Economic and Political Environment
This thoroughly modern market economy features a high-tech agricultural sector, state-of-the-art industry with world-leading firms in pharmaceuticals, maritime shipping and renewable energy, and a high dependence on foreign trade. Denmark is a member of the European Union (EU); Danish legislation and regulations conform to EU standards on almost all issues. Danes enjoy among the highest standards of living in the world and the Danish economy is characterized by extensive government welfare measures and an equitable distribution of income.
Denmark is a net exporter of food and energy and enjoys a comfortable balance of payments surplus, but depends on imports of raw materials for the manufacturing sector. Within the EU, Denmark is among the strongest supporters of trade liberalization.
After a long consumption-driven upswing, Denmark's economy began slowing in 2007 with the end of a housing boom. Housing prices dropped markedly in 2008-09. The global financial crisis has exacerbated this cyclical slowdown through increased borrowing costs and lower export demand, consumer confidence, and investment.
The global financial crises cut Danish GDP by 0.9% in 2008 and 5.2% in 2009. Historically low levels of unemployment rose sharply with the recession but remain below 5%, based on the national measure, about half the level of the EU; harmonized to OECD standards the unemployment rate was about 8% at the end of 2010. Denmark made a modest recovery in 2010 in part because of increased government spending. An impending decline in the ratio of workers to retirees will be a major long-term issue.
Denmark maintained a healthy budget surplus for many years up to 2008, but the budget balance swung into deficit during 2009-10. Nonetheless, Denmark's fiscal position remains among the strongest in the EU. Despite previously meeting the criteria to join the European Economic and Monetary Union (EMU), so far Denmark has decided not to join, although the Danish krone remains pegged to the euro.
Key economic indicators:
Population: 5,529,888 (July 2011 est.)
GDP (purchasing power parity): $201.4 billion (2010 est.)
Per capita GDP: $36,700 (2010 est.)
Real GDP growth: 1% (2010 est.)
Unemployment: 4.2% (2010 est.)
External debt: 46.6% of GDP (2010 est.)
The Banking EnvironmentThe Danish National Bank (Danmarks Nationalbank or DN) is independent politically and is a member of the European System of Central Banks, even though Denmark does not have the Euro.
The “Finanstilsynet” (FSA) regulates the banking industry; it is a part of the Ministry of Economic Affairs.
The banking industry is very advanced with all types of services offered both to the individual corporate customer and to the individual private consumer. Especially private consumers enjoy large degrees of consumer protection (eg a guarantee scheme on deposits up to a certain amount).
Compared to most European countries prices and fees for banking services are lower.
Both current accounts in DKK and foreign currencies are offered. Interest is applied for credit balances depending on the currency and the balance held.
Overdraft facilities are granted. Terms and conditions are negotiated on a case by case basis.
The “Copenhagen Interbank Offered Rate” (CIBOR) is the benchmark interest rate in DKK.
All fiscally resident companies are subject to a 28% corporation tax on their profits.
The general rate of VAT is 25%. VAT is paid on very few banking services, like physical safe boxes etc. There are both exempt and zero-rated items and services. Danish resident companies with turnover below DKK50,000 do not have to register for VAT.
Withholding tax is applicable on dividends to residents and non-residents of 28%, although this is reduced to zero if either (a) the receiver is a domestic company that owns more than 20% of the payer and has done so for more than one year , or (b) the receiver is a non-resident and an appropriate double tax treaty is in place between Denmark and the receiver’s country..
There is no withholding tax on interest payable to either residents or non-residents; however royalties paid to non-resident companies do suffer it at 30% unless an appropriate double tax treaty is in place between Denmark and the receiver’s country.
There are further dispensations for various situations where the receiver of monies is related to the payer and the receiver is in the EU.
Danish tax law dictates that inter-company transactions must be carried out using arm’s-length pricing in accordance with OECD guidelines.
There are thin capitalisation rules: interest paid to a foreign group company is disallowed where debt of the Danish company is more than four times equity, unless the loan passes tests around being on market terms and being supportable by the Danish company’s own cashflow.
Social premiua paid by the employer and the employee are high. Salaries are high as a result of this and to take account of the high cost of living.
Central Bank Reporting
Central bank reporting is no longer required.
