requires 20 percent Danish government participation on a “non-carried interest” basis.
Defense: The Minister of Justice must approve foreign investment in defense companies doing business in Denmark if such investment exceeds 40 percent of the equity or more than 20 percent of the voting rights, or if the investment gives the foreign interest a controlling share. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.
Maritime Services: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships, or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Vessels owned by EU or European Economic Area (EEA) entities with a genuine, demonstrable link to Denmark are also eligible for registration. Foreign companies with a significant Danish interest can register a ship in the DIS.
Civil Aviation: For an airline to be established in Denmark, it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.
Financial Services: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.
Real Estate: Ownership of holiday homes, also known as summer houses, is restricted to Danish citizens. Such homes are generally located along the Danish coastline and may not be used as full-year residences. On a case-by-case basis, the Ministry of Justice may waive the citizenship requirement for those with close familial, linguistic, cultural, or other close connections to Denmark or the specific property. In general, EU and EEA citizens may purchase full-year residential property or real estate that supports self-employment without obtaining prior authorization from the Ministry of Justice. Companies domiciled in an EU or an EEA Member State that have set up or will set up subsidiaries or agencies or will provide services in Denmark may, in general, also purchase real property in Denmark without prior authorization. Non-EU/EEA citizens must obtain authorization from the Ministry of Justice to purchase real estate in Denmark, which is generally granted to those with permanent residence in Denmark or who have lived in Denmark for a consecutive period of five years.
Other Investment Policy Reviews
The most recent United Nations Conference on Trade and Development (UNCTAD) review of Denmark occurred in March 2013 and is available here: unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in December 2019.
The EU Commission’s European Semester documents for Denmark are available here: ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en A 2017 Foreign Investment Regulation review by DLA Piper can be found here: www.dlapiper.com/~/media/files/insights/publications/2017/11/denmark.pdf
Denmark ranked first out of 180 in Transparency International’s 2021 Corruption Perceptions Index. In the IMD 2021 World Competitiveness Ranking, Denmark ranked third out of 64 countries. The World Intellectual Property Organization (WIPO) ranked Denmark ninth out of 132 in its 2021 Global Innovation Index.
Business Facilitation
The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the DBA, “Business in Denmark” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website, www.virk.dk , is the principal digital tool for licensing and registering companies in Denmark and offers a business registration process that is clear and complete.
Registration of sole proprietorships and partnerships is free of charge. For other types of businesses, online registration costs $106 (DKK 670). Registration by email or mail costs $341 (DKK 2,150).
The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs’ “Invest in Denmark” program provides a step-by-step guide to establishing a business at https://investindk.com/publications/step-by-step-guide-to-do-business-in-denmark , along with other relevant resources at https://investindk.com/our-services/how-to-set-up-a-business-in-denmark . The services are free of charge and available to all investors, regardless of country of origin.
The processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish private limited liability company (ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is more straightforward, with processing generally taking about one week.
Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website ( www.virk.dk ) provides English guidance on registering a service with RUT. A public digital signature, referred to as a NemID or its replacement MitID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid identification are needed to obtain a NemID/MitID. Danish citizenship is not a requirement.
Denmark defines small enterprises as those with fewer than 50 employees. Annual revenue or the yearly balance sheet total must be lower than $14.1 million (DKK 89 million) or $7.0 million (DKK 44 million), respectively. Medium-sized enterprises cannot have more than 250 employees. Limits on annual revenue or the yearly balance sheet total are $49.7 million (DKK 313 million) or $24.8 million (DKK 156 million).
Outward Investment
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
Denmark’s judicial system is highly regarded and considered fair. Its legal system is independent of the government’s legislative branch and includes written and consistently applied commercial and bankruptcy laws. Secured interests in property are recognized and enforced. The World Economic Forum’s (WEF) 2019 Global Competitiveness Report ranked Denmark as the world’s tenth most competitive economy and fourth among EU member states, characterizing 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 (first), labor market (third), business dynamism (third), institutions (seventh), ICT adoption (ninth), and skills (third).
To facilitate business administration, Denmark maintains only two “legislative days” per year—January 1 and July 1—as the only days when 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 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 follow international standards.
Bureaucratic procedures are streamlined and transparent; proposed laws and regulations are published in draft form for public comment. Public finances and debt obligations are transparent.
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 (CCA) works to make markets well-functioning so that businesses compete efficiently on all parameters. The CCA is a government agency under the Danish Ministry of Industry, Business, and Financial Affairs. It enforces the Danish Competition Act. This Act, along with Danish consumer legislation, aims to promote efficient resource allocation in society, promote efficient competition, create a level playing field for enterprises, and protect consumers.
Corporate tax records of all companies, associations, and foundations that pay taxes in Denmark are published by the tax authorities according to public law since December 2012 and are updated annually. The corporate tax rate is 22 percent. Greenland and the Faroe Islands retain autonomy for their respective tax policies.
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 under accounting classes determined by company size. There are four different accounting classes: A, B, C and D. Accounting class B is further divided into micro B and B, and C is divided into medium-sized C and large C. The smallest companies belong to accounting class A, while the largest belong to accounting class D. The classification is based on the assessed size of the company based on two out of three parameters: net revenue, balance sheet, and number of employees.
