Openness to Foreign Investment

Denmark is a small country with an open economy, highly dependent on foreign trade and international cooperation. Danish trade and investment policies are liberal and encourage foreign investment.

In general, investment policies are forward looking and aimed at fostering and developing businesses, especially in high-growth sectors. Presently, the Danish government is working on measures to improve the availability of venture capital and to support research and development. The government has also focused on making the Øresund region (the region of Denmark and Southern Sweden surrounding Copenhagen) an international cluster for IT and Life Sciences.

According to an international survey of regional competitiveness in 56 European regions (BCI, RECOF 2004), Copenhagen ranks sixth (tied with Amsterdam among others) and is Scandinavia’s most attractive region. Many companies choose to set up their Nordic headquarters in Denmark because of its access to labor competences, the strategic location, and the well developed infrastructure.

The central and the regional governments encourage foreign investment on a national-treatment basis. As a general rule, foreign direct investment in Denmark may take place without restrictions or pre-screening. Ownership restrictions apply to only a few sectors, including those related to national security.

The total stock of foreign direct investment in Denmark increased by 79% from 1998 to 2003 (in DKK, exclusive pass-through investments, current prices) and corresponded to approximately 25% of GDP in 2003. FDI from the United States increased by 77% in the same period and accounted for 28% of total FDI stock in 2003. Approximately 375 U.S. companies have subsidiaries in Denmark.

The government agency “Invest in Denmark” is part of the Danish Trade Council and is situated within the Ministry of Foreign Affairs. The agency provides detailed information to potential investors. The website for the agency is www.investindk.com.

In general, Danish corporate law is in conformity with current EU legislation.

According to the Danish Competition Act, the Competition Authorities require notification of mergers and takeovers if the combined turnover of the participating companies exceeds DKK 50 million. However, notification is not required if only one of the participating companies has turnover of more than DKK 10 million. The EU Commission must approve very large mergers.

In May 2001, the Danish Government signed a “Treaty Investor” protocol to the 1951 U.S.-Danish bilateral Friendship, Commerce and Navigation Treaty. The protocol provides for the granting of non-immigrant treaty investor visas to managerial staff to be employed in direct investments made by companies from either country. The protocol has not yet been ratified by the U.S. Senate.

The corporate tax rate in Denmark is relatively low by EU-15 standards. At present it is 30%, but in December 2004, the government presented a bill to lower the rate to 28%. However, the proposal would also tighten the rules on tax consolidation by stating that a subsidiary operating at a loss may only be covered by Danish tax consolidation if all affiliated companies (Danish or foreign) are covered under Danish rules. The new legislation will likely be enacted in the spring of 2005, retroactive to January 1, 2005.

Dividends paid by foreign subsidiaries in Denmark to their parent company are not subject to Danish taxation provided the parent company has owned at least 20% of the share capital for a continuous period of at least one year. The minimum share-holding requirement will be reduced to 15% from January 2007 and to 10% from January 2009.

Conversion and Transfer Policies

Denmark has not joined the Euro although it meets the EU’s economic criteria for membership. The government is in favor of adopting the Euro but voter approval in a national referendum, which has not yet been scheduled, is required. Danish voters twice turned down the adoption of the Euro in 1992 and 2000. Denmark conducts a fixed exchange rate policy with the Danish krone linked closely to the Euro through the ERM II. The standard width of the fluctuation band in ERM II is +/- 15 per cent but due to its high degree of convergence, Denmark has entered into an agreement on a narrower fluctuation band of +/- 2.25 per cent.

There are no exchange controls restricting the transfer of funds associated with an investment into or out of Denmark. Policies are intended to facilitate the free flow of capital and to support the flow of resources in the product and services markets.

Foreign investors can obtain credit in the local market at normal market terms, and a wide range of credit instruments is available.

Denmark adheres to OECD and EU rules on the liberalization of capital movements and foreign exchange is readily available.

Expropriation and Compensation

Private property is only expropriated for public purposes, in a non-discriminatory matter, with reasonable compensation, and in accordance with established principles of international law.

Dispute Settlement

There have been no major disputes over investment in Denmark in recent years. The legal system is independent of the government and is based on a centuries-old legal tradition. It includes written and consistently applied commercial and bankruptcy laws, and secured interests in property are recognized and enforced.

