Tax-exempt dividends for ownership below 10% of unlisted shares and option for realization-based taxation of listed shares

The Danish Parliament has recently abolished dividend tax on tax-exempt portfolio shares for both Danish and certain foreign corporate investors. As a result, corporate investors can now receive tax- exempt dividends even if their ownership of shares in unlisted companies is below 10%.

Investments in Danish companies

For Danish corporate investors, dividends are now tax-exempt regardless of the ownership percentage in unlisted companies.

For foreign corporate investors, limited tax liability on dividends remains. However, the effective tax rate is reduced to 0% if the investor is domiciled in a country that exchanges information with the Danish tax authorities and the investor is considered the beneficial owner of the dividends. It should be noted that Denmark enforces a strict interpretation when determining beneficial ownership.

The exemption does however not apply to investors:

• Domiciled outside the EU or in an EEA-country that has not entered a double taxation treaty with Denmark, if the investor, together with related parties, own at least 10% of the portfolio company’s share capital.
   
• Holding less than 10% of the share capital but having controlling influence in the company, unless the investor resides in the EU, or a relevant double taxation treaty reduces the dividend tax.
   

These changes took effect on 1 January 2025.

A legislative proposal under review will allow Danish companies to omit withholding tax on dividends when the corporate shareholder qualifies for the exemptions above, provided the shareholder resides in Denmark, in the EU or in a country with a double taxation treaty with Denmark. If passed, this change will take effect on February 1, 2025.

Danish investments in foreign companies

The changes to the law also ensures that Danish companies are not taxed in Denmark on dividends received from foreign companies classified as tax-exempt portfolio companies according to Danish law, provided the foreign company is not entitled to deduct the dividend distribution. However, such dividends may still be subject to tax in the source country, typically at a rate of 15%, according to applicable double taxation treaties.

The Danish Parliament also introduced another change allowing corporate investors to opt for taxation of capital gains on listed portfolio shares (ownership below 10%) upon realization instead of according to the applicable mark-to-market principle. This applies to both Danish and foreign unlisted shares and

is making investments in startup companies more beneficial as fluctuating share prices and ongoing taxation can be expensive for the investors.

Opting for the realization principle this choice applies for a 7-year period starting from the first listing of the company. Once chosen, this cannot be reversed and will apply to all future acquisitions of shares in the relevant company.

Corporate investors can select the realization principle for shares first listed on a regulated market or multilateral trading facility on or after 1 January 2015. For shares listed on or before 31 December 2024, the investor must have held the shares for at least 30 days prior to the listing to qualify for the realization principle.

For shares acquired on or before 31 December 2024, requests for reopening of tax years to apply the realization principle must be submitted by 1 July 2025.

The possibility for opting for the realization principle took effect on 1 January 2025.