Personal companies as well as companies with limited liability (Class A): Less than an annual average of 10 full-time employees and total assets not exceeding $1.1 million (DKK 7 million) or net revenue not exceeding $2.2 million (DKK 14 million) during the fiscal year. According to the Danish Financial Statements Act, personally-owned businesses, personally-owned general partnerships (multiple owners), and general funds are characterized as Class A; there is no requirement to prepare financial statements unless the owner voluntarily chooses to do so.
Class B. Private limited liability companies, commercial funds, and companies with limited liability. Micro businesses (Class micro B): Less than an annual average of 10 full-time employees and total assets not exceeding $429,000 (DKK 2.7 million) or net revenue not exceeding $858,000 (DKK 5.4 million) during the fiscal year.
Small businesses (Class B): Less than an annual average of 50 full-time employees and total assets not exceeding $7.0 million (DKK 44 million) or net revenue not exceeding $14.1 million (DKK 89 million) during the fiscal year.
Medium-sized enterprises (Class C medium): Less than an annual average of 250 full-time employees and total assets not exceeding $24.8 million (DKK 156 million) or net revenue not exceeding $49.7 million (DKK 313 million) during the fiscal year.
Large companies (Class C large): Companies that are neither small nor medium companies, and have an annual average of at least 250 full-time employees, total assets in excess of $24.8 million (DKK 156 million), or net revenue in excess of $49.7 million (DKK 313 million) during the fiscal year, but are not a class D company.
Accounting class D: Publicly-traded companies and state-owned stock-based enterprises.
Large companies (Class C and D) are required to report annually on environmental, social, and governance (ESG) efforts. This includes reporting on environmental; social; labor and human rights; and anti-corruption and bribery efforts. The reporting requirement covers four components: the company’s business model, material risks associated with each of the four issue areas, non-financial key performance indicators, and integrative referral to the financial amounts provided elsewhere in the annual report. There is no requirement for companies to have policies on the four issues, though they are required to follow a do-or-explain principle that requires companies to explain their policies in substance or explain why they have decided not to have a policy on the issue. For implemented policies, companies are required to disclose the substance of the policy and how they translate policies into action.
The rules on reporting generally follow EU Directive 2014/95/EU on disclosure of non-financial information though certain issues, including reporting on the company’s impact on climate change, are stricter in Denmark than the directive. The rules on reporting on these issues allow for an exception if the companies report on similar issues using international standards such as UN Global Compact’s Communication on Progress.
All government draft proposed regulations are published at “Høringsportalen” ( www.hoeringsportalen.dk ) and are available for comment from interested parties. Following the comment period, the government may revise draft regulations before publication on the Danish Parliament’s website ( www.ft.dk ). Final regulations are published at www.lovtidende.dk and www.ft.dk . 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 zero to five scale. Concerning 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 should be revised or eliminated.
International Regulatory Considerations
Denmark is a member of the European Union and is an active supporter of the internal market. As a result, many aspects of business regulation are dictated by the EU and hence aligned with other EU Member States.
Denmark adheres to the WTO Agreement on Trade-Related Investment Measures (TRIMs); no inconsistencies have been reported.
Legal System and Judicial Independence
Denmark’s decision-making power is divided into the legislative, executive, and judicial branches. The principles of separation of power and an independent judiciary help ensure democracy and Danish citizens’ legal rights. The district courts, the high courts, and the Supreme Court represent the Danish legal system’s three basic levels. The legal system also comprises other institutions with special functions, e.g., the Maritime and Commercial Court.
For further information, please see: domstol.dk/om-os/english/the-danish-judicial-system/
Laws and Regulations on Foreign Direct Investment
As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. 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 investindk.com . The Faroese government promotes Faroese trade and investment through its website faroeislands.fo/economy-business . For further information concerning Greenland’s investment potential, please see Greenland Venture at www.venture.gl or the Greenland Tourism & Business Council at visitgreenland.com .
Competition and Antitrust Laws
The Danish Competition and Consumer Authority (CCA) reviews transactions for competition-related concerns. A merger or takeover is subject to approval by the CCA. Large-scale mergers also require approval from EU competition authorities. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the aggregate annual revenue in Denmark of all undertakings involved is more than $134 million (DKK 900 million) and the aggregate yearly revenue in Denmark of each of at least two of the undertakings concerned is more than $15.9 million (DKK 100 million), or if the aggregate annual revenue in Denmark of at least one of the undertakings involved is more than $604 million (DKK 3.8 billion) and the aggregate yearly worldwide revenue of at least one of the other undertakings concerned is more than $604 million (DKK 3.8 billion). When a merger results from the acquisition of parts of one or more undertakings, the calculation of the revenue referred to shall only comprise the share of the revenue of the seller or sellers that relates to the assets acquired. Merger control provisions are contained in Part Four of the Danish Competition Act and in the Executive Order on the Notification of Mergers . Revenue is calculated under the Executive Order on the Calculation of Turnover in the Competition Act .
A full notification of a merger must include the information and documents specified in the full notification form, Annex 1 – Information for Full Notification of Mergers . A simplified notification of a merger must include the information and documents specified in the simplified notification form, Annex 2 – Information for Simplified Notification of Mergers . From August 1, 2013, merger fees are payable for merger notifications submitted to the CCA. The fee for a simplified notification amounts to $7,950 (DKK 50,000). The fee for a full notification amounts to 0.015 percent of the aggregate annual turnover in Denmark of the undertakings involved; this fee is capped at $238,400 (DKK 1,500,000).
Additional information concerning notification of mergers is available in the Guidelines to the Executive Order on Notification of Mergers and on Merger Fees . More general information on Danish merger control can be found in the Merger Guidelines .