Monetary judgments under the bankruptcy law are made in freely convertible Danish kroner. Creditors' claims against a bankruptcy are met in the following order: costs and debt accrued during the treatment of the bankruptcy; other costs, including the court tax, relating to attempts to find a solution other than bankruptcy; wage claims and holiday pay; excise taxes owed to the Government; and, all other claims.

Denmark is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. In addition, Denmark is a party to the 1961 European Convention in International Commercial Arbitration and to the 1962 agreement relating to the application of this convention.

Performance Requirements and Incentives

Denmark adheres to the WTO TRIMs text and performance requirements are applied only in connection with investment in hydrocarbon exploration, where concession terms normally require a fixed work program, including seismic surveys, and in some cases exploratory drilling, consistent with applicable EU directives.

Performance incentives are mostly designed to protect the environment, mainly through reduced energy and water use. Several environmental and energy duties are imposed on households as well as businesses. Denmark was the first of the EU countries, in January 1993, to introduce a carbon dioxide (CO2) tax on business and industry. However, there are certain reimbursement schemes and subsidy measures to reduce the costs for businesses, thereby safeguarding Danish competitiveness.

Investment in regional development areas may take advantage of certain grants and access to preferential financing.

As a general rule, foreign subsidiaries located in Denmark can participate in government-financed or subsidized programs on a national-treatment basis.

Right to Private Ownership and Establishment

A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (A/S) is DKK 500,000 (USD 76,000, average 2003 rate) and for establishing a private limited liability company (ApS) DKK 125,000 (USD 19,000). No requirements apply as to the residency of directors and managers of A/S or ApS.

As of October 2004, it is possible to found a European public limited company (SE company). The legal framework of the SE company is to a large degree subject to national company law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Commerce and Companies Agency if the official address of the company is in Denmark. The minimum capital requirement is EUR 120,000.

Denmark, like most other countries, has restrictions on establishing companies engaged in legal, accounting, auditing, and medical services. Danish (or EU or Nordic) professional certification and/or local Danish experience to practice in Denmark are required.

Establishment of new, large department stores outside city centers is on a non-discriminatory economic needs-test basis and has to be approved by the local authorities.

Ownership restrictions are applied in the following sectors:

Hydrocarbon exploration: 20% Government participation, but on a “non-carried interest" basis.

Arms production: Maximum 40% of equity and 20% of voting rights may be held by foreigners.

Aircraft: As a general rule and unless a waiver is granted, non-EU physical and legal persons may not directly own or exercise control over aircraft registered in Denmark.

Ships registered in the Danish International Ships Register (DIS) must – as a general rule – be Danish owned. Ships owned by Danish citizens, Danish partnerships or Danish limited liability companies are eligible for registration. Furthermore, ships owned by EU or EEA citizens/partnerships/limited liability companies with a genuine link to Denmark are eligible for registration. Also, foreign companies with a major Danish influence can register a ship in the DIS.

Protection of Property Rights

Property rights in Denmark are well protected by law and the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) has been ratified.
Denmark adheres to key international conventions and treaties concerning protection of property rights.

Real estate is for the most part financed through the well-established Danish mortgage bond credit system, the security of which compares to that of government bonds. All mortgage credits in real estate are recorded in local public registers of mortgages. Except for interests in cars and commercial ships, which are also publicly recorded, other property interests are generally unrecorded.

Transparency of Regulatory System

As an industrialized country based on a free market economy, Danish laws and economic policy foster competition. Laws and policies granting national treatment to foreign investments, are designed to support the Danish goal of increasing FDI in Denmark.

The legal, regulatory and accounting systems are relatively transparent and in accordance with international standards. Possibly, new legislation (not yet adopted as of January 2004) will make the Danish documentation requirements related to transfer pricing relatively strict.

Bureaucratic procedures are streamlined and transparent, and proposed laws and regulations are published in draft form for public comment. Denmark applies high standards with regard to environment, health, safety, and labor.

Efficient Capital Markets and Portfolio Investment

Denmark has fully liberalized foreign exchange flows, including those for direct and portfolio investment purposes. Credit is allocated on market terms and is freely available.

