The Banking Environment
Economic and political environment
A little more than 5 million people inhabit Denmark. Greenland and The Faeroe Islands are part of Denmark and have local government.
Denmark is a constitutional monarchy. Elections are held every 4 years as a minimum. The Danish parliament is called “Folketinget”.
Denmark is member of most international organizations (UN, UNESCO, NATO, WHO etc). Denmark has been a member of the European Union since 1973.
In September 2000 Denmark voted no to exchange the Danish currency Kroner (DKK) with the EURO as of 1. January 2002. The DKK is linked to the EURO under the ERM 2 agreement. In late March 2001 Denmark joined the Schengen agreement. A similar type of agreement has existed for many years amongst the Nordic countries for Nordic citizens.
Trade is mostly with the EU (c. 67% with Germany, Sweden and UK being most important) and with the USA.
Banking in general
The 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.
Currency
Danish kroner (DKK) is the currency of Denmark. The DKK is part of ERM II, the mechanism to ensure exchange rate stability for countries in the European Monetary Union. Denmark is the only participant in ERM II. DN and the ECB are committed to intervene to sell or buy DKK if it reaches the upper or lower extreme of the permitted fluctuation band against the EUR.
The fluctuation permitted is 2.25% either side of the central rate of EUR1 = DKK7.46038
Tax Considerations
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.