Expropriation and Compensation
By law, private property can only be expropriated for public purposes, in a non-discriminatory manner, with reasonable compensation, and under established principles of international law. There have been no recent expropriations of significance in Denmark.
Dispute Settlement
ICSID Convention and New York Convention
There have been no significant investment disputes 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. The ICSID Convention has been extended to include the Faroe Islands. 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 specific 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 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration in 1985.
Investor-State Dispute Settlement
N/A
International Commercial Arbitration and Foreign Courts
N/A
Bankruptcy Regulations
Monetary judgments under the bankruptcy law are made in freely convertible Danish Kroner. The bankruptcy law addresses creditors’ claims 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.
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 is 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 marketplace, OMX Exchanges, which is headquartered in Stockholm. Besides Stockholm and Copenhagen, OMX also includes the stock exchanges in Helsinki, Tallinn, Riga, and Vilnius. 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 NASDAQ-OMX Group acquired the exchanges. In the World Economic Forum 2019 report, Denmark ranked 11th out of 141 on the metric “Financial System.”
The Danish stock market is divided into four different branches/indexes. The C25 index contains the 25 most valuable companies in Denmark. Other large companies with a market value exceeding $1.05 billion (EUR 1 billion) are in the group of “Large Cap,” companies with a market value between $158 million (EU 150 million) and $1.05 billion (EUR 1 billion) belong to the “Mid Cap” segment, while companies with a market value smaller than $158 million (EU 150 million) belong to the “Small Cap” group.
Money and Banking System
The major Danish banks are rated by international agencies, and their creditworthiness is rated as high by international standards. The European Central Bank and the Danish National Bank reported that Denmark’s major banks have passed stress tests by considerable margins.
Denmark’s banking sector is relatively large; based on the ratio of consolidated banking assets to GDP, the sector is three times bigger than the national economy. By January 2022, the total of Danish shares valued $673.4 billion (DKK 4.24 trillion) and were owned 55.1 percent by foreign owners and 44.9 percent by Danish owners, including 13.5 percent held by households and 3.9 percent by the government. The three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – hold approximately 75 percent of the total assets in the Danish banking sector.
The primary goal of the Central Bank (Nationalbanken) is to maintain the peg of the Danish currency to the Euro – with allowed fluctuations of 2.25 percent. It also functions as the general lender to Danish commercial banks and controls the money supply in the economy.
As occurred in many countries, Danish banks experienced significant turbulence in 2008 – 2009. The Danish parliament subsequently passed a series of measures to establish a “safety net” program, provide government lending to financial institutions in need of capital to uphold their solvency requirements, and ensure the orderly winding down of failed banks. The parliament passed an additional measure, named Bank Package 4, in August 2011, which sought to identify systemically important financial institutions, ensure the liquidity of banks that 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 earlier legislation. As such, 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 specific financial institutions as “systemically important” (SIFI). The SIFIs in Denmark as of June 2021, the most recent designation, are Danske Bank A/S, Nykredit Realkredit A/S, Nordea Kredit Realkreditaktieselskab, Jyske Bank A/S, Sydbank A/S, DLR Kredit A/S, Spar Nord Bank A/S and A/S Arbejdernes Landsbank. The government identified these institutions based on three quantitative measures: 1) a balance sheet to GDP ratio above 6.5 percent; 2) market share of lending in Denmark above 5 percent; or 3) market share of deposits in Denmark above 3 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. The Faroese SIFIs are P/F BankNordik, and Betri Banki P/F, while Grønlandsbanken is the only SIFI in Greenland.
The Danish government projected in May 2022 that Denmark’s debt to GDP ratio will decrease from approximately 42 percent at the end of 2020 to 33 percent by the end of 2023. The Ministry of Finance announced in May 2022 that Denmark ran a 2.3 percent budget surplus in 2021, and projects budget surpluses of 0.6 percent and 0.2 percent in 2022 and 2023, respectively.
Foreign Exchange and Remittances
Foreign Exchange
Exchange rate conversions throughout this document are based on the 2021 average exchange rate where Danish Kroner (DKK) 6.291752 = 1 USD.
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 are 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 Exchange Rate Mechanism (ERM) II framework. 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, if 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 it supports adopting the Euro in principle, 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 ratio cannot exceed 3 percent.
Remittance Policies
N/A
Sovereign Wealth Funds
Denmark maintains no sovereign wealth funds.
11. Labor Policies and Practices
The Danish labor force is generally well-educated and efficient. English-language skills are good, and English is considered a natural second language among a very high proportion of Danes. The labor market is stable and flexible. U.S. companies operating in Denmark have indicated that Danish rules on hiring and firing employees generally enable employers to adjust the workforce quickly to changing market conditions.
The Danish labor force amounted to approximately 3.08 million people at the end of 2021. Of these, 946,000 were employed in the public sector, which accounts for about 31 percent of the labor force. Denmark’s OECD-harmonized unemployment rate was 4.5 percent in March 2022, lower than the EU-27’s average rate of 6.2 percent and OECD average of 5.12 percent. Denmark faces labor shortages in certain sectors, which may be abated by the projected slowdown in growth but may otherwise present a challenge for foreign investors.
The labor force participation rate for women is among the highest in the world. In 2020, 75.9 percent of working-age women participated in the labor force, and the employment rate was 72.8 percent. The working-age male labor force participation rate and employment rate were 79.4 percent and 76.3 percent, respectively.