The Danish banking system is generally sound and under strict control by the Financial Supervisory Authority. The assets of the two largest banks, Danske Bank and Nordea Danmark, amounted to approximately USD 259 billion in 2003 corresponding to approximately 73% of the total assets in the Danish banking sector. The major Danish banks are rated by international agencies and the creditworthiness is very high by international standards.

The Danish stock market functions efficiently and there are plans (as of January 2005) to establish an alternative investment market for small and medium sized companies. The Copenhagen Stock Exchange (CSE) and the Stockholm stock exchange, OMX, have signed a letter of intent to merge. OMX also includes the Finnish stock exchange and the aim is to create an integrated Nordic and Baltic securities market. The planned combination of OMX and CSE is expected to provide benefits for investors and issuers through increased liquidity and a broader ranch of services.

Differentiated voting rights - A and B stocks - are used to a limited extend and some Danish companies are controlled by foundations, which might restrict foreign investments.

Political Violence

No politically motivated damage to projects or installations has been reported in recent years. Denmark is a politically stable country.

Corruption

According to Transparency International, Denmark has the third lowest level of corruption in the world. Corruption is covered under the Danish Penal Code and the Ministry of Justice is responsible for combating corruption. Penalties for violations range from fine to imprisonment of up to four years for a private individual’s involvement and up to six years for a public employee’s involvement. In 1998, the Danish Ministry of Taxation repealed the right to deduct from taxes bribes paid by business to officials abroad.

Denmark is a signatory of the OECD Convention On Combating Bribery.

Bilateral Investment Agreements

As of December 2004, Denmark has concluded investment protection agreements with the following 41 countries: Albania, Argentina, Bolivia, Bulgaria, Czech Republic, Chile, China, Croatia, Egypt, Estonia, Ghana, Hong Kong, Hungary, India, Indonesia, Latvia, Lithuania, Malaysia, Mexico, Mongolia, Mozambique, Nicaragua, North Korea, Pakistan, Peru, the Philippines, Poland, Romania, Russia, Slovakia, Slovenia, South Korea, Sri Lanka, South Africa, Tanzania, Tunisia, Turkey, Ukraine, Venezuela, Vietnam, and Zimbabwe.

A new U.S.-Danish double taxation agreement came into force on March 31, 2000.

OPIC and Other Investment Insurance Programs

A.11.c. OPIC and Other Investment Insurance Programs:
OPIC programs are not applicable to U.S. investments in Denmark, but may be used by at least 95% U.S.-owned subsidiaries in Denmark to support their investments in qualifying countries.

Denmark is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

The Danish labor force is generally stable, well educated and efficient. Language skills are good and English is considered a natural second language. Furthermore, Denmark has liberal rules on firing and hiring, enabling employers to quickly adjust the workforce to changing market conditions

The Danish labor force amounts to approx. 2.9 million persons. Denmark’s EU-harmonized unemployment rate was 5.6% in 2003 while the EU-average was 8.1%. The public sector in Denmark is large and accounts for approximately 38% of the employment at full-time equivalence.

The labor force participation rate for women is among the highest in the world. In 2003, nearly 73% of all women between 15 and 66 years of age were in the labor force.

The Danish labor force is highly organized (around 80%) but labor disputes and strikes occur only sporadically. As a general rule, labor/management relations are excellent, based on dialogue and consensus rather than confrontation. Working conditions are laid down in a rather complex system of legislation and organizational agreements. In Denmark, many aspects of wage and working conditions are determined through collective bargaining rather than regulated by legislation.

The contractual workweek for most wage earners is 37 hours. According to law, employees are entitled to five weeks of paid annual leave. However, the majority of the labor force has the right to six weeks of paid annual leave following labor market agreements.

Denmark has well functioning unemployment insurance and sick pay schemes, which are not financed by employers. Maternity leave in Denmark is 52 weeks and employers are obliged to pay salary for at least 14 weeks. The worker (or the employer when paying salary) receives compensation from the authorities corresponding to the unemployment benefits.

Danish wages are high by international standards, and have contributed to the use of capital-intensive technologies. However, employer contributions to social security are very low which means that total employee costs are lower in Denmark than in many other industrialized countries.

