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8.2.2. Withholding Taxes

Denmark applies withholding taxes on various types of payments to non-residents. The withholding tax may be reduced or entirely relieved in application of domestic law, EU law or applicable tax treaties.

The withholding tax exemptions under the EU directives in respect of payment of dividends, royalties and interest by Danish entities can be denied in cases of fraudulent or abusive practice. On 26 February 2019, the Court of Justice of the European Union (CJEU) issued two related judgments concerning the denial of withholding tax benefits under the Parent-Subsidiary Directive and the Interest and Royalties Directive (EU directives) in cases where anti-abuse rules are not available under the domestic laws of an EU Member State.

The judgements were in relation to referrals made by Danish courts involving multiple cases where complex company structures/transactions were entered into to take advantage of the EU directives in respect of payments made by Danish companies to other EU Member States, although the ultimate beneficial owners of the payments were not EU residents. The Danish tax authorities sought to deny the benefits (i.e., impose withholding tax) but were not able to in the absence of specific anti-abuse measures under the domestic laws.

In both judgments, the CJEU has held that even if domestic or agreement-based provisions do not exist, EU Member States are obligated to deny the benefits otherwise available under EU Law, where the benefits are invoked for fraudulent or abusive ends. Therefore, Denmark has not only the right to deny the withholding tax benefits of the Directives, but the obligation to deny those benefits in cases of abuse even though there are no specific anti-abuse measures under the domestic laws.

On 3 May 2021, the Eastern High Court of Denmark issued two judgments following the above principle laid down by CJEU (see Sec. 13.5.)

Dividend

Tax is withheld at the rate of 27% from gross dividends distributed to non-residents. However, the effective tax rate applicable to non-resident corporate shareholders is 22%, i.e., 5% can be reclaimed by the shareholder (as detailed below).

The tax rate is reduced to 15% if the recipient (e.g., portfolio investor) has a shareholding that is less than 10% and is resident in a country that has an agreement with Denmark allowing for the exchange of tax information.

The rate is 0% if the recipient has a shareholding of at least 10% (participation subsidiary shares) and qualifies under the EU Parent-Subsidiary Directive or is resident in a country that has a tax treaty with Denmark.

However, the exemption is subject to anti-avoidance rules.

Recipients can also qualify for the 0% withholding tax rate in case of dividends paid on group shares if the shareholding is at least 50% and the recipient is resident within the EU/EEA. Group Shares are shares where the foreign shareholder and the paying company are subject to mandatory Danish tax consolidation (applicable to Danish tax residents) or voluntary Danish international tax consolidation (or qualify for the latter but have not elected to be subject to such treatment).

In cases where the standard corporate tax rate applicable to the non-resident shareholder (i.e., presently 22%) is lower than the withholding tax rate applied under Danish tax laws (i.e., presently 27%), the shareholder can claim a refund of the excess tax withheld (i.e., 5%). With effect from 13 September 2016, the time limit to claim such refund is 3 years (prior to which the time limit was 5 years). The time limit is calculated from the 10th day of the month following the month in which the dividend is declared. However, in the case where the applicable tax treaty with Denmark provides for a longer period to claim such refunds, the longer treaty period prevails.

Effective 1 July 2021, an increased withholding tax at the rate of 44% applies to payments made to an associated person that is resident or registered in a non-cooperative jurisdiction as listed by the EU (see Sec. 13.5. for the list of non-cooperative jurisdiction). The same higher withholding tax rate applies if the payment is made to a person who is not the beneficial owner and the payment is passed on to a recipient in a listed non-cooperative jurisdiction. The  increased withholding tax does not apply if the relevant jurisdiction is an EU/EEA Member State or has a tax treaty with Denmark.

Interest

Interest payments to non-resident companies are generally exempt from withholding tax. However, a 22% withholding tax applies on interest paid (unless the rate is reduced under a tax treaty or the EU Interest and Royalties Directive applies, see below) to a foreign controlling entity (50% or more in shares or voting rights), if:

  • The activity of the foreign related entity is subject to substantially lower taxation than had the entity been taxable under Danish law; and
  • The activity of the foreign related entity is mainly of a financial nature. However, several exceptions apply.

