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Doing Business in Denmark

 

Constitution, Government and Society:

The Kingdom of Denmark is a constitutional monarchy consisting of Denmark, the Faroe Islands and Greenland, also called the Danish Realm. The Danish Constitution is from 1849 and applies to all three countries, although some laws are different, e.g. the penal code and the justice act. Denmark is governed by a Cabinet of Ministers, which often but not entirely is including members of the Danish Parliament, in which there are 179 members elected for maximum 4 years, 175 members from Denmark, 2 members from the Faroe Islands, and 2 members from Greenland. The minimum percentage of votes required for representation in the Danish Parliament is 2 % for a political party. Although Denmark has many small parties, the political landscape might vary from left to right but mostly with the assistance of parties of the centre. This defines a stable democracy and due to the size of the Danish population with no more then 5,8 million inhabitants, Denmark is capable of carrying through important reforms within a short period of time. On the 1st of January 2019, 50,24 % of the population were women, 86,6 % were Danish and 13,7% were immigrants. The average life expectancy for men was 79, 0 and for women 82, 9 years. The rate of unemployment in Denmark has been between 2,4 % and 6,2 % for the last 12 years, and financially Denmark is one of the highest-ranking countries in Europe. Denmark has been a member of the European Union since 1972 but has, after the referendum from 1992 and the Maastricht Treaty, opted out of the following legislative fields:

 

  1. Legal and internal affairs, such as immigration.

  2. National and International Defence.

  3. Union Citizenship.

  4. Euro.

  5. Restricted conveyance of real property (secondary residences).

 

However, Denmark is cooperating with the European Countries in many areas, so that the European regularities in fact in many situations are replacing reservation number 1. & 2.

 

Legal System:

Danish law is based on Roman law and therefore statutory and constitutional. In accordance with Article 3 of the Danish Constitution, all judicial authority belongs to the courts of justice. The constitution also provides that only judges of the court may pass judgement, whereas parliamentary commissions may only investigate. The Danish system of courts has a unified structure, in which there are no special or constitutional courts of law, as well as no formal division within the courts. As a rule, all courts of law may adjudicate disputes in legal areas such as civil, labour, administrative, and constitutional law, as well as criminal justice. The Courts of Denmark are the ordinary courts consisting of the Supreme Court, the three high courts: the Western High Court, the Eastern High Court, The Maritime and Commercial Court, The Court of Judicial Registration, The Special Court of Indictment and Revision, the 24 district courts and the courts on the Faroe Islands and Greenland. Furthermore, there are three boards: The Appeals Permission Board, the Sideline Employment Board and the Judicial Appointment Council. Finally, the Danish Court Administration has the joint administration of the whole organization. Outside the ordinary court system and the joint administration framework of the Courts of Denmark, a separate collective labour dispute court system exists and a number of quasi-judicial bodies exist, some of which are exempt from judicial oversight.

 

Proceedings are oral in general and open to the public. The presiding judge can allow media transmissions from within the court. The Administration of Justice Act of 1916 containing more than 1.000 articles defines the administration and organization of the courts, covering fields of both civil and criminal procedure. The Act has undergone substantial changes since its enactment in 1916. The court language is Danish but German and English can be used to some degree as long as every party is comfortable herewith. The Maritime and Commercial Court uses English as well.

 

 

Foreign Businesses and Investments:

Business in Denmark will apply to mostly the same regulations as in the European Union, such as competitive law, marketing law, regulations concerning consumer protection, etc. Besides, business transactions in Denmark among other things must adhere to regulations about working environment and occupational health and safety, regulations about equality of treatment regarding sex, age, religious and political opinions etc., regulations about environmental protection and care and other public measures. Otherwise, doing business in Denmark is free of judicial restrictions, but Denmark has a few laws that bridge potential gaps in the agreements between two or more business partners, such as the Danish Sale of Goods Act or the Danish Contracts Act, se more hereunder. As Denmark has become a well-known global player on the markets worldwide, international company and commercial contracts regulate many businesses with the use of both Danish and International Law and the jurisdiction of different dispute management solutions.

 

Economy and taxes:

Denmark has a developed mixed economy, classed as a high-income economy by the World Bank. In 2017, it ranked 16th in the world in terms of gross national income (PPP) per capita and 10th in nominal GNI per capita. Denmark's economy stands out as one of the most free in the Index of Economic Freedom and the Economic Freedom of the World. It is the 10th most competitive economy in the world, and sixth in Europe, according to the World Economic Forum in its Global Competitiveness Report 2018.