Cash Management Features
The financial institutions play a central role in Danish society as the sector that ensures among other tasks effective payment flows.
In spite of the difference in size between the banks, there is a long-standing tradition of partnering and deploying available technologies, notably for credit transfers. The transparent, joint infrastructure created by the institutions is a distinctive feature of the Danish financial sector. Cross-sectoral agreements and joint enterprises ensure convenient and effective payment solutions for both the banks and their customers. The Dankort payment card and BetalingsService, the direct debit facility, being just a couple of examples.
Intensive use of IT ensures that customer service is maintained and extended so that far more tasks are performed than previously. Not least because the customers avail themselves more intensively of the services offered by the banks, and often perform their own transactions online.
Traditional and more advanced Cash Management solutions like cash pooling, integration services and advanced EBS and other e-banking solutions are available.
Payments and Collections
The vast majority of activity is cleared electronically.
In terms of volume, credit transfers, direct debits and debit cards are the most used, whilst in terms of value it is credit transfers.
High density of ATM’s and EFTPOS.
The PBS (“Danish Payment Systems Ltd”) runs most of the retail clearing systems. One anomaly is that the PBS also issues its own payment instruments, notably the Dankort (=Dan Card) . Transactions from these media settle in the “PBS” subsystem of the “Sumclearingen” retail clearing system that PBS runs.
Cheques are still used, but are being phased out.
Credit to accounts will normally be made the next banking day; salaries and a few other transaction types are credited same day. This is because all payments in the PBS system have to be settled before the day’s normal business in the KRONOS system can commence.
Hence banks debit customer accounts on the previous day when they are making a credit transfer, and they credits incoming transfers on the day when they settle.
The DN runs an RTGS system known as KRONOS.
This is in two parts:
- DKK payments
- EUR payments
The DN offers a browser-based access channel to banks to view their accounts at the DN, and to move funds between them.
Retail clearing is run by PBS in a system owned by the Danish Bankers Association known as “Sumclearingen”, which in turn has two subsystems:
- Electronic Clearing and Truncation
This is the DKK RTGS system and runs on the same principles as any other RTGS.
There is no minimum transaction size. It operates from 08:00 until 15:30 CET.
Most institutions participate in it.
This is Denmark’s link to TARGET and has TARGET opening hours – 07:00 – 17:00 CET for customer payments and until 18:00 for interbank payments.
Payments in EUR to other Danish banks can of course be made through KRONOS. Around 30 institutions participate in it
ACH - SUMCLEARINGEN
Sumclearingen settles all retail transactions in Denmark. There is no maximum or minimum transaction size. Around 60 institutions participate directly in it and around 140 indirectly.
There are two subsystems:
- PBS, which clears transactions from cards, salary payments and direct debits
- Electronic Clearing and Truncation (“Dokumentlose clearing”), which clears cheques, credit transfers, and paper giros
During the day the participants collect data on the amounts to be paid to and claimed from other participants. PBS is also doing this itself regarding the payment instruments it administers.
For the transactions for which PBS is the source and which are therefore cleared in the PBS sub-system, PBS communicates data each evening to the data centres of each bank.
PBS thus has a picture of what is due from and to each participant, and communicates this through Sumclearingen to the process at the DN.
For transactions where the participant banks are the source and which are therefore cleared through the Electronic Clearing and Truncation, the data is exchanged each evening from Bank A’s data centre to Bank B’s data centre through the PBS infrastructure. The bilateral totals are captured and presented through Sumclearingen to DN.
The totals of all debits and credits to/from each participant are communicated and the participants in debit that they must ensure they have sufficient funds on their KRONOS account.
When all debits have been passed, the credits can be passed and all transactions are final.
Creditors would normally invoice debtors including a giro-form with the invoice. This giro-form contains OCR-readable information that is used for automatic reconciliation of the accounts receivable. The giro-forms are called FIK and are used extensively. They can be read by machines in bank branches and operations centres, such that they clear in electronic form.
Also bank credit transfers are used, as they are initiated via an electronic banking system. This system is also used for high value payments. Creditors would expect a credit advice from their bankers for payments credited to their account in order to identify the payment but whether or not a separate credit advice is issued depends on the type of payment that the debtor has chosen.