Work permits, in general, are not difficult to obtain for foreign managerial staff. Permits for ‘white’ or ‘blue collar’ workers from countries outside the EU and the Nordic countries are granted only if substantial professional or labor-related conditions warrant it.

Special rules apply to certain professional fields experiencing a shortage of qualified manpower. These rules are detailed in the so-called Job Card Scheme (comparable with the U.S. Green Card), and foreigners who have been hired in these certain fields will be immediately eligible for residence and work permits. Presently, there is shortage of engineers, certain scientists, doctors, nurses, and IT specialists, which are therefore covered by the Job Card Scheme (for further information: www.udlst.dk)

Highly paid key employees and researchers (annual gross income of more than approximately USD 100,000 in 2003) may be subject to a favorable 25% gross tax scheme in the first three years of working in Denmark. Compared with the general Danish progressive income tax system, this is an attractive incentive since personal income taxes in Denmark are among the highest in the world.

Denmark adheres to the ILO conventions protecting worker rights.

Foreign-Trade Zones/Free Ports

The only free port in Denmark is the Copenhagen Free Port, which is operated by the Port of Copenhagen. The Port of Copenhagen and the Port of Malmo (Sweden) in 2001 merged their commercial operations, including the free port activities, in a joint company named CMP. The facilities in the free port are mostly used for tax-free warehousing of goods imported, for exports, in transit trade and for distribution. Tax and duties are not payable until cargo leaves the Free Port. Also, the processing of cargo, for example, and the preparation and finishing of imported automobiles for sale, can freely be set up in the Free Port. Manufacturing operations can be established with the permission of the customs authorities, which is granted if special reasons exist for having the facility in the Free Port area. The Copenhagen Free Port welcomes foreign companies establishing warehouse and storage facilities.

Foreign Direct Investment Statistics

The stock of FDI in Denmark and Danish investment abroad corresponded to 25% and 27% of GDP respectively in 2003. The largest foreign investor in Denmark is the United States followed by Sweden and the United Kingdom. U.S. investment accounted for 28% of the total FDI stock in Denmark in 2003 and has increased by 77% from 1998 to 2003. In 2002, U.S. investment accounted for 40% of the total inflow, which among other things covers a major acquisition of a Danish IT company. The largest share of U.S. investment is in financial intermediation and business services (31% in 2003). Major U.S. direct investment in Denmark is in non-financial holding companies, telecommunications, information technology, biotechnology, oil exploration, trade and financial services. Approximately 375 U.S. companies have subsidiaries in Denmark of which several are regional headquarters. The main destinations for Danish FDI are the United Kingdom (12%) and Norway (10%), while the United States held 6% of the stock in 2003.

Major FDI in Denmark by U.S. companies:

Microsoft IT
IBM IT
Compaq IT
Hewlett-Packard IT
Intel IT
Computer Sciences Corp., USA IT
ADC Telecommunications Inc. IT
Motorola Telecom
Texaco Energy
Amerada Hess Hydrocarbon exploration
Ashland Road Construction
Masco Furniture and Sanitary Fittings
York Holding Corp. Refrigerating Equipment
Tenneco Inc. Automotive
3M Tapes, Health Care and Pharmaceuticals
Pfizer Pharmaceuticals
Merck, Sharp & Dohme Pharmaceuticals
Eli Lilly Pharmaceuticals
Sauer Inc. Fluid Power
CP Kelco Pectin and carrageenan
Doane Pet Care Co. Pet Food
GE Capital Financial Services
Biogen IDEC Biotechnology

Other FDIs in Denmark mostly come from Denmark’s neighboring countries or other nearby countries, including Sweden, Norway, Finland, Germany, and the United Kingdom. Most of those nations’ major companies, and numerous smaller ones, have a presence in Denmark, either as regional headquarters, sales/marketing offices or in production. Some foreign companies with large investments in Denmark are Statoil (Norway); L.M. Ericsson (Sweden); Nordea (Sweden); APV (United Kingdom); Bayer (Germany), and Q8 Oil (Kuwait).

Web Resources

Danish Statistics – www.dst.dk