The Danish labor force is highly organized, with 66.5 percent belonging to a union in 2018, the second highest in the OECD. Labor disputes and strikes occur only sporadically. In general, private sector labor/management relations are excellent, based on dialogue and consensus rather than confrontation. Working conditions are established through a complex system of legislation and organizational agreements, where most aspects of wage and working conditions are determined through collective bargaining rather than legislation.
The contractual work week for most wage earners is 37.5 hours. By law, employees are entitled to five weeks of paid annual leave. In practice, most 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, self-financed or financed by the state. Employees have a right to take maternity or paternity leave which in Denmark is a total of 52 weeks, 18 of which are reserved for the mother (four weeks prior to birth, 14 after) and two for the father to be taken within the first 14 weeks after birth. In addition, most employees have maternity/paternity leave for at least 14 weeks fully paid by the employer, while the government supports the remainder of the leave. In August 2022, the system will change due to EU legislation being implemented.
Danish wages are high by international standards and have prompted the use of capital-intensive technologies in many sectors. Some investors report that the high average wage level is detrimental to Danish competitiveness. Although high wages and generous benefits, including time off, reduce competitiveness, high productivity and low direct costs to employers can result in per employee costs that are lower than in other industrialized countries. Real wages increased on average by 4.2 percent from 2020 to 2021. The government forecast that nominal wages will increase significantly in 2022, though increasing inflation will affect real wage increases.
Generally, personal income tax rates in Denmark are among the highest in the world. However, foreign employees making more than an amount specified annually by the Danish Immigration Service and certain researchers may choose to be subject to a 27 percent income tax rate, plus a labor market contribution tax amounting to 32.84 percent income tax in the first seven years of working in Denmark. Certain conditions must be fulfilled for key employees to be eligible for the 27 percent tax rate: for example, since January 1, 2022, wages must total at least $11,200 (DKK 70,400) 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 ).
Danish work permits are not required for citizens of EU countries. U.S. companies have reported that in general, work permits for foreign managerial staff may be readily obtained. However, permits for non-managerial workers from countries outside the EU and the Nordic countries are granted only if substantial professional or labor-related conditions warrant. Special rules detailed by the Danish Immigration Service in its “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 an occupational Bachelor’s degree, a series of education usually 3.5 years in length combining theoretical and practical experience. In some cases, a Danish authorization must be obtained, which the Positive List will explicitly state if applicable (e.g., non-Danish trained doctors must be authorized by the Danish Patient Safety Authority). 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.
Persons who have been offered a highly paid job have particularly easy access to the Danish labor market through the Pay Limit Scheme. As of 2022, the Pay Limit Scheme extends to positions with an annual pay of no less than $71,200 (DKK 448,000), regardless of the field or specific nature of the job. The length of work and residence permits granted under the Pay Limit Scheme depend on the length of the employment contract in Denmark. For permanent employment contracts, work permits are granted for an initial period of four years. After this period, the permit can be extended if the same job is held. 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.
Danish immigration law also allows issuance of residency permits of up to 18 months’ duration based on an individual evaluation, using a point system based on education, language skills, and adaptability.
Denmark has ratified all eight ILO Core Conventions and been an ILO member since 1919.
14. Contact for More Information
Kristen Stolt
Economic Officer
U.S. Embassy Denmark
Dag Hammarskjölds Alle 24
2100 Copenhagen, Denmark
Email: CopenhagenICS@state.gov
Other Areas in the Kingdom of Denmark
The Faroe Islands
The Faroe Islands have an open economy and multiple trade agreements with other countries. For more than two centuries, the Faroese economy has relied on fisheries and related industries. Fisheries (including agriculture, hunting, and forestry) account for 22 percent of the Faroe Islands’ domestic factor income. About 95 percent of goods exports are fish products. Salmon alone accounts for 38 percent of goods exports. As a non-EU member, the Faroe Islands had open access to the Russian market post-2014, despite Russia’s retaliatory trade embargo on certain food imports from the EU. This allowed the Faroese to sell increased quantities of salmon to the Russian market at a premium even while prices dropped significantly in the European market. The Faroese government announced in February 2022 that it supports Western sanctions against Russia in the wake of its invasion of Ukraine and passed legislation in May to enable it to implement sanctions against Russia and Belarus.
The islands exported $1.59 billion (DKK 10 billion) worth of goods in 2021, 95 percent of which were fish products, with the remainder being marine vessels and aircraft resales. 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 2021, the top destination for goods exports was Russia (23.3 percent), followed by Denmark (12.6 percent), the United States (10.6 percent), and the United Kingdom (10.5 percent). Goods imports totaled $1.46 billion (DKK 9.2 billion) in 2021, with the vast majority from Europe. Of total Faroes’ goods imports, 23.2 percent came from Denmark, followed by Norway (12.8 percent), Germany (9.2 percent), the Netherlands (7.5 percent), and China (6.9 percent). Direct imports from the United States were 1.6 percent of total imports. Major import categories were inputs to industry (22.5 percent), household consumption (21.0 percent), fuels (14.5 percent), and machinery and capital equipment (10.7 percent).
The Faroe Islands’ small, open, but non-diversified economy makes it vulnerable to changes in international markets. The Faroe Islands have full autonomy to set tax rates and fees, and to set levels of spending on the services they provide. Denmark provides an annual block grant indexed to Danish inflation. In 2021 it was $103.4 million (DKK 650.7 million).
