The so-called Entrepreneurial tax in Denmark has been abolished as of 1 January 2013 with the enactment of Bill no. L 49 in the Danish Parliament.
This means that the taxation of capital gains on portfolio shares held by companies is significantly changed. Going forward a new category of shares is introduced in the form of so-called “tax exempt portfolio shares”. Such shares will be tax exempt for Danish corporate tax payers. The different categories of shares for Danish tax purposes will now consist of:
- Shares acquired in trading
- Subsidiary shares
- Group shares
- Tax exempt portfolio shares
- Portfolio shares
Gains/losses on shares acquired in trading and portfolio shares are taxable/deductible, while gains/losses on subsidiary- group and tax exempt portfolio shares are tax exempt/non-deductible. Gains on convertible bonds or warrants to convertible bonds are taxable while losses are deductible.
The new category of tax exempt portfolio shares solely include portfolio shares in limited liability companies (A/S and ApS) or corresponding foreign companies in which a Danish company investor holds less than 10% of the share capital. It is moreover a requirement that the issuing company is not a listed company. It is not clear which foreign companies are considered corresponding to the Danish companies mentioned. This question must be dealt with on a case by case basis.
Dividends from portfolio shares remain taxable. This different treatment of dividends and capital gains is now a significant feature of the Danish regime and should be considered carefully when structuring investments.
Certain anti-avoidance measures have also been introduced to prevent the pooling of listed shares in unlisted holding companies. Tax exempt portfolio shares in companies in which the value of the company’s listed portfolio shares on average in the last financial year exceeds 85% of the company’s equity at the end of that year are not covered. Furthermore tax exempt portfolio shares owned and controlled by such companies are disregarded in the before mentioned calculation, while the controlled company’s shares are included in the calculation. The anti-avoidance provision seems to leave some room for certain structuring opportunities to pool listed portfolio shares in existing or new unlisted companies.
Form a practical perspective the new category of shares, the tax exempt portfolio shares will definitely solve some of the issues that start-ups have faced:
- Business angels investing through holding company can now obtain tax exempt capital gains on shares which do not exceed 10% of the share capital in the issuing company.
- Portfolio investors in private equity and venture funds can now receive tax exempt capital gains. Please be advised that Bill no. L 10 may impact the investment fund industry.
- Industrial investors with strategic portfolio shareholdings in other companies may also obtain tax exempt capital gains.
The above does not constitute tax advice from CORIT Advisory A/S and cannot replace actual advice based on the facts and circumstances of specific investors. If you do have any questions or comments to the above please do not hesitate to contact Jakob Bundgaard (jb@corit.dk), Kjeld Bergenfelt (kb@corit.dk) or Michael Tell (mt@corit.dk).