Denmark has the fourth highest ratio of academic education holders in the world. The country ranks highest in the world for workers' rights. GDP per hour worked was the 13th highest in 2009. The country has a market income inequality close to the OECD average, but after taxes and public cash transfers, the income inequality is considerably lower. According to Eurostat, Denmark's Gini coefficient for disposable income was the 7th-lowest among EU countries in 2017. Danes enjoy a high standard of living, and extensive government welfare provisions characterize the Danish economy. Denmark has a corporate tax Rate of 22% and a special time-limited tax regime for expatriates. The Danish taxation system is broadly based on a 25% value-added tax, in addition to excise taxes, income taxes and other fees. The overall level of taxation (sum of all taxes, as a percentage of GDP) was 46% in 2017. The tax structure of Denmark differs from the OECD average, as the Danish tax system, in 2015, as characterized by substantially higher revenues from taxes on personal income and a lower proportion of revenues from taxes on corporate income and gains and property taxes than in OECD generally, whereas no revenues at all derive from social security contributions. The proportion deriving from payroll taxes, VAT, and other taxes on goods and services correspond to the OECD average.

Denmark has a developed mixed economy, classed as a high-income economy by the World Bank. In 2017, it ranked 16th in the world in terms of gross national income (PPP) per capita and 10th in nominal GNI per capita. Denmark's economy stands out as one of the most free in the Index of Economic Freedom and the Economic Freedom of the World. It is the 10th most competitive economy in the world, and sixth in Europe, according to the World Economic Forum in its Global Competitiveness Report 2018.

Denmark has the fourth highest ratio of academic education holders in the world. The country ranks highest in the world for workers' rights. GDP per hour worked was the 13th highest in 2009. The country has a market income inequality close to the OECD average, but after taxes and public cash transfers, the income inequality is considerably lower. According to Eurostat, Denmark's Gini coefficient for disposable income was the 7th-lowest among EU countries in 2017. Danes enjoy a high standard of living, and extensive government welfare provisions characterize the Danish economy. Denmark has a corporate tax Rate of 22% and a special time-limited tax regime for expatriates. The Danish taxation system is broadly based on a 25% value-added tax, in addition to excise taxes, income taxes and other fees. The overall level of taxation (sum of all taxes, as a percentage of GDP) was 46% in 2017. The tax structure of Denmark differs from the OECD average, as the Danish tax system, in 2015, as characterized by substantially higher revenues from taxes on personal income and a lower proportion of revenues from taxes on corporate income and gains and property taxes than in OECD generally, whereas no revenues at all derive from social security contributions. The proportion deriving from payroll taxes, VAT, and other taxes on goods and services correspond to the OECD average.

 

Contracts and Commercial:

The principle of freedom of contract governs Danish contract law and constitutes the fundamental principle for contracting in Denmark. The Danish Contracts Act might provide a general legal framework for entering into contracts as well as regulating the use of proxies and invalidity. The contracting parties may deviate from most of the rules set out in the Act and B2B transactions may deviate from individual agreements and contracts as long as these agreements do not conflict with other regulations such as competition law, the rights of third parties or specific rules and regulations governing certain kinds of businesses.

 

The interpretation of agreements follows general principles of interpretation used in Danish law, according to which the (original) intentions of the parties, the formal wording of the agreement and the normative interpretation function as primary interpretation principles with the effect that implied terms and conditions might exist even if this does not appear directly from the contract. If the intentions of the parties cannot be determined, an objective interpretation will often apply. It is furthermore a fundamental principle in Danish contract law that any ambiguity in a contract will be construed against the party who has drafted the contract and thus has had the opportunity to choose the wording which results in the ambiguity (the draftsman's rule).

 

It is generally possible to limit or exclude liability between the contracting B2B parties, but such provisions are subject to a restrictive interpretation if made in an unfair manner. Therefore, the Danish courts will probably not respect limitations of a party's liability, if the damages are due to gross negligence or wilful misconduct. In final, the Act contains a general clause to dissolve unreasonable or dishonest contracts or clauses in exceptional cases such as where contract or provision is unreasonable. The general clause is originally intended primarily for B2C relations, but it is also used in commercial relationships, namely where the balance of power between the parties is uneven. As to B2C businesses, the Act includes mandatory legislation in favour of consumers, and contracts with consumers must be drafted as lucidly and comprehensibly as possible.