COVID-19 reached the Faroe Islands in March 2020. The Faroese government quickly instituted short-term measures, similar to Denmark’s, to contain the infection. The Faroes were virus-free by July 2020, and experienced brief upticks throughout 2020 and 2021, though without the need for major shutdowns. The virus returned in earnest in late 2021, culminating in January – February 2022, but without putting the hospital system under pressure. On February 28, 2022, the government lifted all remaining COVID-19 restrictions.
The global economic downturn in the wake of COVID-19 and long-term uncertainty lowered worldwide demand and fish prices, the Faroes’ main export. Some fisheries used their existing supply chains to convert a large portion of their sales from restaurant customers to retail trade customers. At the same time, corporate investment appetite has remained intact, as corporations were well consolidated before the virus outbreak. This has helped mitigate some of the negative economic impact of the pandemic. Labor market compensation schemes further supported the economy. By September 2020, the government phased out its wage cost compensation scheme and employment and unemployment levels were roughly back to their pre-pandemic levels. The pandemic acutely impacted the tourism sector, but this sector makes up only a small portion of the Faroese economy.
Official statistics list 2020 as the most recent year available for GDP figures, at $3.4 billion (DKK 21.2 billion). According to Statistics Faroe Islands, nominal GDP rose 8.7 percent in 2016 followed by growth of 3.7 percent in 2017, 2.3 percent in 2018, and 7.9 percent in 2019. GDP contracted by 2.8 percent in 2020 mainly due to COVID-19 and related price effects on fish prices. According to the Danish Central Bank, the strongest underlying drivers for recent years’ growth are substantial price increases for farmed salmon and larger catches of mackerel and herring in particular, combined with considerable productivity gains. Activity has been concentrated in fewer farms and shipping companies, both in aquaculture and in the pelagic fisheries, making these industries more profitable. These factors have boosted incomes and led to higher private and public sector demand. Employment has risen notably, and the labor market participation rate is high, which has pushed down unemployment from 7 percent in 2011 to 0.9 percent in 2021. The need for labor has increasingly been met via high net immigration, which has prolonged the economic upswing. According to the Danish Central Bank, all industries are experiencing labor shortages. The many new inhabitants, however, have put the housing market under pressure, especially in and around the capital Tórshavn.
Construction of the tunnels to the islands Eysturoy and Sandoy, with an expected cost of approximately $420 million (DKK 2.64 billion) or 16 percent of GDP, are proceeding as planned. The Eysturoy tunnel opened for traffic on December 19, 2020, and the Sandoy tunnel is set to open in December 2023.
In the longer term, the aging Faroese population will weaken the sustainability of public finances, according to the Economic Council for the Faroe Islands. The Council suggests that in order to maintain the high level of service to citizens established over many years, the Faroese government must prioritize this issue in due course. Currently, there are four people of working age (16 to 66), for every person aged 67 or older. By 2050, the Council estimates there to be 2.1 persons for every dependent retiree. The Council estimates that a permanent fiscal improvement of 5 percent of GDP will be required to stabilize government debt, which is currently at a low level. On August 6, 2021, credit agency Moody’s maintained its Aa2 long-term issuer rating of the Government of the Faroe Islands. The Aa2 rating is the third-highest rating on Moody’s 21-tier scale. The outlook remains stable and Moody’s concludes that the Faroe Islands has a healthy degree of financial independence, a low level of refinancing risk, and that, despite a state budget deficit in 2020 and 2021 caused primarily by the COVID-19 pandemic, the debt-to-income ratio will most likely return to healthy levels in the coming years. Moody’s assesses the stable and historical relationship with Denmark as an additional strength.
The Faroe Islands opened its own securities exchange in 2000; active trading of shares followed in 2005. The exchange is a collaboration with the VMF Icelandic exchange on the Nasdaq OMX Nordic Exchange Iceland.
Foreign Direct Investment into the Faroe Islands totaled $22.2 million (DKK 139.4 million) in 2019, and outward FDI was $699 million (DKK 4.4 billion). The Faroese government has indicated an 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 .
The Faroe Islands have over the years engaged in several disputes with the EU over fishing quotas, so far culminating with the EU adopting measures that allowed it to impose sanctions on the Faroe Islands in 2012. In March 2013, the Faroe Islands unilaterally increased its quota for herring and mackerel. EU member states responded by voting in favor of imposing sanctions, which went into force in August 2013. The EU lifted sanctions in 2014 after reaching a political understanding with the Faroe Islands on herring catches. Subsequently, the Faroe Islands and the other coastal states in the North Atlantic signed a five-year agreement on mackerel quotas, reducing uncertainty for fisheries and improving profitability since the agreement allows for more sustainable harvesting. The Faroe Islands negotiates reciprocal exchanges of fishing opportunities with the EU, Norway, and the United Kingdom annually.
The Government of the Faroe Islands retains control over most 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 labor force comprised 31,968 people in 2021, of which 664 were unemployed. In many areas, the Faroese labor market model resembles other Nordic countries, with high standards of living, well-established welfare schemes, and independent labor unions. Most people in the Faroe Islands are bilingual or multilingual, with Danish and English being the most widely spoken languages 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 population of 53,664 (which exceeded 50,000 for the first time in May 2017) is high by world standards, with Gross National Disposable Income per capita similar to that of Denmark.