Salaries will normally be paid via the PBS using the PBS salary system or similar functionality. Special transaction codes apply for such transactions.
The PBS subsystem is the one that is used for Direct Debits. The party submitting Direct Debits has to be registered in the system by its bank, to get a Creditor Code and so that both the submitter and the bank are bound by PBS rules and the legal background of Direct Debits meaning consumer protection and reclaim rights.
There are two distinct types of Direct Debit:
- There is the “BetalingsService” (BS or Payment Service), used for collections by businesses from consumers, for example utility bills. The BS system is the main route for private customers to pay their bills as it is free of charge for private consumers and the BS system offers the private consumer various types of consumer protection and is conveniant. When a consumer joins the scheme (not of a particular supplier but as a whole), the consumer needs to authorise its bank separately to meet the BS claims – but there is no process to authorise the claims submitted by each supplier. To counteract that, the PBS system supplies each consumer a listing as the start of each month of the BS claims that will be submitted. As a result the suppliers need to lodge their claims before month-end. The consumer has up to the 7th of the month to cancel payment. 90% of Danish households avail themselves of BS.
There is the “LeverandørService” (LS or “Supplier Service”) for business-to business transactions. These are processed onto the debtor’s account when presented, and the creditor is notified of each payment, rather than of all payments for the coming month. Again both the debtor and the creditor have to register for the scheme. The rights of reclaim by the debtor if the supply was faulty or the amount wrong are exercised outside the scheme.
PBS runs the ATM and EFTPOS networks in Denmark, which are dense (approximately 3,000 ATMs, 70,000 EFTPOS). The banks founded also a jointly-owned issuer company, and this led to the Dankort card jointly logo’d with banks. Dankort is widely used and is connected to the cardholder’s bank account. Authorisation at EFTPOS is based on PIN codes – there is no online cover checking but it is checked whether the card is blocked or not. The resulting debit is cleared in the PBS system the next day.
PBS has enabled Dankort to be issued with Visa functionality, and PBS can also issue Eurocards. Diners, Amex and others are accepted but PBS-issued cards have over 80% market share.
Electronic Banking Systems (EBS) are widely used both by businesses and private consumers. Most banks offer E B S.
There is not a single standard, although Edifact is applied for the larger corporate customers. Internet solutions are becoming more and more common as well. It is fair to say that the usage and quality of electronic banking in the Nordic region as a whole is of high.
As stated above, the prime need is for an efficient process around the Sum clearing activity and this necessitates a strong e-banking platform.
The key point day-to-day is to control the activity through the Sumclearingen, because all retail items come through that system and they are a mixture of debits and credits.
Some business customers will be using the “LeverandørService”, and the “Betalingsservice” will in most cases be used if there is interaction with the general public.
A business customer will want to maintain a streamlined process for:
- Submission of credit and debit items into the Electronic Clearing and Truncation
- Recognition of credit and debit items emanating from that same system and from PBS
So it is key to be getting that information and managing this process through a direct participant.
After that, it is a question of concentrating DKK and EUR by legal entity and then, depending on the organisation of the company concentrate on a group level.
Cash concentration via the balance netting system is the preferred technique. Notional pooling is also available but the benefits are limited by the fact that the Danish FAS limits the offsets against the banks’s capital ratios.
It should be noted, though, that there is a Danish legal restriction against financial loans by a Danish company to a parent that is outside the EU or EEA, for example directly to a US parent.
Denmark - Legal Entity Types
Danish Legal Entity Types - Mainstream
|Legal entity type ||Comments |
Needs this form to be listed
documents registered at Companies Registrar (Erhvervs- og Selskabstyrelsen)
Bank certificate required to show company capital has been paid in on formation
Registered signatories are nominated
Unregistered unless partners are companies
There must be a partnership agreement
Only the general partner can bind a KS
Often used for leasing so partners can depreciate the asset the KS owns
Danish Legal Entity Types - Non-mainstream
|Legal entity type ||Purpose ||Comments |
Private company. Bank certificate required to show company capital has been paid in on formation
Documents registered at Companies
Registered signatories are nominated
General partnership - there must be a partnership agreement
Any partner can bind it, though signatories usually listed on letterhead, though the partnership may limit this by agreement, or give powers to employees
Unregistered unless partners are companies
Partners are jointly and severally liable