Tax reliefs for corporate shareholders

20 December 2024

On 19 December 2024 the Danish Parliament passed bill L28, implementing parts of the "Entrepreneur Package Agreement" aimed at making it easier for Danish entrepreneurs to attract capital. The bill included several changes that, according to the Danish Ministry of Taxation, will ensure significantly better conditions and contribute to a more attractive environment for Danish entrepreneurship. The changes to the law will take effect from 1 January 2025.

Tax-exempt dividends from unlisted portfolio shares

L28 widely abolishes the taxation of dividends that companies receive from tax-exempt portfolio shares (unlisted and under 10% ownership). The aim is to make it more attractive for Danish and foreign investors to make portfolio investments in unlisted companies and thereby contribute to increasing access to capital.

Generally, corporate investors have been tax-exempt on gains from the sale of unlisted portfolio shares regardless of ownership percentage. However, where the ownership share has been less than 10% (tax-exempt portfolio shares), the corporate investor would be taxable on dividends at an effective tax rate of 15.4%. In addition, Danish companies have been subject to a withholding obligation on dividends paid out to foreign corporate investors. 

The new law will widely abolish the taxation on dividends paid out from the beginning of January 2025 to both Danish and foreign corporate investors holding less than 10% of the shares in the Danish company, where these can be deemed the beneficial owner of the dividends.

However, for foreign corporate investors, the tax exemption will be conditional on the corporate investor not having mutual controlling influence in the Danish company, unless the foreign corporate investor is tax resident in a country with which Denmark has entered into a double tax treaty. 

Additionally, amendments to the executive orders on withholding obligations have been issued by the Danish Minister of Taxation. These amendments will waive the withholding obligations on dividends for tax-exempt portfolio shares going forward, where the recipient investor is either a Danish opaque corporate entity or a foreign entity that is:

1. A corporate entity corresponding to a Danish A/S or ApS; and
2. Tax resident within the EU or a country with which Denmark has entered a double tax treaty.

New requirements for beneficial ownership for dividends from subsidiary and group company shares

The new law introduces a new beneficial ownership requirement for receiving tax-exempt dividends for Danish corporate investors holding either more than 10% of the share capital in the Danish company (subsidiary shares) or controlling more than 50% of the voting rights (group company shares). Until now, it has generally been possible to receive dividends from subsidiary shares and group company shares tax-exempt.

This condition means that dividends will be subject to a Danish 22% tax if the Danish recipient of the dividend is not the beneficial owner, but solely a “flow-through entity”.

Abolition of the “tax from hell”

Previously, companies that hold less than 10% of a listed company (taxable portfolio shares) must include gains and losses under the principle of mark-to-market taxation (lagerbeskatning). Under this principle, gains on shares must be calculated annually, rather than only when the shares are sold. When companies are listed, the price is typically artificially high until it finds its natural level. Often the entrepreneurs’ portfolio shares are subject to lockup agreements, preventing the entrepreneurs from selling the shares. This means that when entrepreneurs’ portfolio companies are listed, the entrepreneurs’ holding companies may be left with a large tax debt without a corresponding liquidity to pay for it.

This issue, which popularly has been dubbed the “tax from hell”, received much criticism, and the Danish Parliament’s Tax Committee pointed out, that fewer companies are being listed in Denmark than in Norway and Sweden, and that some Danish companies choose to be listed in Sweden due to tax considerations.

The solution has been to retroactively give corporate investors the option of opting out of mark-to-market taxation in favour of taxation at sale where the company became listed on 1 January 2015 or later. Opting out of mark-to-market taxation in favour of taxation at sale only applies for a 7-year period from the first listing of the company, as it is expected that after seven years, the price will have stabilised and found its natural level.

By opting for taxation at sale, corporate shareholders will only be taxed on potential gains when the portfolio shares are sold or at the end of the 7-year period, whereafter mark-to-market taxation will apply again – and any unrealised gains will be taxed.

Other changes

Other changes include raising the cap on deposits into the share savings account (aktiesparekontoen), raising the cap on tax credits for research and development activities from DKK 25 million to DKK 35 million, raising the progression limit for capital gains for individuals in 2026, easing the gross tax scheme (bruttoskatteordningen), and adjusting the rules on tax losses carryforward (underskudsfremførsel).