Contact for more information on the Faroe Islands:
Kristen Stolt
Economic Officer
U.S. Embassy Denmark
Dag Hammarskjölds Alle, 242100 Copenhagen, Denmark
Email: CopenhagenICS@state.gov
Greenland
The Greenlandic government is actively pursuing foreign investment to diversify the economy, advance climate goals, and increase trade.
Greenland is a self-governing area within the Kingdom of Denmark, yet it is not an EU member. Greenland originally joined the EU with Denmark in 1973 but left in 1985 and is today one of the EU’s Overseas Countries and Territories (OCTs).
Two-thirds of Greenland lies above the Arctic Circle, and its northern tip is less than 500 miles from the North Pole. Greenland can be reached by air from Denmark or Iceland. There are currently no direct commercial flights to or from the United States. With approximately 60 kilometers of road in the whole territory, people and goods are transported either by air or by sea.
Greenland’s GDP was estimated at $3.19 billion (DKK 20.19 billion) in 2020. Denmark’s annual block grant to Greenland equals approximately 20 percent of GDP.
The preponderance of jobs is in the public sector or with Government of Greenland-owned enterprises that comprise the telecommunication, power, and transportation sectors. Fishing is Greenland’s single most important commercial industry, accounting for 93 percent of exports. The sector is dominated by two companies, the Government of Greenland-owned Royal Greenland and the privately-owned Polar Seafood. The government is promoting the development of tourism and the extractive minerals sector, as well as hydropower projects. Greenland has large deposits of critical minerals and rare earth elements. Greenland owns and has disposal rights over all mineral resources, including oil and gas resources. The Greenlandic government announced in July 2021 its decision to cease issuing licenses for hydrocarbon exploration.
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 additional responsibilities from the Danish government, including the administration of justice, business and labor, aviation, immigration and border control, and financial regulation and supervision. Before 2009, Greenland had 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. The annual block grant Denmark provides to Greenland is indexed to inflation and accounts for about half of the Greenlandic government’s revenue. In 2021, this grant was $636 million (DKK 4.0 billion).
The Greenlandic government seeks to increase economic growth and government revenues by promoting the further development of fisheries, extractive resources, energy production, and tourism while periodically trimming the public sector through privatization of enterprises currently owned by the government. Key initiatives include improving access to and localizing financing for new businesses and enhancing Greenland’s corporate tax competitiveness. Over the past decade, rising prices for fish and shellfish, the predominant Greenlandic exports, have generated solid earnings for large parts of the fisheries sector, though they were negatively impacted by COVID-19 border closures in China. The Greenlandic government directed state-owned enterprises to stop trading with Russia in February 2022 and announced the government’s intent to join EU sanctions against Russia. The Greenlandic parliament adopted legislation in May 2022 providing the framework for the government to impose sanctions against Russia.
To meet anticipated demand, the Government of Greenland has extensive plans to improve infrastructure. The capital Nuuk (population 19,000) is growing in large part through economic migration from within the country. The government is expanding the airport to accommodate direct international flights, has a multilingual workforce, an active shipping and cruise port, and additional planned investments in roads, housing, and port expansion. The government is improving access to Greenland’s primary tourist destination Ilulissat (population 4,670) through an airport expansion. Both airport expansions in Nuuk and Ilulissat are expected to be completed in 2024. Additionally, the Government of Greenland is planning a new airport in Qaqortoq, the municipal seat of South Greenland, with plans for additional infrastructure improvements as well. Lastly Sisimiut, the second-largest town (population 5,600) in Greenland, is home to Greenland’s northernmost port that remains ice free year-round. Private partnerships are underway to expand adventure tourism from the shoreline to the polar ice cap and to increase access to the area’s UNESCO World Heritage Site. Other efforts to develop tourism include increases in hotel capacity, 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.
Greenland offers world-class deposits of rare earths and critical minerals. In the mineral extractives sector, two smaller mines (ruby and anorthosite) are in production. The government granted a company an exploitation license to restart a gold mine in southern Greenland. The Dundas ilmenite project is actively being developed, while an Australia-based company is working to develop one of the world’s largest zinc deposits located in northeast Greenland. Two small Australia-based companies are vying to extract rare earth elements in South Greenland. The resources in both of these projects are globally significant; each would rank in the top five worldwide if they were developed. One of the projects, Kringlerne, received an exploitation license in late 2020. The developer of the Kvanefjeld project has requested arbitration proceedings in its dispute with the Government of Greenland and the Government of the Kingdom of Denmark following Greenland’s passage of a law in November 2021 banning mining of minerals containing more than 100 parts per million (ppm) of uranium, a limit which exploitation of the rare earth elements in Kvanefjeld would exceed.
Greenlandic Economic Outlook
Greenland weathered the first year of the COVID-19 pandemic better than most other countries. While most parts of the world reported a sharp decline in activity in 2020, Greenland experienced positive growth of nearly 1 percent that year. In recent years there has been strong economic growth, mainly driven by large catches and high prices of fish and shellfish, but also supported by consumption, investments, and the resource extraction industry. The Greenlandic Economic Council (GEC) – an independent advisory council – estimated that real GDP grew on average by 2.4 percent annually from 2014 to 2018. The GEC expects growth to reach 1.8 percent for 2021 and 2.5 percent for 2022. A strong economy in recent years has led to labor shortages, both geographically and by sector, especially in connection with large construction projects. The GEC estimated unemployment declined from about 10 percent in 2014 to a projected 4.1 percent in 2021. Currently, 70 percent of all available jobs are in the capital Nuuk, and 90 percent of all available jobs are in just three locations: Nuuk (in which a third of the population resides), Sisimiut, and Pituffik (Thule Air Base).
