Subsidiary versus Branch in Denmark - 2021 Guide
Subsidiary versus Branch in DenmarkUpdated on Monday 08th March 2021
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Businessmen interested in investing their money abroad can find many opportunities in Denmark. The law allows foreigners to extend their businesses in Denmark by opening a branch office or a subsidiary. Danish subsidiaries are set up as limited liabilities companies and the business legislation considers them legal entities. Foreign companies can also start a branch office in Denmark and can appoint a representative to conduct the branch`s activity.
Before choosing a business form, commercial considerations should be taken into consideration. If you want to make an informed decision, our team of Danish lawyers can give you a detailed presentation of the similarities and differences between subsidiaries and branches in Denmark. The main difference between subsidiaries and branches in Denmark is their legal status and independence towards the foreign parent company. Therefore, subsidiaries in Denmark are legal entities, highly independent towards the foreign parent company, while a Danish branch does not have a legal personality and is reliant on the parent company.
The following list is intended as a general guide on the focus points when choosing between the two means of setting up a foreign business in Denmark:
- Legal personality: the branch does not have legal personality while the subsidiary is incorporated as a corporation in Denmark with legal personality.
- Liability: the liability of the company abroad is unlimited for the branch while for the subsidiary it is limited according to the owned stock.
- Ease of incorporation: the branch will still need to comply with the registration requirements although these can be lighter than in the case of the subsidiary.
- Activities: the branch engages in the same activities as the foreign company while the subsidiary can also perform others.
- Accounting: the branch can maintain separate or joint accounts with the parent company while the subsidiary maintains separate accounts.
As highlighted by this list, there are a number of issues that need to be taken into consideration by foreign corporations that wish to establish their presence on the Danish market.
Branches and subsidiaries can be fundamentally different in some areas and the taxation for the business can also differ, with respect to the bilateral treaties for the avoidance of double taxation signed by Denmark. Both the branch and the subsidiary are owned by the parent company, however, not in the same manner. For the branch, the foreign company owns 100% interest while for the subsidiary, this ownership is limited. One of our attorneys in Denmark can give investors more details. Below, we present both business structures.
Subsidiary in Denmark in 2021
If you want to start a subsidiary in Denmark, there are several prerequisites to be considered:
- • A minimum share capital: it will be required and it has to be deposit depending on the type of company you want to set up;
- • Preparing the documents: the Memorandum and Articles of Association need to be drawn up and signed;
- • The incorporation resolution: this is the decision/resolution of the parent company to start a subsidiary in Denmark;
- • The office: a registered address in Denmark where the subsidiary to operate is required and an office can either be purchased or rented.
The company documents, Memorandum, and Articles of Association contain the name and objective of the company, the share capital rights, the management body and an appointed date for the annual general meeting. It is highly recommended to rely on the legal services of a law firm in Denmark when you prepare this Memorandum.
All this documentation must be filed with The Danish Commerce and Companies Agency in order to register the subsidiary in 2021. A subsidiary in Denmark is subject to taxation, depending on its business activity. Other financial and legal aspects are involved in starting a subsidiary in Denmark. Our attorneys in Denmark are proficient in these requirements and can provide you with complete subsidiary formation packages.
Branches in Denmark
Another option for foreign companies who want to extend their business in Denmark is setting up a branch. This is essentially an extension of the parent company abroad that carries out the same business activities. The branch can be a suitable option for companies in business fields like banking or insurance – it is common for these types of companies to expand to other countries by means of opening a branch. The main advantage of doing so is increasing the customers through establishing a network for distributing the same services.
A foreign company can do business in Denmark in 2021 only after a branch is registered with the Danish Business Authority. Parent companies which are not based in the EU, EEA countries or countries which don`t have a mutual recognition agreement with Denmark, must submit a declaration from a relevant authority in their jurisdiction recognizing the establishment of a company branch in Denmark.
The branch is deeply connected to the main company and it has to report its activities. Likewise, the accounting records can be held jointly with the mother company. The name of the branch also has to be linked to that of the foreign company. A name check is recommended previous to starting the incorporation phase.
The Danish law applies to a branch operating in Denmark and it is subject to corporate taxation. A designated manager conducts the branch`s commercial activity and supervises the annual financial report. Several other audit requirements must be complied by the board of directors and managing director.
An important issue to take into consideration is that in which the business suffers losses or fails to generate profit. This is when it may be more advantageous to open a subsidiary compared to a branch. The subsidiary can be closed down just like any other type of company in Denmark while the branch will also generate losses to the parent company. This is because the parent company’s investment in a branch is 100% while for a subsidiary it can be of at least 50% but not necessarily a 100% investment.
As far as the management of these structures is concerned, the branch is managed by a local branch representative who is appointed by the foreign company and acts as per the agreement with this company (his powers can be limited). The subsidiary is managed as per the Danish corporate management rules and will have a governing body depending on the chosen type of business form, most often the ApS, the equivalent of the Danish limited liability company.
Branches and subsidiaries can both represent good options for expanding the business onto another market in 2021, such as the Danish one. While the branch is useful for those companies that want to simply increase the coverage of their services, the subsidiary can also be used to expand the range of the business activities on another market. It is advisable to consider both options, in light of the future plans for expansion for the company as well as the desired liability level for the parent company. Another issue to take into consideration is that a solid understanding of the local corporate rules and regulations applicable in Denmark will be required when opening a branch or a subsidiary.
The video below presents the main differences between subsidiaries and branch offices in Denmark:
The decision to open a branch or a subsidiary in Denmark in 2021 can depend on many factors, among which the business field in which the foreign company activates as well as its expansion plans on the Danish market. The decision is one that should also take into consideration the main difference that is the liability of the chosen structure. We advise foreign company owners to take this into account.
When working with our team of lawyers in Denmark, investors can benefit from professional services, aimed at finding the most suitable solutions for opening a new company or expanding an existing business. We offer complete company registration services regardless of the type of company and are ready to provide adequate legal counseling for investors in all business sectors.
If you want to open a subsidiary or a branch in Denmark, feel free to contact our Danish law firm.