Definition of a Holding Company

WHY IS IT WORTH TO OWN A HOLDING COMPANY IN DENMARK?

A holding company is a limited liability company that owns shares in other companies, which are called operating companies. The holding company structure is typically denoted by the letters A/S or ApS, and sole proprietorships cannot be part of a holding company. While a holding company's activities are limited to managing the property of other companies, the number of shares it holds doesn't matter for it to be considered a holding company, but the tax rules will differ based on the number of shares it owns. One of the main benefits of a holding structure is lower taxation on dividends and profits from the sale of shares. Additionally, it allows the deficit between companies to be distributed as a profit under a common tax regime and enables profits to be carried forward as dividends, which helps protect them from lawsuits or claims.

IS IT NECESSARY TO INCLUDE PHASE „HOLDING” IN THE NAME OF THE COMPANY?

The name of a company does not determine whether it is a holding company or not. As long as the company's activities involve holding shares in other companies, it is considered a holding company, regardless of its name. What matters is the scope of the company's activities.

WHAT INCOME WILL THE HOLDING COMPANY HAVE?

There are two types of income associated with holding companies. The first type is income generated from dividends received from the operating companies owned by the holding company. The second type of income comes from profits gained through the sale of shares in other companies that are owned by the holding company.

WHAT COSTS WILL THE HOLDING COMPANY INCUR?

Typically, the costs associated with holding companies are limited to accounting or banking fees. However, in some cases, holding companies may also incur losses due to the decrease in the value of the shares they own or as a result of losses from the sale of shares.

WHAT IS THE AMOUNT OF TAX PAID FROM PROFITS?

In Denmark, holding companies are subject to the same corporate income tax rate of 22% as other limited liability companies. However, profits obtained by holding companies from the sale of shares in other companies are usually exempt from tax.

WHAT PORTFOLIO SHARES EXACTLY ARE?

If a holding company owns less than 10% of another company, the shares it owns are referred to as portfolio shares, and they are subject to special tax rules in private companies. In this case, 70% of the dividends received from the portfolio shares are taxed, but the gains obtained from the sale of these shares are exempt from tax.

WHAT AMOUNT OF TAX HAS TO BE PAID ON DIVIDENDS RECEIVED FROM OPERATING COMPANIES?

• If a holding company owns 10% or more shares in a private company, the tax rate is 0%.
• If a holding company owns less than 10% of shares in a private company (portfolio shares), the tax rate is 15.4%. However, only 70% of the dividends received are taxed at the regular corporate income tax rate of 22%.
• If a holding company owns 10% or more shares in a public company, the tax rate is 22%.
• If a holding company owns less than 10% of shares in a public company (public portfolio shares), the tax rate is 2%.

WHAT AMOUNT OF TAX DO YOU PAY WHEN SELLING SHARES AT A PROFIT?

• If a holding company owns 10% or more shares in a private company, the tax rate is 0%.
• If a holding company owns less than 10% of shares in a private company (portfolio shares), the tax rate is also 0%.
• If a holding company owns 10% or more shares in a public company, the tax rate is 22%.
• If a holding company owns less than 10% of shares in a public company (public portfolio shares), the tax rate is also 22%.

IS DEDUCTION OF LOSSES POSSIBLE ON THE SALE OF SHARES?

• If a holding company owns 10% or more shares in a private company, there is no exemption from tax on the gains made from the sale of shares.
• If a holding company owns less than 10% of shares in a private company (portfolio shares), there is also no exemption from tax on the gains made from the sale of shares.
• If a holding company owns 10% or more shares in a public company, there is an exemption from tax on the gains made from the sale of shares.
• If a holding company owns less than 10% of shares in a public company (public portfolio shares), there is also an exemption from tax on the gains made from the sale of shares.

PURCHASE PRICE OR INTRINSIC VALUE

The annual report can disclose the value of non-public shares purchased by the holding company either as the real purchase price or as the intrinsic value. If the intrinsic value method is used, the share's value is adjusted annually in the report to reflect the value in the operating company's report. Any increase in the shares' value is recognized in the annual report, even if they have not been sold. On the other hand, if the purchase price is used, profits will only be shown after the shares are sold or dividends are received.

JOINT TAXATION

If a company in Denmark owns more than 50% of another company, it will become the administrator of the joint taxation system for both companies. This joint taxation system is required when both companies are located in Denmark and register with SKAT Erhverv within one month of the start of the joint taxation. In some cases, companies may opt to use a joint tax system, especially if they are located in different countries.

LIABILITY UNDER JOINT TAXATION

When two or more companies have a joint taxation system, they share the liability with the holding company in the operating companies. The liability is also shared with different operating companies that are taxed jointly with the holding company. If the holding company owns the operating company 100%, then the liability can be fully shared. If the holding company owns the operating company partially, then the liability is shared proportionally to their ownership percentage.

IS IT POSSIBLE TO REGISTER MY HOLDING COMPANY WITH THE SAME 40,000 DKK THAT WAS USED TO START MY OPERATING COMPANY?

It is possible to register two companies simultaneously, and this is commonly referred to as "working capital."

IS IT POSSIBLE TO FORM A HOLDING COMPANY AFTER THE ESTABLISHMENT OF MY OPERATING COMPANY?

It is possible to establish a holding company after the operating company has been formed, but the process can be complex. If you plan to transfer your shares in the operating company to the holding company, it is important to consider the tax implications carefully.

HOW TO PAY A SHAREHOLDER A DIVIDEND?

Dividends are distributed to shareholders during either the annual general meeting or extraordinary general meeting.

CAN A HOLDING COMPANY HAVE A DIFFERENT TAX YEAR THAN AN OPERATING COMPANY?

If companies have a joint taxation system, they are required to use the same tax year. Typically, the operating company will need to adjust its tax year to match that of the holding company.