Greenland’s remote geographical location and the ability to effectively mitigate the risk of infection through travel restrictions reduced the need for lockdowns and restrictions with their attendant adverse economic consequences. The tourism and travel industries bore the brunt of the negative impacts of the pandemic, as lockdowns and travel restrictions in other countries effectively wiped out the 2020 and 2021 tourism seasons in Greenland, but the industry is expecting a sharp upturn in 2022. Following two years of no port calls by the cruise industry, cruise ship reservations for 2022 are the highest numbers Greenland has seen.
The Greenland parliament (“Inatsisartut”) and the Government of Greenland (“Naalakkersuisut”) adopted a Budget Act in 2016, which mandates the budget not be in deficit over four contiguous years. The public budget had run surpluses since 2015, but the COVID pandemic forced a deficit of $21.4 million (DKK 135 million) in 2020, significantly below the initial estimates, and the 2020–2023 budget barely upheld the Budget Law requirement. The government projects a deficit of $12.1 million (DKK 76 million) in 2022. The Government of Greenland adopted a number of financial support measures, which increased public expenditures in 2020 and 2021 for health care, social benefits, and emergency aviation, while fisheries taxes fell. Public consumption in Greenland was 44.7 percent of GDP in 2020, compared to 24.7 percent in Denmark.
The Budget Act is currently under revision and the new revised act will come into force in 2023 with adjustments but in line with the basic concept. The government and government-owned enterprises had a gross debt of approximately 20 percent of GDP in 2020, and the debt is projected to increase from $636 million (DKK 4 billion) in 2020 to $1.1 billion (DKK 7.2 billion) in 2024. The GEC reported initially in 2017 that “projections for the public finances show a major sustainability problem.” The GEC has reaffirmed that finding in subsequent reports, including their latest report from the fall of 2021 in which it projected the fiscal sustainability problem to amount to -5.4 percent of GDP up to 2050. The GEC has warned about the effects of increasing public expenditures as larger portions of the population age into retirement, resulting in fewer wage earners in the labor market. The GEC has also noted that a realistic plan to close the gap between expected expenditures and revenues could require the Greenlandic government to cut social spending, raise the retirement age, and increase vocational education and training. For Greenland to become a more self-sufficient economy, the GEC asserted that the extractive and tourism sectors would need further development. The GEC noted that Greenland has not sufficiently addressed its sustainability challenges and estimated that the public budget would need to be reinforced by $159 million (DKK 1 billion) annually by 2040 to accommodate the aging population.
The vast majority of Greenlandic exports and imports pass through Denmark to and from the rest of the world but are reported as trade between the two. Greenland imports goods from all over the world, primarily through Denmark, and to a lesser extent, via Iceland. Some 93 percent of Greenlandic exports, measured in local currency, are fish products, with the remainder being mainly raw materials and machinery. Royal Greenland and Polar Seafood are the two main seafood exporters. Royal Greenland’s largest country market is China, and one-third of its revenues are generated in Asia, half in Europe, and 10 percent in North America, which the company views as a growth market. After experiencing major losses of exports to China in 2020 due to tightened import restrictions in China as a reaction to COVID-19, Royal Greenland has sought diversification in markets and products to spread risk. Polar Seafood has its main markets in Scandinavia, China, and Japan.
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. Greenland’s government-owned telecommunications company predominantly uses Ericsson equipment and announced that it would continue to do so for future upgrades, including 5G.
Establishing a Company in Greenland
Danish business (CVR) registration through indberet.virk.dk is required to conduct business in Greenland. Furthermore, companies planning to have employees must register as an employer with the employer register Sulinal: https://sulinal.nanoq.gl . In July 2018, an updated Companies Act entered into force that opened new ways of establishing a company, e.g., with reduced share capital requirements with the possibility of partial payment of the share capital, and the possibility of establishing entrepreneur companies with a share capital of $0.16 (DKK 1). Foreign companies may start their businesses in Greenland either through a subsidiary (both ApS and A/S type companies) or via a registered branch office.
ApS and A/S
An ApS (private limited company) or A/S (public limited company) is a separate legal entity with limited liability for its shareholders. The main difference between a private (ApS) and a public (A/S) limited company is that the shares of a private limited company cannot be issued publicly. Therefore, an ApS cannot be subject to listing or otherwise issue shares to the public to secure more capital. In addition, there are a few differences concerning capital and management requirements. Under the Companies Act, the minimum share capital requirement for an ApS is $6,350 (DKK 40,000). The minimum share capital requirement for an A/S is $63,500 (DKK 400,000). However, under the Danish Companies Act, it is possible to incorporate an A/S and only pay 25 percent of this amount (i.e., $15,875 (DKK 100,000)), leaving the company with a receivable on the shareholders for the outstanding amount (i.e., $47,625 (DKK 300,000)). A founder of a company may be foreign or Greenlandic individuals or corporate entities. Both ApS and A/S companies can be registered via the Danish Business Authority’s (DBA) online system. No registration fees are required.
Registered Branch Office
A foreign company may typically establish a registered branch office in Greenland instead of establishing a Greenlandic company. A branch of a foreign company may be created through an application with the DBA. Companies within the EU and European Economic Area (EEA) may set up a branch in Greenland and Denmark without further approval from the DBA. However, companies outside of the EU/EEA must obtain approval before registering.
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 Tax
The Greenlandic tax system is based on flat-rate taxation of business profits for both resident and non-resident corporations. Greenland operates with a net income principle, where the taxable income is calculated as a total net amount after deductions. The net income principle means that all income is treated equally, regardless of whether the income comes from employment, self-employment, investment income, or pensions, etc. As the rules of taxation for businesses can be complicated, potential investors may seek to retain guidance from the Greenlandic Tax Agency ( www.aka.gl ) or professional consultants.
Greenland has double taxation agreements with Denmark, the Faroe Islands, Iceland, Norway, Canada, the United States, Cayman Islands, Isle of Man, Bermuda, Jersey, and Guernsey. Greenland signed a Foreign Account Tax Compliance Act (FATCA) agreement with the United States.
The corporate income tax rate is 25 percent (down from 30 percent in 2019); an additional surcharge of 6 percent of the tax payable brings the total corporate tax rate to 26.5 percent.
The taxation of royalty payments is 30 percent. Greenland has no value-added tax (VAT) system, property tax, 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 5 percent annually. Ships, planes, and hydrocarbon prospecting can be depreciated 10 percent annually. Mineral licenses can be depreciated 25 percent each year for four years, and operating equipment can be depreciated at a rate of 30 percent annually. Assets with a cost of less than $15,875 (DKK 100,000) may be depreciated in the year of acquisition.
Greenlandic permanent establishments of foreign companies are taxed under the same rules and rates as Greenlandic resident companies. There is no branch profits remittance tax or other similar tax on branch profits. If a foreign company has more than one location or permanent establishment in Greenland, these are treated as separate taxable entities with no possibility of consolidation.
Greenland Labor
The Greenlandic labor force was 26,978 persons in 2020. Average unemployment for 2020 was 5.3 percent – lower than the OECD average of 7.2 percent, and a decrease from 10.3 percent in 2014. Unemployment has decreased significantly, especially in Nuuk. According to the most recent report by Statistics Greenland, 49.2 percent of the Greenlandic workforce in 2019 had an education beyond municipal primary and lower secondary school. Of the workforce, 27.4 percent had vocational education, while 15.6 percent had a tertiary education. Among the unemployed, 84 percent have no education beyond municipal primary and lower secondary school.
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 $795 million (DKK 5 billion) 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 enjoy the same legal protections as Greenlandic workers, including the same $16 (DKK 100.47) per hour minimum wage and retention of the right to strike.
In 2021, Greenland implemented the Fast Track Scheme. This arrangement allows businesses in industries facing labor shortages to hire foreign workers who can begin working before they are approved for a work permit.
Investment in Natural Resources
Greenland possesses sizable discovered and undiscovered mineral resource potential. Some deposits are among the largest in the world. The country’s resources include iron and ferroalloys (iron, nickel, molybdenum, tungsten, and others), base metals (copper, zinc, and lead), specialty metals (rare earth elements, uranium, niobium, tantalum, and others), precious metals (platinum, gold, and others) and gemstones (diamonds, rubies, and sapphires). Mining industry experts anticipate that Greenland’s retreating ice will make the island’s rich stores of raw materials more easily accessible. However, exploration and exploitation projects will still face higher costs because of remote locations, lack of infrastructure, harsh climate, and distance to world markets. In 2021 the government implemented a limit of 100 ppm for uranium collocated with these deposits and granted the government authority to ban or limit mineral resource extraction for other types of radioactive elements.
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 Greenland’s natural resources’ exploitation becomes commercially viable, Greenland will keep the first $11.92 million (DKK 75 million) in annual revenues derived from these resources. Additional revenues will be split equally between the Danish and Greenlandic governments. Denmark’s share will be transferred by deducting the equivalent amount from the annual block grant to Greenland of $636 million (DKK 4.0 billion). Once the block grant’s total value is reached, any additional revenue will be subject to negotiations between the Danish and Greenlandic governments. In 2021, the Greenlandic government determined it would no longer permit hydrocarbon exploration.
Most of Greenland’s identified rare earth deposits are licensed by the Mineral License and Safety Authority, and some have reached advanced stages of exploration. In 2021, Greenland dropped significantly in the Canadian Fraser Institute’s Investment Attractiveness Index from 41st out of 77 jurisdictions to 61st of 84 jurisdictions. The survey highlights the ban on exploration and production of uranium, political instability, and the lack of qualified officials as creating uncertainty for investors.
Greenland General Business Information
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 . Information about doing business in Greenland can be found at https://www.businessingreenland.gl/en . 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 government has the competencies, in a non-discriminatory manner, and with reasonable compensation. There have been no recent expropriations of significance in Greenland.
In Greenland it is not possible to acquire private ownership of land, but a right of use may be sold for an area, i.e. if you buy property, you own the building, not the land on which it sits.
There have been no significant disputes over foreign investment in Greenland in recent years, however, in March 2022, Australia-based Greenland Minerals requested arbitration in its dispute with the Governments of Greenland and the Kingdom of Denmark over the future of its Kvanefjeld rare earths project. 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 a 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.
While Greenland’s democratic institutions and legal framework in general are strong, there have been some concerns about legislation being passed by parliament without significant hearing processes and public input.
Contact for more information on Greenland
Louise Grønvold
Political and Economic Specialist
U.S. Consulate Nuuk, Greenland
Email: USConsulateNuuk@state.gov