 

Company and Corporate:

The most common company types are public limited companies and private limited companies. Other types of companies could be limited partnerships; limited partnership companies; partnerships or the European Company (SE); he Danish Company Act regulates most of these companies in Denmark. You normally found a new company in Denmark virtually through a portal on the Internet, and this can take anything from a couple of hours up to weeks or more if picked out for manual control. Every company must have articles of association that meet the requirements of Danish law.

 

A private limited company (ApS) can be set up in Denmark by at least one shareholder regardless of his residency. The minimum share capital for setting up a private limited company in Denmark is 40.000 DKK divided into shares, which are neither negotiable nor transferable. The shareholders are liable only to the extent of their own contribution. At least one founder is required to set up a public limited company (A/S) with the condition to provide a minimum share capital of 500,000 DKK. Shareholders are not liable for the company’s obligations. This type of company also provides shares for its member and offer these in public in contrast to the shares of the private limited company. The shares of a limited company should in general have equal rights, but a company might have different share classes (f. i. various voting and/or dividend rights). Private limited companies must have an executive board and, in addition, choose to have a board of directors or a supervisory board. Public limited companies have both but ultimately, the general meeting - annual or extraordinary - is the highest deciding authority of a limited company. There are no requirements regarding the nationality of the board members, nor do they have to reside in Denmark.

 

It is necessary for at least two members to agree on setting up a general partnership (I/S). The founders can be individuals or legal entities, and they bear full liability for the company's obligations. This is the main characteristic of a general partnership, and it is to be registered with the Danish trade register. A limited partnership (K/S) in Denmark is both similar to and differ from a general partnership. At least two partners need to sign an agreement in order to set up a limited partnership and they can be individuals or legal entities. The characteristic of this type of business is that at least one partner is a general one and at least one is limited, with limited liability to the extent of his own contribution. Registration with the Danish trade register is also compulsory. An individual who sets up a company in Denmark alone is a sole proprietor. The individual is personally liable and must register with the tax authorities if the activity consists of trading or if the proprietorship has employees. Two other options for a foreign corporation to enter the Danish market are the representative office (only suited for marketing and research, no commercial activities) and the branch office (essentially an extension of the parent company that performs the same business activities in Denmark).

 

Labour and Employment:

The Danish labour market is known for its high level of flexibility when hiring, a social welfare system and active employment policies. Together, these three components constitute the so-called “Flexicurity Model”, which combines market economy with the traditional Scandinavian welfare state. Flexicurity provides a dynamic labour market and high job mobility. A major reason for the high degree of mobility is that there are very few barriers when changing jobs. Moving to a new job has no major effect on pension entitlements or earned holiday time, for example.

 

The “Flexicurity Model” has three core elements:

 

  1. Employers can hire and fire if needed without excessive costs for dismissing employees given that you can substantiate the dismissals commercially. Litigations surrounding dismissals are scarce and uncommon except in principal cases, where labor unions normally give their support.
  2. Full time employees can join and pay subscription fees to an unemployment insurance fund and earn up to two years of unemployment benefit after losing their job. However, this requires membership for a minimum period of normally one year.
  3.  The Danish government runs education and retraining programs and provides counselling services to get unemployed people back to work as quickly as possible. In addition, people with disorders or disabilities can keep their jobs with full pay subsidized by the state.

 

Furthermore, the Danish state provides subsistence allowance (subsistence payments) for people who lose their livelihood due to illness, divorce or unemployment, and who do not qualify for other social welfare schemes such as pension or unemployment benefit.

 

In Denmark, labour market conditions are mainly regulated by collective agreements between the unions and the employers' organizations. This means that there is no legislation regarding minimum wages. There are minimum requirements set by law in some areas such as the Danish Holidays Act, the Danish Employment Contract Act, the Danish Act on Equal Treatment, the Danish Act on Allowance for Illness or Parental Leave, etc. Some sectors face skills shortages. Highly qualified specialists are always in demand in Denmark, especially in sectors concerning IT, life science, medical and health services, engineering etc. You can also observe skills shortages in a few other sectors depending on economic cycles. Denmark’s main export partners are, by the way, Germany, Sweden and the US, while its main import partners are Germany, Sweden and the Netherlands.

 

Unemployment rate since 2007: