Tax aspects when buying a business in Denmark

General Tax M&A introduction when buying a Danish business

Should a M&A advisor be informed about the tax landscape in Denmark?
Tax aspects are of high importance when buying a business. Your advisor needs to be up to date with the tax framework that applies to M&A transactions in Denmark. Here we mention some aspects that you need to consider when acquiring a company and setting up your tax structure in Denmark. Tax-efficient acquisition structuring is important to prevent possible tax claims after the acquisition date. Effective planning and structuring can help you avoid complicated legal and regulatory issues in cross-border acquisitions. We provide relevant tax knowledge ourselves in M&A transactions or work with tax specialists that bring in the required taxation knowledge.

Tax items related to the sale of a Danish company

The Danish Merger Tax Act and the Danish Act on Capital Gains on Shares contain important regulation of certain tax issues in connection with private M&A transactions. These acts are supplemented by a number of other regulations, practices and guidelines. The Merger Tax Act and the Act on Capital Gains on Shares also include a number of tax-exempt items. A transfer of shares only directly affects the shareholders selling their shares. If the transfer triggers taxation of any gain it is calculated as the difference between the consideration for the shares and the acquisition price for the shares. However, the sale of shares that a company has owned for 3 years or more is tax-exempt. Moreover, foreign shareholders are generally not liable to pay tax in Denmark on gains realised from selling shares. The transfer of shares in subsidiaries (and group companies) are tax exempt irrespective of the period of ownership, provided a minimum of 10% of the share capital is owned.

Tax related to M&A transactions in Denmark

The shareholders of the selling company can have the disadvantage that any consideration paid in connection with the transfer of assets has to be transferred out of the company (by distribution of dividend, capital decrease, dissolution or otherwise) before being at the shareholders' disposal. This may trigger "double" taxation, i.e. tax on the profit obtained in connection with the transfer of assets (payable by the selling company) and on the subsequent distribution to the shareholders (payable by the shareholders). Thus, a transfer of assets involves taxation of the selling company on the profits generated in connection with the transfer. The calculation of the taxation of the selling company is based on the acquisition price, which also establishes the basis for depreciation of the buyer.