Exemption under the EU Interest and Royalty Directive

The domestic law, based on the ‘EU Interest and Royalties Directive’, provides for an exemption from withholding tax on interest if:

  • The recipient EU company directly owns at least 25% capital of the Danish payer for at least 1 year;
  • The Danish payer company directly owns at least 25% of the capital of the recipient EU company for at least 1 year; or
  • A third company owns at least 25% of the share capital of both the recipient EU company and the Danish payer for at least 1 year.

The exemption is granted if the Danish payer and the EU recipient have one of the legal forms listed in the Directive and both are subject to corporate income tax, with no option for tax exemption. However, the exemption is subject to anti-avoidance rules.

Royalty Copyright

Royalties paid to a non-resident are subject to a 22% withholding tax unless the rate is reduced under a tax treaty or the EU Interest and Royalties Directive applies.

There is no withholding tax on royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works, e.g., author’s royalties, music royalties, and motion picture royalties, including cinematographic films, and for the use of, or the right to use industrial, commercial or scientific equipment.

Exemption under the EU Interest and Royalty Directive

The domestic law, based on the EU Interest and Royalties Directive, provides for an exemption from withholding tax on royalties if:

  • The recipient EU company directly owns at least 25% capital of the Danish payer for at least 1 year;
  • The Danish payer company directly owns at least 25% of the capital of the recipient EU company for at least 1 year; or
  • A third company owns at least 25% of the share capital of both the recipient EU company and the Danish payer for at least 1 year.

The exemption is granted if the Danish payer and the EU recipient have one of the legal forms listed in the Directive and both are subject to corporate income tax, with no option for tax exemption. However, the exemption is subject to anti-avoidance rules.

Royalty Patent

Royalties paid to a non-resident are subject to a 22% withholding tax unless the rate is reduced under a tax treaty or the EU Interest and Royalties Directive applies.

Exemption under the EU Interest and Royalty Directive

The domestic law, based on the ‘EU Interest and Royalties Directive’, provides for an exemption from withholding tax on royalties if:

  • The recipient EU company directly owns at least 25% capital of the Danish payer for at least one year;
  • The Danish payer company directly owns at least 25% of the capital of the recipient EU company for at least one year; or
  • A third company owns at least 25% of the share capital of both the recipient EU company and the Danish payer for at least one year.

The exemption is granted if the Danish payer and the EU recipient have one of the legal forms listed in the Directive and both are subject to corporate income tax, with no option for tax exemption. However, the exemption is subject to anti-avoidance rules.

Royalty Trademark

Royalties paid to a non-resident are subject to a 22% withholding tax unless the rate is reduced under a tax treaty or the EU Interest and Royalties Directive applies.

Exemption under the EU Interest and Royalty Directive

The domestic law, based on the ‘EU Interest and Royalties Directive’, provides for an exemption from withholding tax on royalties if:

  • The recipient EU company directly owns at least 25% capital of the Danish payer for at least one year;
  • The Danish payer company directly owns at least 25% of the capital of the recipient EU company for at least one year; or
  • A third company owns at least 25% in the share capital of both the recipient EU company and the Danish payer for at least one year.

The exemption is granted if the Danish payer and the EU recipient have one of the legal forms listed in the Directive and both are subject to corporate income tax, with no option for tax exemption. However, the exemption is subject to anti-avoidance rules.

Service Management

Service fees paid to non-resident companies are exempt from withholding tax in Denmark.

Service Technical

Service fees paid to non-resident companies are exempt from withholding tax in Denmark.

Capital Gains

Capital gains from the disposal of capital assets, including shares, are exempt from withholding tax in Denmark.

Below is a discussion of domestic withholding tax rules for most of the common cross border payments.

Capital Gains 0.0 %
Dividends 0.0 %
Interest 0.0 %
Royalty Copyright 22.0 %
Royalty Patent 22.0 %
Royalty Trademark 22.0 %
Sales 0.0 %
Service Management 0.0 %
Service Technical 0.0 %

* Rates are current as of 02 October 2022